Online Reporter
Misheck Ugaro
The recently released IMF Article IV Staff Monitoring Programme report opens with the following telling remarks:
- Zimbabwe is experiencing a degree of macroeconomic stability due to monetary policy tightening.
- After a sharp slowdown in 2024, economic activity recovered in the first half of 2025 and growth is expected to rebound this year, supported by better climate conditions and record-high gold prices.
- Fiscal financing pressures have intensified despite higher revenues, as net external financing turned negative and spending increased.
This is a notable acknowledgement for the country’s economic performance for the year underpinned by a stable macro-economic environment as epitomised by a stable currency and all attendant measures showing a positive trend.
Inflation performance
The annual inflation for ZiG was published starting in April 2025 with the currency having been launched in April of the prior year supported by a tight monetary stance regime. Money supply growth was contained to 30 percent for period September 2024 to date compared to 215 percent in the period since launch of the new currency in April 2024 to September 2024. The monetary expansion in the period April to September 2024 resulted in a depreciation of the ZiG. Since then, the Monetary authorities have maintained a tight grip on monetary expansion. As shown on the graph above comparing the positive trends in both Month on Month and Year on Year inflation rates, the inflation outlook is positive. The authorities have already achieved the year end target of annual inflation of about 30 percent by December 2025. This is vital in anchoring inflation expectations with the forecast to below 20 percent in 2026 with single digits beyond that year.
Exchange rate performance
The ZiG exchange rate experienced a 40 percent depreciation in September 2024 after launch in April of the same year as effects of monetary expansion exerted pressure. Since then and the currency has experienced a sustained stability with the removal of all quasi -fiscal activities related measures marked by a narrowing of the parallel exchange rate premium from highs of 100 percent at currency launch to within 30 percent currently.
For the past six months from April 2015, which is the period marking the first full year of the ZiG launch, the parallel exchange rate premium has been within the 30 percent level. This compares favourably with prior periods where the premium would hit 100 percent under the Zimbabwe Dollar era.
Factors supporting these remarkable achievements include the tight fiscal expenditures where enhanced revenue collections twinned with managed expenditures have kept the budget deficit within 1.2 percent of GDP. There is admittedly a down side arising from delayed payments resulting in a buildup of arrears on local expenditures amounting to US$600 million. This overhang represents a risk against the stability of the ZiG which requires and authorities are urged, to urgently address the matter with a view to reach a negotiated settlement. There are many ways the authorities can resolve the issue including but not limited to settlement through assets or even ceding some completed infrastructural projects into the management of the creditors with concession periods allowed for them to recover their investments.
Further, the reserve holdings of the country has risen from US$285 million in April 2024 when the new currency was launched to US$900 million currently with a forecast to breach the US$1 billion mark by the year end. This represents over a month’s import cover for the country which stands at around US$800 million. The country should target between three to six months import cover within the next three years as it runs the National Development Strategy 2 (NDS2).
Is the ZiG Over Valued
Arguments have been put forward on the currency being over valued and indeed the Article IV Staff Monitoring programme report intonates this position through the suggestion that the Willing Buyer Willing Seller market is not functioning well and the rate is only kept stable through the Central Bank Interventions. Our opinion is that the interventions from the Central bank in fact prove the availability of foreign currency in the system. The challenge the authorities face is the distribution of the same which is skewed and concentrated.
The issue above is where authorities are being urged to focus instead on overvaluation because in any case the Central Bank is intervening using resources available in the country. These are not borrowed. Additionally, and more important, the goal of the country is to establish a sustainable alternative to the US dollar and head towards a mono local currency in the next five years. The priority in the short term therefore is the establishment of an alternative to the US dollar that has value, does not lose value and can be trusted as a store of value. It therefore maybe a necessary condition that the ZiG be over valued if it is. Evidence shown above though show that the currency is not overvalued. In fact we argue that the cash exchange rate of 40 (Now only for small transactions on the streets and markets) is only now a psychological floor which barrier can be broken if authorities enhance communication and re -visit the issue of reissuance of coins to help with easy divisibility.
Misheck Ugaro is Vice President of the Zimbabwe Economics Society. Misheck is an investment banker and financial economist with major interest on macroeconomics.
