Zimbabwe’s Finance, Economic Development, and Investment Promotion Minister, Mthuli Ncube, has announced several measures to support the local currency, the Zimbabwe Gold (ZiG). Introduced in April, ZiG is part of Zimbabwe’s efforts to move away from the dominance of the US dollar, which currently accounts for 70% of local transactions.
ZiG is backed by a reserve of foreign currency and precious metals, primarily gold. In his mid-term fiscal policy review, Ncube outlined a series of monetary and fiscal policies aimed at increasing trust and acceptance of the domestic currency. The goal is to gradually shift the economic balance from foreign currency to the local currency in line with the de-dollarization strategy.
One of the key measures includes paying some user fees in local currency, although these fees will still be pegged to the US dollar. This approach aims to promote the use of ZiG without destabilizing current pricing structures. Additionally, Ncube proposed that customs duty on selected finished goods, which are inputs into production for specific industries, be paid in ZiG. This policy is designed to further encourage the use of the local currency.
Another significant move involves tax legislation. Ncube plans to amend the tax laws to allow companies to pay half of their corporate income tax in ZiG. Companies will be required to pay more in local currency if they generate more revenue in ZiG. Conversely, if they earn more in foreign currency, they will still need to pay half of their taxes in the local currency.
In June, the government requested companies to pay their corporate income tax in both local and foreign currency on a 50:50 basis. This measure was intended to bolster the use of ZiG. However, without enabling legislation, companies were not compelled to adhere to this requirement. Ncube acknowledged this oversight and emphasized the need for prompt legislative amendments to enforce this policy by the third quarterly payment date at the end of September.
Treasury must ensure that ministries, departments, and agencies accept payments in local currency. The policy has been in place, but implementation has been inconsistent. There have been instances where people were told that the point of sale machines were not working or that the system was down, hindering the de-dollarization efforts.
Despite these challenges, the government remains confident in ZiG’s potential. As of the end of May 2024, US$77.4 million equivalent in ZiG was in circulation, supported by a reserve of US$349 million. The success of ZiG largely depends on the concerted efforts of fiscal and monetary authorities.
Recently, the central bank announced it would inject US$50 million into the interbank market to meet the growing demand for foreign currency. This move aims to reduce reliance on the parallel market, where companies often turn when they cannot access foreign currency through official channels.
The central bank governor, John Mushayavanhu, expressed optimism about ZiG’s future. He projected increased demand for ZiG as companies prepare for the second quarterly payment date in June. Mushayavanhu noted that fuel companies would be compelled to look for local currency, encouraging them to conduct transactions in ZiG.
Although the initial target was missed, Ncube is optimistic that the necessary amendments to the tax legislation will be made in time for the third quarterly payment date. This will ensure that companies can comply with the requirement to pay half of their corporate income tax in ZiG.
