By Dr. Admire Dube
HARARE – THE Reserve Bank of Zimbabwe (RBZ) has always been a fascinating case study in Central Banking, especially as it grapples with the delicate task of balancing price stability, exchange rate management, and economic growth.
The latest Monetary Policy Statement (MPS), issued on February 6, 2025, by Governor Dr. J. Mushayavanhu, is no exception. With inflation hovering at 14.58% year-on-year for ZIG as of January 2025 and an official exchange rate of ZiG26.4072 per USD, the RBZ finds itself walking a tightrope between anchoring expectations and fostering resilience.
But can this balance be achieved without compromising the country’s fragile recovery or curtailing the current infrustructure led development drive?
A Contextual Backdrop: Recent Economic Developments
Before dissecting the recent policy decisions, it is crucial to understand the context in which they were made. Zimbabwe’s economy, like many others in the SADC region, has faced significant challenges over the past year.
The EL-Niño-induced drought, which slashed maize production and increased food imports from US$628.9 million in 2023 to US$976.1 million in 2024 (Table 3, August 2024 MPS Review), underscores the vulnerability of agriculture-dependent economies.
Yet, amidst these headwinds, foreign currency inflows surged by 21% YoY, reaching US$13.316 billion in 2024 (Table 2, February 2025 MPS). This robust performance reflects strong diaspora remittances (US$2.152 billion) and export earnings (US$7.879 billion).
However, not all sectors are equally buoyant. For instance, Platinum Metals Group (PGM) prices plummeted during 2024, with palladium and rhodium falling by 35.3% and 49.1%, respectively (Figure 8, August 2024 MPS Review).
Lithium ore (spodumene), on it’s own, is a whole stand-alone study. One view, which is perhaps against the grain, is that the lofty highs of last year we wont be seeing them anytime soon, if ever.
Read more: https://payhip.com/admiremaparadzadube/blog/news/the-lithium-train-might-have-already-passed
These price falls threaten mineral export revenues. For Zimbabwe, raw ore export constitutes nearly 59% of total exports! Meanwhile, gold prices remained resilient, peaking at US$2,700 per ounce in October 2024 due to geopolitical tensions and safe-haven demand (Figure 7, February 2025 MPS).
In this environment, the RBZ faces a daunting task:
maintaining stability while addressing structural weaknesses. As noted in the February 2025 MPS, “the gains made on ZiG thus far have laid a solid foundation for continued stability” (Page 5). Yet, the question remains: will these foundations hold firm under shifting global sands?
The Monetary Policy Decision: A Strategic Gamble?
At the heart of the February 2025 MPS lies the decision to maintain the Bank Policy Rate at 35% per annum and retain statutory reserve requirements at 30% for demand deposits and 15% for savings/fixed deposits (Page 58, February 2025 MPS).
While this stance aligns with the Taylor Rule – a framework suggesting higher interest rates to curb inflation and, seemingly, the tool of choice for the current Governor – it also risks stifling credit growth, the main stimulant for economic and GDP expansion.
However, when one applies the Fisher equation – which establishes the relationship between nominal interest rates, real interest rates, and inflation – real interest rates (nominal interest rate less inflation rate) are deeply negative in the country. This no doubt discourages long-term savings behavior.
For instance, the nominal interest rate for ZiG savings accounts stands at 5% per annum, while month-on-month inflation rate averages around 10.5% (Page 30, February 2025 MPS). This naturally creates a double edged sword of increasing velocity of money as people dump the ZiG the moment they receive it, and it discourages savings in ZiG, both very inflationary in the short and long term.
Despite these concerns, the RBZ argues that tight liquidity conditions are necessary to anchor inflation expectations. By withdrawing about ZiG1.2 billion from circulation through statutory reserves (Page 11, February 2025 MPS), the bank aims to reduce speculative pressures.
Inadvertently, such measures could exacerbate dollarisation trends, given the public’s lingering preference for USD-denominated assets. Right at the time the RBZ has hinted in the same statement that monocurrency will commense in 2030.
Perhaps in an effort to counteract this, the RBZ introduced then introduced the ZiG denominated Targeted Finance Facility (TFF), funded via existing statutory reserves, to channel liquidity toward productive sectors. It was introduced in August 2024. The jury is still out whether this is the return of quasi fiscal activities by the Central Bank, albeit guised.
Economic Projections: Optimism Amid Uncertainty
The RBZ projects GDP growth of 6% in 2025, up from 2% in 2024 (Page 16, February 2025 MPS). This forecast hinges on several assumptions:
– Recovery in agricultural output post-drought.
