• ZiG held steady against the USD, appreciating 0.5% on the WBWS market to ZWG26.38, driven by robust foreign inflows, tight monetary policy, and government payment deferrals
• Surging gold prices above US$4,000 and a 50% rebound in PGMs have fuelLed record production and export earnings, complemented by improved agriculture, power generation
• While RBZ reserve building nears US$1 billion, concerns persist over escalating deferred supplier payments exceeding US$1 billion and the need for debt relief

Harare- The Zimbabwe Gold (ZiG) currency has demonstrated remarkable stability against the United States Dollar (USD) on the Willing Buyer Willing Seller (WBWS) market, maintaining a steady trajectory amid broader economic pressures. In the week under review, the ZiG appreciated by an additional 0.5% against the USD, closing at ZWG26.38 on the 3^rd of November opening the week firmer, while remaining unchanged on the parallel market.

This divergence has led to a slight widening of the exchange premium, which rose to 29% from 28% in the previous week. Such a scenario presents an ironic dilemma: the official rate's appreciation, driven by positive economic momentum, contrasts with the parallel rate's stability, potentially creating greater opportunities for arbitrage.

This gap, though currently modest, underscores the challenges of managing dual exchange systems in an economy striving for equilibrium. The underlying support for the WBWS performance stems from robust foreign currency inflows, complemented by stringent monetary policies and strategic government deferrals of supplier payments, all of which have bolstered liquidity and confidence in the formal channels.

The mining sector stands out as a key driver of this positive momentum, experiencing a significant windfall fuelled by surging global prices for gold and platinum group metals (PGMs).

Gold, Zimbabwe's premier export commodity, has shattered records by surpassing the US$4,000 per ounce mark and registering over 50% gains year-to-date, contributing more than 30% to the nation's total export earnings.

Production volumes have also surged, with projections indicating a record-breaking output exceeding 40 tonnes this year. Similarly, PGMs, particularly palladium and platinum have rebounded vigorously, trading at levels 50% above their year-opening prices following a lackluster performance in 2024.

As the second-largest contributors to mining exports by value after gold, PGMs play a pivotal role, with Zimbabwe's largest company, Zimplats, exemplifying the sector's dominance in this area.

This mining resurgence has been further amplified by a stronger agricultural harvest in the 2024/25 season, which has curbed import demands and eased pressure on the current account. Additional factors include enhanced power generation from the Hwange upgrades and a robust increase in diaspora remittances, collectively fortifying Zimbabwe's external position and providing a buffer against currency volatility.

The Reserve Bank of Zimbabwe (RBZ) has played a central role in sustaining this stability through its commitment to a tight monetary policy framework. Benchmark interest rates and reserve requirements have been held at elevated levels, while the issuance of short-term instruments such as Negotiable Non-Cumulative Certificates of Deposit (NNCDs) and Treasury Bills (TBs) has helped manage liquidity.

Critically, the RBZ has curtailed its financing of government activities via money creation, shifting toward reserve accumulation that now approaches the US$1 billion threshold according to official figures.

These reserves, though still below the optimal levels for comprehensive currency backing, represent a meaningful step toward enhancing credibility and mitigating external shocks. By prioritizing fiscal discipline and reserve building, the RBZ is addressing historical vulnerabilities, fostering an environment where the ZiG can maintain its value despite ongoing economic headwinds.

From the perspective of Equity Axis, a cautiously optimistic stance on the currency's outlook prevails, tempered by Zimbabwe's longstanding history of currency mismanagement that cannot be swiftly overlooked.

While recent developments signal progress, significant risks loom, particularly from deferred supplier payments that have ballooned beyond US$1 billion and continue to escalate. This practice, while providing short-term relief, introduces inefficiencies and inflates costs, as suppliers incorporate time-value premiums and intermediary rents into their pricing, ultimately burdening the economy.

Moreover, the reliance on domestically sourced, high-cost funding for infrastructure projects risks crowding out private sector investment, stifling broader growth. Acknowledging the government's challenges in operating solely on budgeted revenues without external support, it is evident that access to concessional financing from institutions like the World Bank and IMF could alleviate these strains and lower the overall cost of capital for the nation.

Zimbabwe's 25-year isolation from such avenues, due to sanctions and debt arrears, has exacerbated fiscal pressures, but with sanctions lifting and debt clearance initiatives underway, an opportunity emerges for a reset.

For enduring currency stability, embracing this path toward debt resolution is essential, offering a viable off-ramp from the current cycle of deferred obligations and punitive financing.

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