KEY POINTS
- ZiG sees rare gains amid the central bank’s tighter monetary policies.
- Increased demand for dollars anticipated with planting season.
- The Finance Minister hints at policy support in the upcoming budget.
Zimbabwe’s gold-backed currency, the Zimbabwe Gold (ZiG), has shown a rare gain against the U.S. dollar, rising for the second consecutive day, supported by the central bank’s recent monetary tightening.
ZiG’s value strengthened by 4 percent to reach 26.90 per dollar, as reported by Zimbabwe’s central bank.
This follows an uptick earlier in the week, the first gain in almost three weeks, while its unofficial market rate remains between 35 and 40 per dollar.
Economic policy and currency strength
Economist Prosper Chitambara, based in Harare, attributes this recent gain to the central bank’s tighter monetary policies, which were introduced in late September.
Measures included a devaluation of the ZiG and a sharp interest rate hike from 20 percent to 35 percent, alongside an increase in reserve requirements.
However, these actions aim to curb inflation and support the currency, which has struggled since its launch in April.
However, Chitambara warned that maintaining this upward trend might be challenging with the arrival of the planting season, a period that typically increases demand for foreign currency as Zimbabwean farmers purchase essential inputs like seeds and fertilizers.
“The agriculture season will inevitably lead to increased public spending to support farmers,” he added, suggesting that such economic pressures could temper recent gains.
Government strategies and budget adjustments
The ZiG represents Zimbabwe’s sixth attempt in 15 years to establish a stable local currency and reduce reliance on the U.S. dollar for domestic transactions.
Furthermore, in an effort to bolster its use, the government has encouraged businesses to accept ZiG for various services and payments, and Finance Minister Mthuli Ncube is expected to announce further support measures in his upcoming budget presentation.
According to Ncube, these changes may include requirements for utilities, local councils, and duties to be paid exclusively in ZiG.
During a press briefing in Harare, Ncube outlined plans for fiscal adjustments designed to stimulate economic recovery, following the nation’s worst drought in four decades.
“Our goal is to offer targeted incentives across key sectors, including industry, mining, and agriculture,” he said. “The budget will include balanced adjustments aimed at motivating growth and resilience.”
Outlook and long-term viability
The Zimbabwean government hopes that these policy adjustments, along with efforts to expand the currency’s role in the economy, will stabilize the ZiG and build greater public confidence.
According to New Zimbabwe, analysts remain cautiously optimistic, acknowledging that while the recent gains are promising, long-term viability will require continuous and disciplined fiscal management.
However, with the agriculture season underway, the upcoming budget’s effectiveness in balancing fiscal discipline with economic support will play a crucial role in determining the ZiG’s stability.