– Continued strength in gold exports, with production expected to rise from a record 36.5 tonnes in 2024, to never before seen in Zimbabwe figures of 40 tonnes in 2025 (Figure 23, February 2025 MPS).
– Stable exchange rates supported by adequate reserves exceeding US$500 million.
While these projections appear optimistic, they align closely with regional trends. South Africa, for instance, expects growth to rebound from 0.8% in 2024 to 1.5% in 2025, driven by improved power supply and easing inflation (Figure 5, February 2025 MPS).
Similarly, Nigeria anticipates modest acceleration to 3.2% in 2025, bolstered by stronger services sector activity. Against this backdrop, Zimbabwe’s target seems ambitious, though with the right conditions achievable, particularly if underlying risks – such as climate shocks or commodity price volatility – are mitigated.
On the inflation front, the RBZ envisions month-on-month rates averaging below 3% throughout 2025, consistent with exchange rate stability (Page 74, February 2025 MPS). However, we are warned, annual inflation may spike temporarily between April and September 2025, reaching 20-30% due to base effects (Page 74, February 2025 MPS). Such fluctuations highlight the importance of forward guidance mechanisms to manage expectations effectively.
Exchange Rates and Currency Stability: A Test of Resolve
Exchange rate management remains central to the RBZ’s strategy. Under the Willing-Buyer Willing-Seller (WBWS) system, interbank rates stabilised between ZiG13.2 – 13.8 per USD in early 2024. This was before before the wholesale 43% devaluation on the 27th of September 2024 to ZiG26.4072 per USD!
The RBZ thus acknowledges vulnerabilities but attributes them to external factors. For example, heightened geopolitical risks in Sudan and the Middle East could trigger energy and food price spikes, undermining stability (Page 19, February 2025 MPS).
To mitigate these risks, the RBZ has reduced exporter retention thresholds from 75% to 70%. That is, they increased surrender contributions of USD to RBZ by exporters. A whole related conversation which, for now, we will shelve (Page 58, February 2025 MPS).
While these efforts merit commendation, their success ultimately relies on external factors beyond RBZ’s control, like volatile commodities which expose the Zimbabwean economy to extensive shocks.
The massive scaling back of production and the subsequent staff retrenchment that have ensued at platinum miner, Impala, following the softening of Platinum Group Mental (PGM) group commodity prices on the global market, is a case in point.
Should global gold prices fall significantly, what happens to Zimbabwe’s stability narrative?
Sectoral Implications: Winners and Losers
Agriculture
Agriculture is reported as poised for a comeback, thanks to favourable weather patterns and “irrigation rehabilitation programmes.” The Agricultural and Rural Development Agency (ARDA) received ZiG400.6 million (approximately US$15.17 million) for rehabilitating 217,000 hectares of land (February 2025 MPS, Page 114, National Budget Statement).
Maize seed allocations (ZiG532.2 million) and fertilizer provisions (ZiG1.7 billion, Top Dressing: ZiG687.6 million) further support this trajectory (Figure 25, February 2025 MPS). If realised, these initiatives are meant to reduce dependence on costly food imports and enhance self-sufficiency.
Manufacturing
Manufacturing faces mixed prospects. On one hand, Non Negotiable Certificates of Deposit issuance declined sharply to ZiG25 million by November 2024, reflecting constrained liquidity (Table 1, August 2024 MPS Review).
On the other hand, bank loans to the sector accounted for 14.94% of total advances, indicating sustained confidence by the debt market in this sector still (Figure 25, February 2025 MPS). Nevertheless, outdated machinery and high production costs persist as barriers to competitiveness.
Tourism
Tourism is said to be continuosly benefiting from infrastructure investments, including the Victoria Falls cricket stadium and innovation hubs. I want to hasten to say, to the powers that be, surely none of them drives to Victoria Falls, otherwise the state of that road link from Bulawayo to Zimbabwes biggest tourist attraction is deplorable to say the least.
The USD denominated VFEX All Share Index closed the year at 104.84 points, up 5.32% YoY, despite cautious investor sentiment (Figure 17, August 2024 MPS Review). Further improvements depend on macroeconomic stability and regional cooperation.
Financial Sector Dynamics: Strengths and Weaknesses
The banking sector remains stable, with capital adequacy ratios averaging 34.89% and profitability indicators like Return On Assets (ROA) and Return On Equity (ROE) reaching 24.72% and 65.62%, respectively (Table 5, February 2025 MPS).
