- ZiG continued week-on-week downward trend, trading at 13.8076, down from 13.7863
- The parallel market rate has plummeted to 24 per US dollar, creating a 74% premium
- Rapid decline of ZiG raises concerns about the true state of actual reserves
Harare- The Zimbabwe Gold (ZiG) traded at 13.8076 on the 22nd of August from 13.7863 last week, continuing the downward trend observed in July 2024.
This decline, coupled with the alarming situation on the parallel market, where the rate has plunged to 24 per US dollar, creating a 74% premium, paints a worrying picture for the Zimbabwean currency.
While the government claims ZiG now accounts for 39% of domestic transactions, up from 30% in April, this usage is heavily skewed towards grocery purchases in supermarkets.
Essential goods like capital goods, rentals, and fuel remain firmly anchored in the US dollar. This disparity highlights a fundamental lack of confidence in the ZiG, echoing the failures of the Bond Notes and the unpopular ZWL.
The depreciation of the parallel market rate by 8.3% in July, attributed to increased ZiG supply due to government contractor payments, further exacerbates the situation.
This influx of ZiG has widened the exchange premium, reaching levels reminiscent of the Zimbabwe dollar's collapse. The rapid decline in the ZiG's value raises concerns about the true state of Zimbabwe's foreign currency reserves.
Adding to the woes is the plunge in global metal prices, particularly PGMs (34% decline), which play a crucial role in Zimbabwe's economy. This decline, coupled with the impact of ravaging droughts on the tobacco season, has further strained foreign currency coffers.
Despite record global gold prices, Zimbabwe's gold production continues to fall short due to high operating costs. The latest six-month figures show a decline from last year, with seven-month production reaching only 17.2 tonnes, putting pressure on gold reserves backing the currency.
Remittances, primarily accessible on the black market, have become the key source of foreign currency which are only accessible on black market.
The government, without enough reserves, is unable to compete with this market, hence, widening exchange rate volatility.
To address the currency crisis and foster economic growth, Zimbabwe needs to boost its gold reserves.
The gold sector is burdened by high operating costs, particularly the cost of electricity, which is the most expensive in the region. Reducing electricity tariffs would significantly improve the sector's competitiveness.
Furthermore, a streamlined and reduced tax regime is essential to incentivize gold producers and miners to invest in upgrades and value-addition. This would allow them to leverage technology, improve efficiency, and increase gold production.
Meanwhile, establishing a transparent and independent system for gold evaluation is critical. This would ensure fair pricing for producers, increase confidence in the sector, and attract foreign investment. A robust regulatory framework with clear guidelines and oversight is essential.
That will also encourage value addition within the gold sector which is crucial to increase revenue and create jobs.
Building trust in the financial system is vital, requiring transparency in the management of foreign currency reserves, clear communication of economic policies, and addressing corruption. A stable economic environment is crucial for attracting investment and fostering growth, requiring addressing inflation, improving infrastructure, and creating a predictable policy environment.
Unless decisive action is taken to address the underlying economic challenges, the ZiG may continue to struggle, further undermining Zimbabwe's economic stability.
By implementing these measures, Zimbabwe can unlock the potential of its gold sector, boost foreign currency reserves, and pave the way for economic recovery.
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