Old Mutual in a trading statement and performance update for the 6 months ended June 2019 concluded that Zimbabwe was a hyperinflationary economy despite the government stating that the country’s inflation had not reached such levels.
The premium African financial services group says it made a decision to account for Zimbabwe’s branch as a hyperinflationary economy.
“This decision was supported by a rapid increase in the inflation rate, which at the end of June 2019 was far in excess of 100% at 176%, the significant deterioration in the traded interbank RTGS dollar exchange rate over the period and the lack of access in Zimbabwe to foreign currency to pay foreign-denominated liabilities,” the group says.
“We have applied hyperinflation accounting from 1 October 2018 and used the Zimbabwe Consumer Price Index (CPI) to inflation adjust reported numbers. The results, net assets and cash flows are then translated into rand at the closing rate of 1 RTGS to 2.13 ZAR. The closing rate used to translate the December 2018 results was 1 RTGS to 4.35 ZAR.”
A debate has been ongoing with Johns Hopkins University Professor Steve Hanke supporting the notion that Zimbabwe is experiencing hyperinflation.
Against the notion is Zimbabwe’s Finance Minister Professor Mthuli Ncube who says there is no hyperinflation in the African country but there is just inflation.
The World Economic Forum which ranked Zimbabwe as currently with the second-highest inflation on earth after Venezuela says the just under 176% inflation rate raises concern that the African nation is returning to the hyperinflation it suffered a decade ago.
Fears that Zimbabwe is experiencing hyperinflation are further raised by Ncube’s suspension of the publication of inflation figures on ZimStats, with the public suspecting that the government is hiding something.
The group says it will manage its capital on a ring-fenced basis (a method used to protect assets from losses incurred by riskier operations) until the capital is accessible by way of dividends from the business.
“The ability to access capital is exacerbated by the volatility that hyperinflationary economy and the reporting thereof introduces.”
“This adjustment has been applied from 1 January 2019 and we have restated comparatives to reflect this decision.”
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