HARARE – The African Development Bank (AfDB) has projected Zimbabwe’s inflation rate to close the year at approximately 7%, driven by the stability of the newly introduced domestic currency, Zimbabwe Gold (ZiG).
This forecast comes as a significant milestone for the nation, which has faced prolonged economic instability.
Zimbabwe had been grappling with sustained exchange rate volatility until the introduction of the ZiG currency on April 5 this year. The ZiG, backed by a basket of minerals—primarily gold—and foreign currency reserves, has played a crucial role in stabilizing the country’s exchange rate.
Last week, Dr. John Mushayavanhu, the governor of Zimbabwe’s central bank, announced that a liquidity management committee composed of central bank and Treasury officials had been established. This committee will monitor liquidity dynamics to protect the currency from potential destabilizing factors. Additionally, the central bank has set up a monetary policy implementation, monitoring, and evaluation committee (MPIMECO) to track key economic indicators, swiftly identifying emerging risks and ensuring timely interventions by the Reserve Bank of Zimbabwe (RBZ).
The AfDB’s latest country report highlights Zimbabwe’s progress towards economic stability, despite the challenges posed by severe drought conditions exacerbated by the El Niño weather phenomenon. These conditions have severely impacted rainfed crops across the region, significantly reducing agricultural output.
“The projected low inflation rate reflects the progress Zimbabwe has made towards restoring economic stability following the introduction of the ZiG currency, which has stabilized the exchange rate,” the AfDB noted in its report. The report forecasts annual inflation to ease to around 7% by the end of 2024, emphasizing the importance of exchange rate stability in a country where prices are closely tied to the US dollar.
Despite the optimistic inflation outlook, Zimbabwe’s economic growth is expected to face hurdles in 2024. The AfDB report predicts a 2% growth in gross domestic product (GDP), a sharp decline from the 5.3% growth recorded in 2023, largely due to the poor agricultural output. Agriculture, a cornerstone of Zimbabwe’s economy, contributing up to 16% of GDP, is expected to negatively impact other sectors, particularly manufacturing.
“The poor performance of agriculture is also expected to have a negative knock-on effect on the manufacturing sector,” the AfDB highlighted.
However, the report also points to positive growth prospects, with the mining and services sectors anticipated to be the primary drivers of economic growth in 2024. Zimbabwe’s rich mineral resources, particularly gold and platinum group metals, are expected to play a vital role in sustaining the economy.
Nonetheless, the AfDB cautions that subdued international mineral prices could pose a risk to the country’s current account balance, which is forecast to narrow to 0.7% of GDP in 2024.
On the fiscal front, Zimbabwe has made notable progress in reducing its fiscal deficit, projected to decrease to -1.5% of GDP in 2024. This improvement is attributed to enhanced revenue mobilization and stringent budgetary controls, including the rationalization of public spending and a freeze on non-essential recruitment.
Despite these gains, the report underscores the challenges ahead, particularly the impact of food shortages, which could pressure government spending and make it difficult to meet the fiscal deficit target for 2024. The AfDB estimates that 7.5 million people in Zimbabwe will require food assistance.
Moving forward, the focus will be on sustaining the economic gains amidst external pressures and ensuring that growth remains inclusive and resilient.