Ministry approves $40bn prescribed assets

The Ministry of Finance and Economic Development has granted prescribed asset status (PAS) on projects worth $40 billion covering various sectors of the economy.

A further US$417 million worth of instruments have also been given prescribed asset status.

The sectors covered are mostly in agriculture and infrastructure development, according to a list of prescribed assets issued in 2020 that was circulated by the Insurance and Pension Commission (IPEC).

The Prescribed Asset applications that were approved by the Minister of Finance so far in the year include a $2,7 billion instrument issued by CBZ for the purpose to finance the 2019/20 agricultural season.

CBZ also issued another US$167,2 million instrument for the same sector.

CBZ is one of the local banks that has come out strongly to partner government in the agriculture sector and is expected to play a key role in the provision of inputs.

The nature of the agricultural activities that will be financed by the facilities were, however, not disclosed.

Agribank also issued its usual Agro Bills worth $100 million, which will be used to finance the 2019/20 agricultural season.

The agro-bills will attract an 18 percent interest while tenure will be for 270 and 360 days.

Little known Copper Meadows’ $400 million instrument was also awarded prescribed asset status.

The purpose of the project is land development in Zvishavane.

The facility will have a three -year tenure at a 35 percent interest.

In the infrastructure sector, the Infrastructure Development Bank of Zimbabwe (IDBZ) has a $2 billion facility and another of US$250 million meant to finance priority infrastructure projects.

While the said projects were not stated, IDBZ is on record saying it is looking for partners in the development and financing of renewable energy projects of up to 195 megawatt (MW) comprised of solar plants, mini-hydro, gas as well as geothermal Energy.

But what are prescribed assets?

Prescribed assets are bonds or securities issued by the Government, local Government, quasi-Government organisations or any other bond that may be accorded the prescribed asset status.

In Zimbabwe, pension funds, in particular, are required by law to invest at least 10 percent of their portfolio in prescribed assets.

Life and funeral assurance companies are required to invest 7,5 percent of the market value of the total adjusted assets in prescribed assets.

Short-term insurance companies are required to invest 5 percent of their funds in prescribed assets.

All things being equal, prescribed assets, such as stocks, bonds and other types of Government paper should be generating significant returns.

However, inflationary pressures have affected the level of returns investors can generate from such assets.

Because prescribed assets are mostly fixed interest assets, it is difficult to reconcile a fixed interest instrument and very high inflation which reached 837 percent in July.

As a result majority of pension funds and insurance firms are still lagging in terms of compliance with the prescribed assets regulations.–

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