Source: ZiG gets huge boost | The Sunday Mail
Business Reporter
THE continued increase in Zimbabwe’s foreign currency reserves, which stood at US$629 million by the end of March, could be a major turning point in the quest to stabilise the Zimbabwe Gold (ZiG).
When the new currency was introduced on April 5 last year, it was met with guarded optimism.
However, confidence in the local unit continues to grow.
“For the first time in a while, we are seeing some consistency in pricing from our suppliers,” said Mr Tendai Maposa, a Harare-based retailer.
“If this holds, it will make planning and costing much easier.”
Economist Mr Kuda Mugova believes ZiG was faring better than its predecessor because of joint efforts by monetary authorities and Treasury to manage liquidity.
“The market is starved of ZiG liquidity (since the devaluation of September 2024) . . . They (Treasury) are largely spending what they are collecting from taxes (which they are also not quickly releasing to the market),” he said.
“The other factor is that a few industries are relying on the RBZ (Reserve Bank of Zimbabwe) forex allocation, as revealed by the CZI (Confederation of Zimbabwe Industries) report. The gold in reserves has appreciated in value by a large margin and the ZiG supply has not been increased at the same rate.”
Market analyst Mr Wafa Kuchera, of Trigrams Investments, said the country’s “forex reserves need to be able to cover imports for a couple of months . . .”
“The current accumulation is commendable, but we need a much larger buffer given the critical nature of our major requirements such as electricity and fuel,” said Mr Kuchera.
“I would put the figures (of reserves) at about 20-25 percent of our GDP (gross domestic product), meaning well above US$6 billion or roughly our national Budget.
“However, this amount does not necessarily need to be at the RBZ as it should be spread and represented by bank capital and other strategic balances.”
However, the significant increase in reserves is considered a confidence-booster for both local and international investors.
RBZ Governor Dr John Mushayavanhu said the central bank was “committed to a reserves accumulation strategy to cover the stock of local currency reserve money” in order to stabilise ZiG.
As part of their liquidity management strategy, monetary authorities have made a commitment to ensure that every increase in money supply is matched by growth in both foreign reserves and economic activity.
National insurance policy
“Foreign currency reserves act as a national insurance policy,” explained Dr Action Nyandoro.
A robust reserve position, he added, enables the central bank to step in decisively during volatile market conditions.
“It is a signal to both local and foreign investors that the Government has some capacity to meet external obligations. This can reduce panic in times of pressure.”
The boost in reserves was mainly supported by a corresponding increase in foreign currency inflows, rising from US$11 billion in 2023 to US$13,3 billion in 2024.
Gold delivery to Fidelity Gold Refinery also jumped from 30,1 tonnes in 2023 to 36,5 tonnes in 2024.
“The build-up in foreign reserves is bearing fruit and is key towards building confidence, credibility and trust in the central bank and the local currency, including the smooth and efficient functioning of the interbank foreign exchange market under the willing-buyer, willing-seller arrangement and relative stability on the exchange rate,” Dr Mushayavanhu added.
Overall, the foreign currency reserves grew by 31,9 percent, 11,4 percent and 25,8 percent in the second, third and fourth quarters of 2024, respectively.
Further, they also rose by 19,4 percent in the first three months of this year. This translates to an average quarterly gain of 23,2 percent.
Added Dr Mushayavanhu: “In one year, foreign reserves have grown by a staggering 121 percent.”
As the country works to rebuild trust in its financial institutions and regain favour with international finance institutions, the reserves are not only a safeguard against external shocks but also a reflection of improved export earnings and remittances.
“Growing our reserves is like having a safety net in an economy that is constantly facing shocks,” remarked Professor Linda Moyo, an economics lecturer at the University of Namibia.
While such reserves might not immediately resolve inflationary pressures or structural challenges, she said, they create the necessary space for more substantive reforms to take root.
Mr Daniel Gumede, a regional economic consultant, is optimistic about the broader implications of this policy shift.
“For Zimbabwe, building reserves is not just about dollars and cents, it is about credibility,” he said.
He said the exponential growth of foreign currency reserves demonstrates to international lenders and investors that the country is better managing its books, thus opening pathways to stabilise the currency further, service existing debts and even support critical sectors during crises such as droughts or supply chain disruptions.
The local currency was trading at ZiG26,7 to US$1 on Wednesday last week, slightly weaker than the ZiG24,4 when it was devalued on September 27, 2024.
The current momentum and period of stability give policymakers a platform to drive more ambitious reforms aimed at long-term economic rejuvenation.
The central bank has since committed to “ensure that the country has sufficient reserves to strategically intervene in the foreign exchange market to maintain stability of the exchange rate and prices in the economy”.
With improved fiscal management, better trade settlements and a commitment to a disciplined monetary framework, the nation is taking significant strides towards a more robust economic
future.And with ZiG in circulation and backed by strong reserves, the country is well-positioned to meet external obligations, manage market volatility and ultimately build a stronger, more credible economic future.
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