RBZ directive triggers market jitters

LIVINGSTONE MARUFU / CLOUDINE MATOLA

A decision by the Reserve Bank of Zimbabwe (RBZ) to force all listed companies to report their financial statements in Zimbabwe Gold (ZiG) has triggered widespread concern in the business and financial sectors.

The directive, which follows consultations with the Public Accountants and Auditors Board (PAAB), is intended to reinforce ZiG’s role in the economy and restore confidence in the local currency. However, experts warn that the move could destabilize financial reporting, create compliance risks, distort asset valuations, and undermine investor confidence.

With most businesses transacting in U.S. dollars, the shift to ZiG reporting raises serious questions about its practicality, economic impact, and adherence to international financial reporting standards.

Under International Accounting Standard (IAS) 21, financial statements must be prepared in an entity’s functional currency—the primary currency in which it conducts business. For many Zimbabwean companies, especially those predominantly transacting in US dollars, the greenback has effectively become their functional currency.

Tineyi Chatiza, Group Financial Director at SeedCo, highlighted the challenges firms now face.

“Trading is largely in U.S. dollars, and this directive comes just as firms close their financial year. We now need to retroactively translate transactions,” he told Business Times, a market leader in business, finance, and economic reportage.

He also expressed concerns about the official exchange rate’s reliability, given past adjustments that have led to significant devaluations.

“Reporting in ZiG reintroduces the complexities of hyperinflation accounting under IAS 29, in a market where the Consumer Price Index (CPI) is not always published. The risk of non-compliance with IFRS (International Financial Reporting Standards) is high, potentially leading to qualified audit opinions. Laws should not be applied retrospectively.”

Alex Makamure, Executive Director (Finance) at Delta Corporation, emphasized the importance of regulatory guidance.

“We await the PAAB and ICAZ position on compliance with IFRS. The determination of functional currency is based on IFRS, not national legislation. Ideally, financials should still be reported in U.S. dollars—either as primary or supplementary information alongside ZiG reports.”

The mandate has raised alarm bells among financial experts, who argue that ZiG-based reporting could distort financial statements, create compliance risks, and introduce accounting irregularities.

Enock Rukarwa, an investment and research consultant, outlined key risks:

“Forcing ZiG reporting in a multi-currency economy introduces accounting complexities, inflationary risks, investor uncertainty, and regulatory hurdles. A hybrid model allowing firms to report in their relevant functional currency would have been more practical.”

“Companies will now need to adjust accounting systems, financial models, and auditing procedures to comply with the new requirement. Moreover, reporting in ZiG triggers IAS 29 (Financial Reporting in Hyperinflationary Economies), leading to frequent revaluations.”

Tafara Mtutu, an investment analyst at Morgan & Co, warned that the timing of the policy could prove counterproductive.

“This move is premature. If the currency destabilizes, it defeats the purpose of financial reporting, which is to provide an accurate reflection of business performance. Since most revenues are in U.S. dollars, financial statements in ZiG could misrepresent company performance.”

The shift to ZiG reporting raises critical concerns over asset valuation, liabilities, and revenue recognition.

Mark Mtombeni, a chartered accountant and financial expert, cautioned that companies would have to convert all financial records from USD to ZiG, impacting asset valuations, debt obligations, and profitability metrics.

“Fixed assets, inventories, and financial instruments will require revaluation in ZiG. Given currency volatility, this could introduce material misstatements.”

“Companies with USD-denominated liabilities will see financial obligations fluctuate, potentially overstating liabilities or exposing them to foreign exchange losses.”

A senior financial analyst added that the directive would distort profitability metrics, making performance assessments unreliable.

“Businesses transacting mainly in US dollars will struggle with revenue and cost mismatches in ZiG financials. Operational expenses, sales revenue, and margins will fluctuate not due to actual business performance, but due to exchange rate movements.”

Financial experts have flagged the directive as a major compliance risk, warning that currency volatility will make accurate financial reporting difficult.

A senior audit partner at a leading Zimbabwean accounting firm said:

“The instability of the exchange rate raises audit risks. More companies are likely to receive qualified or adverse audit opinions due to financial distortions.”

Investor confidence could also suffer, as ZiG-based financials may no longer reflect true company performance.

“Most global investors rely on USD financial statements for Zimbabwean firms. If financials become unreliable due to currency distortions, investor trust could erode,” an investment analyst who preferred anonymity explained.

Despite the widespread concerns, RBZ Governor Dr. John Mushayavanhu remains adamant that businesses must comply with the directive.

“This is a sovereign nation, and its currency is ZiG. Therefore, all companies must present their financials in ZiG,” he stated.

Mushayavanhu dismissed objections by drawing comparisons with South Africa.

“A South African company exporting in USD still reports in rands. Why should Zimbabwean firms be different?”

However, critics argue that South Africa has a stable currency, while Zimbabwe’s history of monetary instability makes direct comparisons flawed.

The Zimbabwe Stock Exchange (ZSE) and PAAB now face enforcement challenges, as businesses weigh their options. Some firms may attempt to publish alternative USD-based financials alongside official ZiG reports to maintain transparency for stakeholders.

“Forcing ZiG reporting in a volatile currency does not inspire confidence. Investors need stability and transparency—this directive achieves the opposite,” said a finance executive at a listed firm.

The RBZ’s ZiG-only reporting mandate introduces significant financial risks—including valuation distortions, audit complications, and potential investor flight.

While the central bank hopes to boost confidence in the local currency, the reality is that exchange rate volatility and compliance hurdles could further destabilize financial reporting.

For businesses, auditors, and investors, the challenge now lies in navigating a reporting system that may no longer align with economic realities.

The key question remains: Will enforcing ZiG reporting strengthen Zimbabwe’s economy—or drive investors and businesses toward further uncertainty?