Insurance companies should accumulate inflation linked product to preserve value: Mangudya

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    Harare – RBZ governor, Dr John Mangudya said the central bank will provide insurance companies a product that is inflation linked in a bid to preserve value for them and the pensioners, although analysts are skeptical about the prospects of such a product which presently does not future among the possible asset classes in Zimbabwe.

    Pensioners and insurance holders lost quadrillions of their Zimbabwean dollar investments during the process of conversion of the Zimbabwe dollar to the United States currency. Most of their Zimbabwean dollar investments suddenly turned into a few US cents or dollars.

    Some of the factors which caused the loss were macro-economic such as inflation, currency de-basing, and the exchange rate used during de-monetisation of Zimbabwe dollar to US dollar in 2015.

    Other factors are negative real investment returns on fixed income securities such as bonds, Treasury Bills and money-market instruments which resulted in loss of value resulting in insurance companies and pension funds divesting from such investments during the period 2001 to 2008.

    Pensioners have, over the years, complained that they are getting measly payouts, which do not tally with the number of years of service.

    In 2015, pension funds and insurance companies converted pension funds from Zimbabwe dollars to US dollars, leaving most pensioners with nothing.

    Presenting oral evidence to the parliamentary committee on Public Accounts Mangudya said the only way to preserve value for people’s money is by taming inflation.

    “The way we need to preserve value is by taming inflation, which eats away the people’s money and not the exchange rate. We do believe that the exchange rate now official will remain in bands that are acceptable, which means we can now tame inflation by targeting the monetary base. It means we are going to preserve the value for pensioners and for every Zimbabwean by ensuring that inflation does not go through the roof.

    “So, the best way of managing that is that we provide insurance companies a product that is inflation linked, that way it means we are providing value to those people who are holding the money. When they have an inflation linked product, they also increase the amount they pay to pensioners on a monthly basis hence protecting them from inflation.”

    Equity Axis News

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