• ZiG has maintained exchange rate stability for over a year since its 43% devaluation marking the longest period of currency stability since 2019
• The devaluation was driven by excessive liquidity injections for infrastructure projects, inflating parallel market premiums and exposing fiscal vulnerabilities
• The proposed 2030 de-dollarisation poses a significant threat to ZiG’s stability, with reserve liquidation recommended as a viable strategy to manage liquidity

Harare- The Zimbabwe Gold (ZiG), Zimbabwe’s fourth currency iteration within a decade, has maintained exchange rate stability following its devaluation on September 26, 2024, achieving a robust performance exceeding one year since its 43% devaluation. This devaluation was precipitated by five months of a government-imposed fixed exchange rate regime for formal market participants, overriding market-driven dynamics.

The resultant divergence between the official and parallel market rates approached a 90% premium, compelling authorities to implement an abrupt devaluation.

Initially pegged at 13.56 to the USD, the ZiG was purportedly backed by 2 tonnes of gold reserves, comprising 1.5 tonnes of physical gold and $100 million in cash and precious minerals (notably diamonds), equivalent to an additional 0.5 tonnes of gold.

The total reserve value was estimated at $285 million.

However, the currency’s trajectory was disrupted by the Southern African Development Community (SADC) summit hosted in Harare, which prompted excessive liquidity injections to fund infrastructure projects, including road rehabilitation and the National Museum.

This monetary expansion strained the reserve-to-money supply ratio, inflating the parallel market premium and necessitating the September 26, 2024, devaluation.

Monetary policy indiscipline remains the principal catalyst for the devaluation, reflecting the government’s persistent inability to align fiscal expenditure with available resources.

The devaluation, enacted just five months post-launch, raised concerns of a potential repeat of the Zimbabwe Dollar’s post-2019 collapse. Nevertheless, the ZiG has defied market expectations, sustaining stability against the USD for over a year—the longest period of currency stability since 2019.

This stable exchange rate environment has mitigated currency risk, enhancing corporate financial metrics such as cash flow optimization and balance sheet structuring.

Enterprises have reported improved operational and financial performance, driven by strengthened purchasing power, streamlined inventory procurement, and input cost predictability. While these outcomes reflect the benefits of a stable currency regime, fair value gains, previously a significant income component for corporates have diminished, though this has negligible monetary impact.

Firms are now recalibrating balance sheets, reducing leverage to create capacity for strategic growth and enhanced returns on capital.

A prudent, measured approach to capital deployment is advisable to capitalise on emerging demand while mitigating exposure to currency volatility. This contrasts with an aggressive strategy that maximizes short-term returns but heightens vulnerability to exchange rate fluctuations.

This is particularly relevant for banking institutions pursuing aggressive lending, corporates restructuring to reduce exposure to illiquid assets (e.g., real estate), and those optimizing cash flow or exploring funding alternatives. Such strategies inherently increase currency risk exposure, necessitating rigorous and continuous risk assessment.

The most significant risk on the horizon is the proposed de-dollarisation policy targeted for 2030. Given the fragility of current economic fundamentals, this policy poses a substantial threat to sustained currency stability.

While macroeconomic indicators are improving, the pace is incremental and vulnerable to exogenous shocks, which could precipitate renewed inflationary pressures and exchange rate instability.

In our prior currency review, we cautioned that the current stability remains precarious. Addressing the burgeoning domestic debt particularly overdue payments to contractors and exporter retention obligations is critical to exchange rate management.

By Q1 2026, outstanding obligations, including Treasury Bill interest, could escalate to approximately $2 billion. Failure to resolve these liabilities risks undermining the prevailing stability, potentially triggering another significant devaluation.

To avert this looming crisis, the government has a viable option: liquidate up to 50% of gold reserves to bolster hard currency liquidity. This would reduce outstanding obligations while allowing a controlled expansion of local money supply, without inducing inflation or significant currency depreciation.

The strategic value of reserves lies not in their nominal book value but in their utility for targeted policy interventions to stabilize markets.

Current fiscal capacity is insufficient to settle these obligations without jeopardling short- or medium-term instability. While efforts to formalize the informal sector are yielding incremental revenue gains, these are inadequate to significantly enhance fiscal receipts over a five-year horizon. Similarly, robust commodity market performance is supporting currency stability but falls short of generating sufficient fiscal headroom for expenditure expansion.

An alternative approach, curtailing new and ongoing capital projects to redirect resources toward debt settlement is politically untenable amid shifting ruling party dynamics and the imperative to demonstrate tangible governance achievements. Consequently, this option is less likely to be prioritized.

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