HomeLocal NewsZim economy loses millions owing to lack of confidence

Zim economy loses millions owing to lack of confidence

ZIMBABWE is potentially losing millions of dollars, due to lack of confidence in the financial system and fragmented financial regulations across borders that have impacted heavily on the country’s economic growth, a new study has shown.

By Wongai Zhangazha

According to a study by the International Federation of Accountants (IFAC) and the Organisation for Economic Cooperation and Development (OECD), the global economy loses US$780 billion annually as a result of inconsistent financial regulations between borders.

The report, titled Regulatory divergence, costs, risks and impacts, says the regulatory divergence between different jurisdictions is a result of various factors including domestic policy priorities and cultural differences.

The survey was carried out by 251 experts and leaders at financial institutions throughout the world’s major financial sectors between July and August 2017.

In an interview this week on Wednesday, IFAC executive director in charge of external affairs, Russell Guthrie, said while an exact figure of what Zimbabwe could be losing due to regulatory divergence could not be ascertained during the study, the global findings of the survey point to the universal nature of fragmented regulation.

“An increase in material costs to financial institutions, risks to the financial system, and barriers to economic growth are among the consequences of fragmented regulation across geographies, which in aggregate cost the global economy US$780 billion each year,” Guthrie said.

“Zimbabwe faces challenges with public trust in its institutions. However, over the past few months, the President (Emmerson Mnangagwa) has reinforced the message that Zimbabwe is open for business, is cracking down on corruption, and aims to provide greater transparency in public spending. In addition, the government has committed to public sector reforms, which are critical to ensure good public financial management.

These statements mean a great deal, but will require sustained political will and resources in the coming years.”
Guthrie said it is important for Zimbabwe businesses to work with regional economic groupings to encourage the adoption of international standards and best practice.

“In Zimbabwe, the accountancy profession has been diligent in supporting the implementation of key international standards, including International Financial Reporting Standards and International Standards on Auditing, while 70% of financial institutions globally report they are struggling with financial reporting and audit regulation,” he said.

“IFAC has identified ten principles that are necessary to develop smart, effective regulation. These include: defining and addressing clear objectives in the public interest, ensuring appropriate resourcing, acting collaboratively, maintaining active oversight, and fostering a transparent and open consultation.”

The IFAC official projected that if current economic growth trends continue, regulatory fragmentation will cost the global economy roughly US$1 trillion by 2021.

“In addition to the US$1 trillion loss endured by financial institutions, the global economy should expect large costs as a result of additional pressures, including; regulatory fragmentation costs among non-financial institutions; costs created when businesses operate using opaque and complicated information or struggle to conform to all regulations and businesses refraining from working or expanding internationally due to the costs of inconsistent regulation,” Guthrie said.

The release of the study comes at a time the Southern African Development Community (Sadc) secretariat is planning to introduce the United States dollar as a trading currency on the southern African regional payment system so as to improve the settlement of transactions among banks within the region.

The green back is expected to be added as a trading currency by October, while Sadc currencies, among others, will be considered as the payment system progresses.

According to Sadc Today, the current settlement currency for the Sadc Integrated Regional Electronic Settlement System (Siress – regional electronic payment system developed by member states to settle cross-border transactions faster without having to rely on intermediary banks from outside the region) is at the South African Reserve Bank.

The development of Siress is in line with the Sadc Protocol on Finance and Investment which aims to improve the regional investment climate through enhanced cooperation among member states on payment, clearing and settlement systems in order to facilitate trade integration.

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