daniel chigunweNote from ZNCC
The Reserve Bank of Zimbabwe (RBZ) hosted consultative deliberations with the Zimbabwe National Chamber of Commerce (ZNCC) on January 13, 2025, signaling its commitment to crafting a 2025 Monetary Policy Statement (MPS) grounded in robust stakeholder input.
The meeting, held at the RBZ headquarters in Harare, drew high-level participation, including RBZ Governor Dr. John Mushayavanhu, Deputy Governor Dr. Innocent Matshe and representatives of Zimbabwe’s private sector.
The consultations underscored the need for consistent and adaptive monetary policies as the nation grapples with exchange rate disparities, persistent inflation and challenges in currency acceptance.
Economic stability requires continued efforts
Opening the meeting, Dr. Matshe emphasised the importance of these engagements in consolidating recent gains in economic stability. Quoting, “Today is difficult, tomorrow is very difficult, but the day after tomorrow is beautiful,” he stressed that Zimbabwe’s current stability must be carefully nurtured to achieve long-term economic resilience.
Dr Mushayavanhu presented a snapshot of the macroeconomic environment, highlighting improvements while acknowledging lingering challenges. As of January 10, 2025:
Banking deposits stood at ZiG12 billion.
Foreign exchange reserves were at US$542 million.
The interbank exchange rate was ZiG26/US$1, while the parallel market rate hovered at ZiG33/US$1.
He refuted perceptions of illiquidity, noting that banks held excess liquidity of ZiG1.5 billion, converted into non-negotiable certificates of deposit (NNCDs) to curb inflationary pressures.
ZNCC: Reducing parallel market premium is key
ZNCC President, Mr. Tapiwa Karoro, commended the RBZ’s consultative approach but cautioned against the growing dominance of the USD in transactions. With over 80 percent of transactions dollarised, he urged policymakers to enhance the desirability of the Zimbabwe Gold Currency (ZiG) as a reliable medium of exchange.
“The dual currency framework has created arbitrage opportunities, widening the gap between official and parallel market rates,” said Mr. Karoro. “Bridging this gap is essential to restoring confidence and reducing inflationary pressures in the goods market.”
Broad Challenges Call for Inclusive Solutions
Foreign exchange market
ZNCC highlighted inefficiencies in the “willing seller, willing buyer” model, citing low trading due to limited foreign currency sellers. Informal sector dynamics further undermine formal channels, with cash transactions in USD dominating. ZNCC CEO, Advocate Christopher T. Mugaga, noted that exchange rate disparities continue to hurt formal businesses. Key points included: the country’s unsustainable debt position undermines confidence in the ZiG; mandating tax payments in the currency of trade erodes trust in the local currency; a consistent policy framework is essential to rebuild confidence; the 17 percent exchange rate premium remains significant; formal retail prices exceed informal ones by at least 45 percent, highlighting the threat of informality; the fiscal framework, driven by a 145 percent projected increase in tax revenue for 2025, dominates the policy environment – a threat to the goals of monetary policy; and a high local currency money supply growth and interest rate levels are key risks.
Currency and confidence
Immediate past president, Mr. Mike Kamungeremu, pointed to the need for policy consistency to build trust in the ZiG. He cited the September 2024 devaluation, which eroded NNCD values by 50 percent, leaving exporters and businesses hesitant to use the local currency. “Policy reversals discourage private sector buy-in,” he said. “The 2025 MPS must instill confidence through transparency and consistency.”
Proposed interventions for a resilient economy
Key recommendations from ZNCC include:
To enhance efficiency and the Ease of Doing Business, the minimum amount in cash at which an individual can take out of the country should be reviewed upwards, from the US$2,000 to US$5,000.
Continue to “walk-the-talk” on desisting from quasi-fiscal operations going forward.
Continuously build confidence and promote the use of the local currency
The Bank is urged to regularly and transparently release information regarding the ZiG such as the stock of reserves and amount in circulation to build public and business confidence in the currency.
Work with the commercial banks to improve the availability and accessibility of ZiG notes, encouraging their use in strategic sectors. Specifically, the Bank should introduce higher denomination notes (ZW50 and ZWG100) which will be exchanged for electronic balances to suppress fears of inflationary pressures.
In support of the Central Government’s quest to include MSMEs in the Virtual Fiscalisation System for VAT monitoring, the Bank is urged to collaborate with financial institutions to reduce fees associated with POS machines, electronic payments and banking services for MSMEs. Supporting private-sector initiatives with complementary government policies can encourage electronic payment adoption by smaller enterprises.
Review of interest rates and the targeted finance facility (TFF)
The lending rate of 30 percent per annum for the TFF and the 270-day loan tenure may undermine the policy’s objective of broad-based productivity enhancement. Thus, the Bank should align the loan tenure with business cycles as some productive processes require longer gestation periods and the interest rate with inflationary developments.
Remove restrictions up to a certain threshold on the use of borrowed funds in the interbank market for firms whose funds were converted into NNCDs.
Currency and Exchange Rate Management
Curtail money supply growth to stabilise the exchange rate and prices, as excessive liquidity fuels inflation and exchange rate instability.
Enhance the flexibility of the exchange rate to reduce the impact of the parallel market while stabilising the currency through well-targeted foreign exchange market interventions.
Continuously build foreign exchange reserves to cover at least six months of imports, and efficiently manage the current foreign exchange reserve stock through well-targeted foreign exchange market interventions to avoid depletion. Given the current foreign exchange reserve stock, coupled with factors such as high inflation, high public debt to GDP ratio and widespread informality, the full adoption of the ZWG and a return to a mono-currency system (ZWG) is not advisable in the short to medium term.
Incentivise exporters
Maintain the status quo on export surrender requirements thresholds given the Bank’s need to continue building the reserve stock.
Reintroduce the provision that incentivised exporters by reducing the export surrender requirements given that they reach a certain threshold (say, at least 10 percent) in incremental exports on an annual basis.
Looking ahead
Dr Mushayavanhu closed the session by affirming the RBZ’s intent to incorporate private sector insights into the 2025 MPS. “This meeting highlights our dedication to creating a stable monetary framework that aligns with the needs of all stakeholders,” he said.
The consultations set the tone for a collaborative approach to addressing Zimbabwe’s economic challenges, emphasising stability, confidence and inclusivity as cornerstones for growth in 2025 and beyond.
This article was prepared by the Zimbabwe National Chamber of Commerce for Business Weekly
Bongani Ndlovu