These figures exceed the Southern African Development Community (SADC) benchmarks, demonstrating resilience. Yet, cracks begin to show when examining microfinance institutions (MFIs). Four out of eight DTMFIs operate under corrective orders, highlighting governance issues (Page 42, February 2025 MPS). Moreover, portfolio-at-risk (>30 days) ratios remain elevated at 11.40%, above the internationally accepted threshold of 5% (Figure 26, February 2025 MPS).
Digital transformation efforts offer both opportunities and challenges. Interoperability transaction values surged from ZiG200 million in June 2024 to ZiG1.8 billion by December 2024, equivalent to US$67.6 million at the December exchange rate (Figure 39, February 2025 MPS).
However, ATMs stagnated at 407 units. How many of these are functional daily anyway? This has limiting rural access (Table 10, February 2025 MPS). Perhaps urban as well.
Could better distribution networks bridge this gap? Perhaps. But only if accompanied by affordable pricing structures for monetary services. And also we need to think beyond ATMs even. What with new innovations in payment processing and systems than need no ATMs to begin with (like https://bidverse.io).
Risks and Vulnerabilities: A Closer Look
Several risks loom large. First, excessive reliance on diaspora remittances (US$2.6 billion in 2024) creates vulnerabilities amid tightening global monetary conditions (Table 3, February 2025 MPS). That’s a whole 17% of all forex inflows.
Second, non-performing loan (NPL) ratios, though manageable at 3.37%, could worsen if growth falters (Figure 26, February 2025 MPS). I guess that explains why banks are holding on to their liquidity, loaning out roughly half their capacity. Meaning if they lent it all out the RBZ would not need to intervene via TFF. At least not for reasons to support productivity.
Third, cybersecurity threats persist despite satisfactory maturity levels, necessitating continuous vigilance (Page 55, February 2025 MPS).
Gender matters
The MPS also touched on gender issues, lamenting diversity deficit. People who identify as women occupy just 2.2% of executive management positions and 1.1% of board directorships across financial institutions (Figure 28, February 2025 MPS).
This imbalance limits innovative solutions tailored to marginalised groups. Why should a nation aspiring for “Vision 2030” as enshrined in the National Development Strategies redress such glaring disparities?
Alternatives and Recommendations: Walking the Talk
Given these complexities, alternative strategies merit consideration. We will be discussing these extensively via X Space and LinkedIn Live and the link thereof will be attached below when done.
Suffice to mention briefly for now that the growth of reserves is commendable. But that they are composed of one class of asset susceptible to volatility must be attended to. The other minerals “basket” has failed to perform – for that very same reason of unpredictability of global prices.
The Central Bank has an option to adopt indexed bonds as well, or structured papers with various underlying assets (working in conjunction with the Mutapa Fund to pick those), all to enhance ZiG’s attractiveness as a store of value.
Both approaches align with the Sustainability Standards Certification Initiative (SSCI), currently underway for 15 banking institutions (Page 42, February 2025 MPS).
Additionally, fostering interbank trading could ease liquidity constraints. Currently, trading volumes remain low, with only 2,035 expired registrations versus **2,481 active ones in the Collateral Registry (Figure 34, February 2025 MPS).
Encouraging banks to set counterparty limits might stimulate activity, reducing reliance on the Lender of Last Resort window.
Here too we could include promoting financial inclusion through targeted interventions. Low-cost accounts grew modestly from 3.63 million to 3.82 million between April and December 2024 (Table 9, February 2025 MPS).
Are we touching a nerve if we ask for waiving of licensing fees for bureaux de change operators in underserved areas could expand access points, boosting adoption rates?
Because killing the informal market is not only on the fiscal side through tax collection enhancement, but also on the monetary side through effective and inclusive formal remmittance, processing, custody and exchange systems and processes for value creation.
Outlook: Scenarios and Speculations
Looking ahead, three scenarios emerge:
1. Optimistic Scenario: Gold prices remain elevated, supporting reserve accumulation and exchange rate stability. Agricultural recovery boosts exports, achieving the projected surplus of US$611.6 million (Page 31, February 2025 MPS).
2. Baseline Scenario: Moderate volatility in commodity prices tempers optimism. Inflation averages 3% MoM, and growth settles near 5%.
3. Pessimistic Scenario: Geopolitical tensions escalate, disrupting supply chains. We face another drought. Or worse, we have political strife internally, disrupting productivity and the laid policies. Inflation surges beyond 30%, eroding ZiG credibility, possibly killing it completely.
Which path will Zimbabwe take? That depends largely on external developments and domestic execution. The RBZ’s commitment to “walking the talk” provides reassurance, but actions speak louder than words. Will policymakers deliver?
