Mixed reactions over currency stability in 2025

Key economic stakeholders and some observers have expressed mixed reactions regarding prospects of currency stability in Zimbabwe as we move into 2025 with the majority anticipating a stable year.

The issue of currency instability especially in the first half of the year, has become a trademark of Zimbabwe’s economic landscape since 2019.

Various economic participants, including businesses and consumers, believe that the volatility of exchange rates has not fully subsided, leading to uncertainty.

In an effort to regain control over the monetary system, Zimbabwe transitioned its local currency from the Zimbabwe Dollar (ZWL) to the Zimbabwe Gold (ZWG) on April 5, 2024.

This shift initially pegged the ZiG at an exchange rate of US$13,59 against the greenback on the official interbank market.

However, the new currency experienced a steep decline, losing approximately 60 percent of its value by November 2024, but businesses still remain optimistic.

The country experienced a shift from a deflationary environment, with an estimated rate of -2.4 percent in April 2024, to an overwhelming inflation rate of 37,2 percent by the end of October 2024.

This created significant challenges for individuals and businesses attempting to maintain financial stability.

In general, public confidence in the local currency has deteriorated significantly over the years, largely due to traumatic economic experiences in 2008 and 2019, when both savings and incomes were severely undermined as the currency plummeted in value.

This lack of trust in the local currency has been recognised as a critical factor contributing to the turbulence that characterised the local economy over the past five years.

As it stands, both businesses and individuals are grappling with the complexities of planning and executing transactions amid fluctuating exchange rates, especially those relevant to the parallel market.

Analysts have continuously highlighted the urgent need for prioritising financial sector stability, urging the Government to take decisive action to address these persistent issues that continue to disrupt economic stability.

Furthermore, various business players remain sceptical of the local currency stability in the coming months, particularly in light of a significant devaluation that occurred in September last year.

During this episode, the ZiG officially fell 43 percent against the USD in September, effectively narrowing the gap between the official and parallel market rates.

This devaluation had severe repercussions for consumers, as it eroded disposable incomes, exacerbated inflation and negatively affected revenue generation and profitability for businesses across the board.

Industry insiders have reported that many companies have suffered significant losses, with balance sheets being substantially eroded following the devaluation.

Some companies now cannot borrow owing to weak balance sheets that stemmed from the 43 percent cut.

Executives are increasingly voicing their concerns, indicating that planning with the local currency is tantamount to planning for failure.

Consequently, several particularly listed companies are now opting to reduce their holdings in ZiG as a protective measure, seeking to shield themselves from currency instability.

The Reserve Bank of Zimbabwe (RBZ) has maintained a tight monetary policy stance to ensure reserve money is fully backed.

In December 2024, the RBZ maintained 35 percent interest rate at and asserted its tight monetary policy stance into 2025.

There also has been serious demand for local currency lately which is a step in the right direction if maintained.

“The recurring theme of currency instability has almost become a permanent feature in Zimbabwe’s economic landscape. Since attempting to de-dollarise in 2019, the country has experienced shocking levels of local currency depreciation.

“The reckless spending and successive inevitable debt monetisation through the Central Bank, along with an increasingly ungovernable economy relying on the informal sector and widespread corruption have made matters even worse,” said Equity Axis in its December review.

Economist, Godfrey Kanyenze, indicated that legacy issues, confidence and issues of trust loom large in the local economy and they needed to be addressed.

“I think the issues of trust and confidence loom large in our economic environment. So, without addressing these and other individual issues, we will not be able to stabilise the currency, hence, we will continuously have persistent negative trends in terms of currency stability. We need strong, powerful measures to bridge the gap between the stakeholders, to create national cohesion because we still see high polarisation.

“It is these non-economic factors, that are quite fundamental. That is why you see that even when exports have performed well, liquidity having increased, the budget statement even stated that our export earnings plus our remittances were quite high, we have got reserves, but that in itself is not enough to guarantee currency stability,” said Kanyenze.

FBC Securities in its economic outlook pointed that the launch of ZiG had brought relative stability in the monetary sector.

FBC Securities say although they are cautiously optimistic, there is a reasonable expectation for currency stability to continue into the first half of 2025.

“With a normal to above normal rainy season expected, GDP is anticipated to grow by 6,5 percent anchored by robust mining and construction sectors and a growing tourism sector.

“However, monetary sector stability remains a major determinant of the attainment of the envisaged growth,” said FBC Securities in its 2025 outlook.

This positive outlook is based on various economic indicators and market sentiments, which suggest that the measures implemented alongside the introduction of the ZiG currency are contributing to a more secure financial environment.-esinesweekl