• ZiG maintained relative stability in the willing buyer-willing seller auction market, with slight depreciation and recovery
• The IMF praised the ZiG's performance, emphasising the need for robust fiscal consolidation
• RBZ discontinued the gold coin issuance scheme, citing its unsustainability and costly nature

Harare- The ZiG maintained relative stability in the willing buyer-willing seller auction market. On June 20, 2025, it depreciated slightly to 26.9918 from 26.9768 the previous week, before recovering marginally to 26.9965 on June 23.

The International Monetary Fund (IMF) praised the ZiG’s encouraging performance since its introduction, emphasising that sustained stability hinges on robust fiscal consolidation. This involves reducing budget deficits and public debt through measures like expenditure cuts, revenue enhancement, and budgetary rebalancing to ensure deficit containment.

Such policies are critical to entrench the ZiG’s value by curbing inflationary pressures and fostering economic confidence.

However, challenges persist, including off-budget funding, management of assets under the Mutapa Investment Fund, and financing of off-budget projects, which could undermine fiscal discipline if not addressed.

The Mutapa Investment Fund holds largely unprofitable parastatals and vast unexploited mineral reserves. Unlocking these assets could save the government approximately US$1.5 billion annually, creating fiscal headroom to support consolidation efforts.

However, this requires at least US$3 billion in funding, which the government lacks. Without significant restructuring of investee entities, the recurring fiscal burden of US$1.5 billion could strain public finances, complicating deficit reduction goals.

The Reserve Bank of Zimbabwe (RBZ) announced the discontinuation of gold coin issuance, a scheme from the primary Zim dollar era designed to preserve currency value by diverting demand from USD to gold coins.

Marketed as a value-preserving investment redeemable at par after a vesting period, it was, in our view, an unsustainable mechanism, given the government’s inability to meet obligations, as evidenced by Treasury bill market failures and growing forex queues.

The RBZ’s attempt to bolster the Zim dollar’s value through gold coins incurred significant costs, reflected in the gap between redemption values in USD and initial Zim dollar investments converted at parallel rates.

This scheme exacerbated fiscal pressures by deferring costs, which new investors would bear.

Discontinuing it aligns with fiscal consolidation by reducing reliance on costly interventions, allowing the RBZ to focus on stabilizing the ZiG through market-driven mechanisms.

Looking ahead, cautious optimism surrounds the ZiG. Improved fiscal discipline since pre-2013 levels, a key aspect of fiscal consolidation, has reduced the RBZ’s debt monetisation, a former go-to funding mechanism that fueled inflation.

Measures like expenditure containment and reduced borrowing have supported currency stability. The ZiG’s stability is further bolstered by fundamental factors, including reduced real sector output, lowering demand, demand for currency, and increased forex availability due to its expanded use in the economy.

Strong gold sector performance bolsters reserves and forex supply, supporting fiscal consolidation by enhancing revenue streams.

However, the economy remains fragile, with high informalisation, rising corruption, and over-taxation posing risks to the currency’s outlook and fiscal sustainability. Persistent deficits or mismanagement could derail consolidation efforts, destabilising the ZiG.

Business operators should remain adaptable, navigating shifting market dynamics, including growing informalisation, an expanding diaspora, and government spending on projects.

Fiscal consolidation, if sustained, may stabilize markets but could also lead to tighter fiscal space, impacting demand.

The economic fallout will extend beyond retail sectors, affecting easily replaceable sectors.

It is premature to invest heavily in high-liquidity, high-return assets under the assumption of sustained currency stability, given the ongoing economic challenges and risks to fiscal consolidation efforts.

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