Zimbabwe is going through an economic transformation arising out of the political developments of 14 November 2017 which saw the change of leadership in the Government. The new administration has set goals to achieve economic stability through:-
• aggressive international re-engagement
• addressing the fiscal deficit as advised by the IMF
• re-building public and investor confidence as a short-term priority target
• amnesty on foreign currency repatriation issued to both individuals and corporates who had externalised foreign currency.
The country’s economy is facing structural challenges from high informality, weak domestic demand, high public debt, weak investor confidence and a challenging political environment. The liquidity crisis in the country is a manifestation of structural deficiencies and distortion in the economy. Inflation keeps rising and loss of value is rampant. This turbulent environment makes financial planning difficult.
Implications for financial planning
Financial planning entails the wise management of your current finances and assets to enable you to achieve your future personal goals and dreams whilst at the same time negotiating the financial barriers that inevitably arise in every stage of your life. Your financial plan should cover the following:-
• Risk Insurance policies – these policies are for risk management purposes for the protection your investments, property and your life. The parallel currency exchange rate gives rise to mismatch between your “transfer replacement value” and your insured amount such that you may not be adequately covered at the time of a loss. It is therefore important to quarterly review your risk insurance policies to ensure that you are adequately covered.
• Estate planning- this entails the use of both testamentary and inter-vivos trusts, wills, as well as other durable powers of attorney for estate planning. Rising inflation erodes value in your cash legacies and return on investments in both your inter-vivos and testamentary trusts. To counter the effects of rising inflation, you must ensure that your investment strategy yields a return that is higher than inflation and ensures that all the cash legacies are regularly adjusted for inflation.
• Retirement planning- this assists you in evaluating your options and important elements of your future retirement including cash flow available for the provision of the required income needs. Pension and retirement policies are also affected by rising inflation. For pre-retirement, ensure that your investment returns are higher than inflation whilst for post-retirement you must cater for longevity.
• Investment planning- entails analysing your current investment holdings and identifying opportunities to cater for a well-diversified portfolio that aligns with your risk tolerance at any given time for investment portfolio improvements and updates. In addition to your Retirement investment portfolio, you should have a personal investment portfolio to support your retirement portfolio. This personal investment portfolio must be well balanced and actively managed depending on your stage in life and risk profile. Always ensure that a return above inflation is achieved. A well-diversified portfolio which includes local and offshore investments is recommended. Offshore investments offers currency hedging and protects you against sovereign risk.
• Tax planning- which takes into account tax planning decisions with strategies designed to minimise your tax liabilities and maximise your cash flow. It is recommended that when changing employment, you should not encash your pension contributions, but rather preserve or transfer to a new pension fund to avoid being punitively taxed. It is recommended to defer pension cash payments until you retire as the law exempts all senior citizens from taxation. You are also encouraged to make additional voluntary contributions if the total pension contributions to the pension fund is below the tax-deductible limit. Contributions to a personal pension plans is also recommended as these are tax deductible.
• To wrap up, you must ensure that you meet with your financial planner on a regular basis to review and make the necessary adjustments to make your financial goals achievable. In the short-medium term, the stability of the Zimbabwean economy is very much linked to the outcome and acceptability of the forthcoming harmonised elections to be held on the 30th July 2018. If the elections are credible and acceptable to the International Committee, more FDI will be expected to flow in resulting in a more stable and growing economy. Such an economy makes financial planning easier.