Omega Ukama 
TOP economist Gift Mugano has cast doubt over the practicality of the government’s plan to compensate individuals for losses suffered due to a statutory exchange rate movement on February 20, 2019.
On that date, the government denominated local balances and bond notes as RTGS$, establishing an exchange rate between US$ cash and all other monetary units, which was immediately set at US$1:2,5 RTGS$, locking in a loss for depositors as authorities had previously sworn to a rate of 1:1.
The government says it has already availed US$400 000 to the Deposit Protection Corporation (DPC) for distribution to vulnerable depositors.
“This policy measure will not restore confidence for the simple reasons that it is not a silver bullet to major drivers of low confidence,” Mugano said in a note this week.
Gift Mugano
“In addition, the government of Zimbabwe has no capacity to compensate everyone who lost their monies through the so-called currency cycles. Hence, this is one of many schemes which will go into history as a mechanism used to waste national resources, especially considering that this compensation scheme may be used to pay individuals connected to the ruling party to drive the campaigns,” he added.
President Emmerson Mnangagwa said the compensation of amounts less than US$1 000 has begun, and a framework is being put in place to compensate individuals who had bank balances of up to US$100 000.
“The amount required and implementation modalities of this policy will be announced in due course guided by the Public Debt Management Act and the Reserve Bank of Zimbabwe,” Mnangagwa said in a televised address last weekend.
Mugano warned that this move, if implemented, would result in an increase of national debt, which has already exceeded US$18 billion and is anticipated to hit US$19 billion in 2023, according to the International Monetary Fund recent report on Zimbabwe.
“The causes of low confidence are multifaceted and as such are not largely centred on loss of savings but ranging from policy consistency, toxic political environment, high tax regime, high inflation, to absence of a shared vision and absence of consensus on policy making.
“This policy is likely to be abused and used as a mechanism to finance elections by channeling funds to individuals connected to the ruling party,” Mugano said.
Meanwhile, the insurance and pensions industry is pushing for the finalisation of a plan to compensate thousands of policyholders who lost their savings in 2009, when the domestic currency was demonetised.
Seven years ago, a commission of inquiry into currency conversions found that policyholders lost about US$3 billion to inflation and the absence of a definitive valuation framework.
Since then, the industry has been working with the government on a compensation plan, and the consensus among parties involved is that the process has taken too long, worsening the public’s contempt of the industry.
Speaking to The Financial Gazette on the sidelines of the Treasury’s consultative meeting with the industry in March, Zimbabwe Insurance and Pensions Apex Council chairman David Nyabadza said the issue has a significant bearing on the image of the industry. “We really would like it to be resolved as soon as possible.”
Insurance and Pensions Commission commissioner Grace Muradzikwa says the industry regulator is also not happy about the delay in the resolution of the matter, and Finance minister Mthuli Ncube said the government is also committed to compensation.
But while all parties have shown commitment, Muradzikwa says compensation will likely only be in part.
“Policyholders will probably never be fully compensated because there were assets that were destroyed by inflation. It is impossible to indemnify these people, to say we are putting you in the position you would be in had the loss not occurred.
“The funding is just not there. What we are looking at is some compensation for their prejudice. It might not be what they should get, but it will be something.” Another concern coming out of discussions on the matter is the capacity of the industry to meet the obligations.
