THE National Social Security (Nssa) has discontinued investing in Treasury Bills (TBs) in the face of skyrocketing inflation, with the state-run pension fund now saddled with US$295 million (in TBs and other debt instruments) exposure for full-year 2018, which, coupled with the recent supreme court ruling on debts, could reflect bad investments in its full-year 2019 performance.
The authority, which held its inaugural annual general meeting this week, said while the effect of inflation on its investments is better reflected in full-year 2019 results, it needed a relook into portfolio investments while diversifying to other asset classes.
Nssa’s financial statements show the authority was subscribed to Reserve Bank of Zimbabwe TBs to the tune of US$252 million, Zimasco TBs (US$953 567) and Infrastructure Development Bank of Zimbabwe TBs (US$7 523 624) while it also had debentures and Agribond obligations with other organisations such as FBC, Bindura Nickel Corporation, Rainbow Tourism Group and Stanbic Bank, among others.
Treasury Bills by nature are fixed-income securities and by virtue of non-availability of inflation-indexed bonds in the country, investors have of late shunned these investments. The Zimbabwe Stock Exchange has been working on the issuance of inflation-indexed bonds and the establishment of a United States dollar-trading platform on listed securities as inflation continues to wreak havoc.
An inflation-indexed bond is a pledge issued by the sovereign, which provides the investor a constant return irrespective of the level of inflation in the economy with the main objective of providing a hedge and to safeguard the investor against macro-economic risks in an economy.
Year-on-year iflation rose to 10,6% in 2018, and jumped dramatically to 175,6% in 2019 before government banned the publication of year-on-year inflation figures, which are however expected to resume this month. However, year-on-year inflation for December 2019 stood at 521,1%.
Nssa board chair Cuthbert Chidoori on Monday said at the government’s behest the authority had in the past participated in the TBs market, but these numbers had forced the authority to rethink TBs as it is no longer business as usual.
“At the time of 1:1 we had no problem engaging government at their behest as you would actually throw your weight behind other financial institutions and would look at the returns on the TBs as reasonable because of the dynamics of the day in the economy,” he said.
“But the moment we saw these numbers late in the year (2019) we already had the TBs under our custody and there is nothing one could do. After that and when things began to change, especially with the two instruments promulgated by the Treasury last year, we would have to relook into our investments. Before, we would look at Treasury Bills and hold them as a steady asset, but when you have inflation you will have to rethink everything in terms of investments and that also speaks to what we do with TBs.”
The development comes after the Supreme Court made a landmark ruling that all debts accrued in US dollars on or before February 22, 2019, must be paid in the local Zimbabwe dollars at the rate of 1:1.
Analysts have contended that through the ruling, government will only pay back a fraction of the amount they borrowed by selling Treasury Bills to pension funds and banks — which some have called theft.
On the Zimbabwe Stock Exchange alone, pensions funds and insurance companies account for 43,42% of the total market value, indicating how crucial the sector is to the economy.
Meanwhile, during the year under review Nssa’s investments grew 25% from US$1 billion in 2017 to US$1,29 billion in 2018, driven by positive fair value appreciation in both quoted and unquoted equities.
The growth in investment came despite the operating environment worsening in the last quarter of 2018.“After separation of nostro and local balances in October 2018, parallel exchange rates started to increase; the rising premium on USdollars entrenched multi-tier pricing. Inflation then became a huge cause for concern, especially from Q4 rising from 5,4% to 42,09% between September and December 2018,” Chidoori said.
“This negatively affected the purchasing power of our pensioners. Despite the difficult operating environment, the authority managed to grow and strengthen its asset base through various strategic initiatives.”