HARARE – Zimbabwe’s gold-backed currency, the Zimbabwe Gold (ZiG), in recent weeks has shown signs of stabilisation. However, concerns remain that economic instability and external pressures could still lead to a potential currency crash. The country’s economy continues to face severe challenges, including inflation, drought, and significant unemployment, which underscore the broader risks to the ZiG’s future.
Stable Yet Fragile ZiG Performance
As of November 14, the official exchange rate for the USD to ZiG stands at 25.8, marking a 91.1% rise, according to the Reserve Bank of Zimbabwe (RBZ). Despite this official rate, the unofficial, black-market rate remains volatile, with Zimpricecheck reporting a rate of 1 USD trading between 35 and 40 ZiG. This spread reflects Zimbabwe’s ongoing currency discrepancies, which have deepened since the 43% devaluation of the ZiG in September.
Zimbabwe’s Economic Struggles
Zimbabwe’s economic challenges have been exacerbated by a prolonged drought that has led to food shortages, pushing the country to increase food imports. Bulawayo, the country’s second-largest city, faces critical water shortages, with officials warning that water supply could be cut off entirely by year-end. Years of budget constraints have delayed essential water infrastructure projects, leaving reservoirs unbuilt and worsening the water crisis, especially in rural areas.
The situation has also fueled inflation, which surged to 37.2% in October, following the ZiG’s recent devaluation. This rise in inflation has hit households and businesses alike, especially with a 5.8% increase the previous month. Zimbabwe’s unemployment rate has worsened as well, with companies cutting jobs to manage costs in the struggling economy.
Mixed Economic Signals
Despite these challenges, Zimbabwe’s tourism sector has seen significant growth, with tourist arrivals projected to rise by 83% this year. The weak ZiG has made travel to Zimbabwe more affordable, boosting retail and hospitality spending. Additionally, Zimbabwe’s gold industry has benefitted from a record high in gold prices, which has helped stabilise the ZiG. Foreign currency reserves have also climbed, reaching $509 million as more nations sell off their foreign currency reserves, indirectly boosting demand for the ZiG.
The government has projected a 6.5% economic growth rate for 2025, up from an estimated 2% this year, while the central bank has raised interest rates to 35% from 20%, aiming to increase the attractiveness of holding ZiG.
Challenges Ahead for the ZiG
Despite these efforts, Zimbabwe’s goal for the ZiG to become the country’s primary currency faces major obstacles. The RBZ expressed aspirations for the ZiG to evolve into a free-floating currency free of government interventions. However, analysts and citizens remain sceptical, given Zimbabwe’s turbulent currency history and its reliance on the US dollar, which is used in over 70% of all transactions.
The risk of a return to cash printing also looms, with the government potentially resorting to this to fund the national budget, a move that has previously triggered inflation spikes. Furthermore, Zimbabwe’s political landscape, marked by long-standing leadership, adds to the uncertainty surrounding the ZiG’s future.
While some economic indicators offer hope, the structural and historical challenges faced by Zimbabwe’s currency are substantial. The USD remains a safer choice for businesses and individuals who recall past currency crashes. The continued strength of the US dollar against the ZiG is likely to further solidify the dollar’s dominance in Zimbabwe’s economy, posing an uphill battle for the ZiG’s long-term stability.