THE Zimbabwe Association of Pension Funds (ZAPF) has bemoaned the Reserve Bank of Zimbabwe (RBZ)’s decision to maintain the policy rate at 35%, as high borrowing costs are weighing on corporate performance, where retirement entities hold significant investment exposure.
Despite calls to reduce the bank policy rate owing to it making borrowing expensive, the RBZ maintained this at 35% last week in the 2026 Monetary Policy Statement.
Pension funds argue that sustained high borrowing costs are eroding corporate profitability and dampening growth prospects, weakening returns on equities and corporate debt instruments in which retirement funds are heavily invested.
According to the Insurance and Pensions Commission’s third quarter 2025 report, the pensions sector’s total assets grew by 5% to the equivalent of US$2,77 billion from June, driven by new investments and positive fair value adjustments in investment properties and equity instruments.
Quoted equity investments increased by 15% to US$528,85 million from US$460,37 million in the previous quarter.
Conversely, unquoted equity investments increased by 149% to US$269,17 million from US$108,17 million in the last quarter.
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“A bank policy rate of 35% makes domestic borrowing prohibitively expensive for corporations,” ZAPF said in a post-2026 Monetary Policy Statement analysis.
“Highly leveraged companies listed on the ZSE [Zimbabwe Stock Exchange] and the VFEX [Victoria Falls Stock Exchange] may struggle to meet debt service costs, leading to compressed profit margins, reduced dividend payouts and suppressed equity valuations in the short to medium term.
“USD interest rates of between 10% to 20% that prevail in the market are also still quite expensive relative to the USD inflation rates.”
ZAPF said while current yields were high, the RBZ indicated that the achievement of single-digit inflation provides scope for an eventual, data-dependent downward review of the bank policy rate.
However, ZAPF noted the downside risk.
“Funds that only invest in short-term paper face reinvestment risk if rates are aggressively cut in late 2026 or 2027,” ZAPF said.
ZAPF also noted, however, that the maintenance of the bank policy rate at 35% against a low inflation rate results in high positive real interest rates for pension funds for those holding any ZiG in the short term.
ZAPF’s recommended several strategic and operational adjustments member funds could make following the 2026 Monetary Policy Statement concerning their investments.
“Optimise fixed income opportunities: For any available short-term liquidity, there is opportunity to aggressively negotiate higher interest rates and earn more income for both USD and ZiG,” ZAPF said.
“Because banks face a lower statutory reserve requirement of 15% on time deposits, they are incentivised to take your funds, giving you leverage to negotiate premium yields.”
ZAPF also called for equity portfolio restructuring.
“Shift equity allocations away from any debt-heavy companies that will suffer under the 35% policy rate.
“Pivot towards cash-rich companies, financial institutions benefiting from high net interest margins, and export-driven mining counters benefiting from the US$16,2 billion national export boom,” ZAPF said.
“Expand VFEX and Offshore Holdings: Given the RBZ’s guarantee that US dollar-based equities and foreign currency holdings are safe from the mono-currency transition, funds should continue aggressive diversification into the Victoria Falls Stock Exchange to maintain hard-currency hedges.”
ZAPF said funds yet to exploit the 15% offshore investment proportion window were encouraged to expedite their processes.