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Icaz anxious to exit hyperinflationary accounting

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ACCOUNTANTS have implored the Reserve Bank of Zimbabwe (RBZ) to keep an eye on money supply growth and the efficiency of the forex auction system, saying these are key inputs into inflation as the professionals get anxious to get out of hyperinflationary accounting.

Zimbabwe adopted hyperinflationary accounting in 2019, but a number of companies have failed to adhere to the international standards, attracting adverse audit opinions.

Inflation peaked at 837.5% at the end of last year and is now below 57% year-on-year. However, prior periods characterised by excessive inflation have seen the country being forced to adopt the infamous IAS International Accounting Standard (IAS) 29 which pertains to hyperinflationary accounting.

Institute of Chartered Accountants of Zimbabwe (ICAZ) technical manager Owen Mavengere recently told a monetary policy review meeting that they were looking forward to the achievement of the 25% to 35% target.

“We are equally anxious to exit hyperinflationary accounting. One of the key indicators is three-year cumulative inflation below 100% which roughly translates to no more than 30% per annum (26% to be exact) so the trajectory we are headed in shows that we may soon be back to normal reporting within the next two to three years. We therefore implore the RBZ to keep an eye on money supply growth and the efficiency of the auction system as these are key inputs into our inflation,” he said

Mavengere said the profession has also struggled with valuation of assets, for example properties, in local currency due to minimal voluntary transactions in Zimbabwe dollars.
The gap between the official and parallel rates has been making it difficult to perform a valuation in foreign currency and convert as issues of appropriateness of the chosen rate come in.

Mavengere hoped voluntary transactions in Zimdollars will increase as confidence in the economy and the currency builds up and narrows the gap between the two rates.

“This can be achieved again through the same measures aforementioned, on money supply, the efficiency of the auction and reduced imports. These measures will reduce inflation and, more critically, reduce or close the gap between the two rates,” he said.

The backlog on the auction is also seen eroding confidence and fuel demand on the parallel market with the widening of the gap bearing testimony to this.

Mavengere recommended that between 40% and 50% of the country’s Special Drawing Rights (SDR) allocations from the International Monetary Fund be utilised to close the backlog and shore up the forex auction.

Zimbabwe has received a US$961 million SDR allocation from the IMF, with some economic watchers suggesting that the country use it to clear public debt.

Meanwhile, the positive 6% global economic growth projection is expected to drive up commodity prices, and Zimbabwe, relying heavily on these exports, stands to benefit except on fuel which may increase as well.

However, he recommended that a very deliberate and systematic shift away from exports of commodities and increase focus on value addition, adding that this will protect the country from global price slumps or negative shocks, as has been witnessed by the ferrochrome industry in the recent past.

“On the impact of increases in fuel and energy in general globally as the world economy improves, we recommend continued support of alternative and green energy sources. This will tie into sustainability in general,” he said.  — Staff Writer

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