Conclusion: A Delicate Balance
In conclusion, the RBZ’s latest MPS demonstrates prudence and foresight but reveals critical gaps requiring attention. While gold-backed policies stabilise the ZiG, reliance on single commodities exposes the economy to exogenous shocks.
The economy is still very dollarised such that by our calculation, the WBWS system is only supplying about 21% on average of the import demand needs of an average USD250 million weekly.
So even that “formal rate” we are proud of its stagnation is, at the moment, not the most efficient barometer of the local currency’s true value. It’s a big tell that the finance authorities had to make an extra demand off of exporters in terms of USD retention adjustments.
High-frequency indicators suggest progress, yet disparities in financial inclusion and cyber readiness linger.
Ultimately, Zimbabwe must navigate these treacherous waters with caution. The big solace is that we are far from what we were in 2008, as the fundamental indicators show. There is a lot of room to make errors and apply corrective measures. As much there is equally enough room for further improvement from where we are.
So, let me leave you with these final thoughts:
Can Zimbabwe truly achieve Vision 2030 without addressing its foundational weaknesses?
Can the fiscal side complement this monetary effort by doing its bit and successfully collecting as needed by the economy? In their arena they are confronted by two major challenges. The first being an informal economy. The second is economic structure, where non performing SOE dominate economic activity yet remit zilch.
Does the Finance Minister need to mandate the nation’s Sovereign Wealth Fund to submit at least 10% to the national budget? Why not, isn’t that wht the fund is for? Our collective national assets being out to use to generate revenue, which in turn is added to the budget and by that same token reduces our individual and collective tax burden? Have I put the cat among the pigeons with this suggestion?
Speaking of which, I have been mulling over an idea that the country needs to rearrange the chairs in this game which allows all participants to seat down without a loser even when the music stops. The first move is to unbudle the Mutapa Fund so its Assets are listed on the VFEX to raise private capital plus dividends. The SOEs benefit from this “privatisation by public equity” being made to be efficient and profitable with these new partners, at the same time paying tax to the Consolidated Revenue Fund. And the big one, they are valued at USD 19 billion collectively. Even at a modest 20% equity raise, that would still net the fiscus about USD 4 billion.
The next to move is to shift the reserves that are currently with RBZ. These are to be moved to the Mutapa Fund, to replace the SOEs they lose to public market. The Fund is better equipped to create immediate and integrated value out of that gold. For instance it can beneficiate/invest/collaterise the commodity.
A good example is by procuring value creating assets, like purchasing equity in top 500 companies, or – in conjunction with Zimbabwe Investment Development Agency (ZIDA) – they identify strategic national projects and form partnerships with foreign investors in a local project. They could invest in a local gas fired energy plant then export excess energy, or to develop a local secondary industry with foreign partners in processing and beneficiating many of our primary/extractive assets, like minerals and other commodities.
Because right now those reserves domiciled in RBZ are dead weight, albeit “store of value.” And after all money backed by a strong economy holds steady and will fix many other ills than just stopping money velocity – which stifles economic activity.
Finally, the last set of chairs to rotate will be the non-Mutapa SOEs. Those still outside the Fund. These are to be privatised completely. An easy USD 15 billion can be raised this way, to add into the USD 4 billion from Mutapa SOEs’ VFEX listing stake. Mind you we have over 110 other SOEs in this country controlling close to 67% of the economy. Half of them need to go. If not more. For new money too – foreign capital, not local debt schemes which will only create a bigger debt trap.
These SOEs, save for a few, are a bigger dead weight than the USD 500 million reserves the RBZ is seating on. We would rather have a sweet problem of deciding how best to use the proceeds for the country’s betterment.
Just a thought.
Time – and perhaps another MPS – will tell.
- Dr Admire Maparadza Dube is a non-executive director at FinAcco Capital, providing strategic leadership for the Holding Business and finance functions for the Operating Units. He has a wealth of experience in executive positions spanning banking, project management, wealth management, financial planning, the statutory environment, tax and customs procedures in Financial Services companies, Banks, Energy sector, Wealth Management and a Tax Authority
- He holds an Honours Degree in Banking & Finance, MSc in Development Finance, a CFA Charter Holder, as well as Internal Controls Investments and Certificates. He recently graduated with a Ph.D. in Finance and his thesis was : The Relevance of Central Banks In A More Global Economy Where More Exogenous Factors Than Local Policies Determine Direction of National Macroeconomics.
- His career objectives are to grow professionally in the fields of Finance & Admin, Strategy, Capital Markets and Economic planning & Research to realise his full potential leading to a simultaneous growth of his organisations and make a positive impact in his community.
- http://www.admiremaparadzadube.com
- X: @admire_dube