- The Confederation of Zimbabwe Industries (CZI) has raised concerns about insufficient government initiatives to stabilize the local currency
- The 2025 National Budget anticipates stable ZiG inflation, targeting a month-on-month inflation rate below 3%
- Throughout 2024, stringent measures were implemented to control the local currency's valuation, resulting in apparent stability in the official market but a significant premium in the parallel market
Harare-The Confederation of Zimbabwe Industries (CZI) has expressed concerns regarding the insufficiency of governmental initiatives aimed at stabilizing the local currency.
In its recent report, "Inflation and Currency Development Round-Up," the CZI cautions that for inflation to maintain a stable average of 3% in 2025, the government must implement more substantive policies not merely tighten liquidity but also actively stimulate demand.
The government introduced the ZiG in April 2025, marking the fourth currency initiative in nearly a decade. However, due to policy miscalculations, including demand erosion and fiscal indiscipline, the currency faced significant instability, registering over 30% losses in the parallel market within its inaugural month, on parallel market which is dictated by supply and demand.
The 2025 National Budget anticipates that ZiG inflation will remain stable, with a target month-on-month inflation rate below 3%.
Achieving this target is contingent upon the government's ability to generate demand for the ZiG, as mere liquidity constraints are insufficient to sustain its valuation.
The ZiG represents one of several attempts by authorities to stabilize the currency market since 2009, a period characterized by hyperinflation that precipitated the collapse of the Zimbabwe dollar.
Throughout 2024, the government implemented stringent measures to control the local currency's valuation, resulting in an apparent stability in the official market, yet creating a substantial premium in the parallel market.
By September 2024, the ZWG premium had surged to over 70%, prompting the authorities to execute an overnight devaluation of 43%, adjusting the exchange rate from 13.9 to 24.4 per U.S. dollar.
This decision was necessitated by the widening discrepancies between official and unofficial exchange rates, with the currency trading at approximately twice the sanctioned rate on the black market.
Post-devaluation, the parallel market rate escalated to between 45 and 50 per dollar for the remainder of September and October.
Nevertheless, the government sustained a restrictive liquidity policy, which subsequently reduced the rate to approximately 38 in peer-to-peer markets and 40 in parallel markets.
Nonetheless, a substantial disparity remains between these two market segments, with a persistent 54% premium highlighting the CZI's assertion that maintaining liquidity alone is insufficient.
To narrow or eliminate this premium, the government must proactively create demand for the local currency, thereby reinforcing its exchange rate.
The 2025 National Budget stipulates that taxes should be payable in the local currency; however, without concrete measures to facilitate this transition, the efficacy of such policies remains questionable.
For the government to cultivate genuine demand for the ZiG, it must exhibit unwavering confidence in its own currency.
Essential goods and services, including fuel and passports currently transacted in U.S. dollars should be mandated to be available in ZiG.
Equity Axis News
