Single-Digit Inflation in Zimbabwe: Milestone or Mirage?

By Tonderai Godknows Mapfumo

HARARE – THE Reserve Bank of Zimbabwe (RBZ) has celebrated a significant milestone: achieving an annual inflation rate of 4.1% as of January 2026. While this may seem like a momentous achievement in macroeconomic stability, a closer inspection reveals a much more complex picture. Through deliberate policy measures and underlying issues in the economy, the claim to stability appears more like a statistical anomaly than a genuine economic breakthrough. This critique will explore the intricacies behind Zimbabwe’s economic claims and shed light on the hidden truths that accompany this supposedly celebratory announcement.

1. Engineered Scarcity vs Organic Stability

The impressive drop in inflation can primarily be attributed to a stringent “liquidity squeeze” orchestrated by the RBZ. By effectively curbing the money supply, the central bank has created a scenario where local currency is scarce, subsequently reducing inflation. However, as Austrian economist Ludwig von Mises noted, “Inflation is not merely a monetary phenomenon; it is the impact of an excess of money in relation to goods.” This suppression of currency circulation raises questions about the sustainability of this approach.

With interest rates soaring at 35%, the high cost of borrowing effectively snuffs out credit creation. While this might seem like a prudent move to protect the currency from speculative attacks, it comes at the grave consequence of stifling domestic business investment. Businesses struggle to access funds necessary for expansion and operational growth, inevitably hampering long-term economic development.

As industry analysts are quick to highlight, the perceived stability of the currency is fragile. Rather than witnessing organic economic growth, we are left with an unsustainable model that relies on artificially limiting liquidity. As Austrian economist Friedrich Hayek pointed out, “The more the state plans, the more difficult planning becomes for the individual.” The potential for future disruptions remains high, as any incremental changes in policy could lead to inflation spiraling out of control once again.

2. Fiscal Repression and Hidden Arrears

While the RBZ touts the low inflation figure as a significant triumph, critics argue that it masks deeper issues within public finance. The government’s strategy of deferring payments to contractors and service providers has created a ticking time bomb of unpaid domestic arrears, which now exceed one billion US dollars.

These unpaid bills constitute a form of fiscal repression, allowing the government to present a façade of fiscal balance while sacrificing the welfare of businesses reliant on timely payments. As economist Murray Rothbard stated, “The government does not have its own resources; it has only the power to take.” This scenario jeopardizes the financial health of these businesses and undermines investor confidence, which is essential for future growth.

Furthermore, if the government attempts to settle these substantial arrears in ZiG, it risks flooding the market with liquidity, triggering a currency depreciation that could wipe out any gains made in disinflation. This precarious balancing act raises concerns about the financial health of the government and the stability of the economy at large.

3. The “Statistical Mirage” of GDP Rebasing

In projecting a robust growth outlook for 2026, the RBZ relies heavily on recent statistical recalibrations that have effectively altered the economic landscape on paper. By rebasing the GDP to 44.4 billion USD at the end of 2025, the government artificially lowered the debt-to-GDP ratio to 44%, creating an illusion of improved fiscal health without any real enhancements to productivity.

This “statistical mirage” generates a false sense of confidence among policymakers and the public alike. As economist Israel Kirzner argued, “The entrepreneur notices their neglected opportunities, and the corrected perception of these leads to the resource adjustment.” Despite claims of growth, many independent analysts argue that the upward movement in GDP is primarily a cyclical rebound from the severe drought experienced in 2024. Without structural reforms aimed at enhancing productivity and income levels, the current growth may not be sustainable.

Indeed, the illusion of stability can be dangerous, as it breeds complacency within government circles. As Hayek warned, “A crisis is a great opportunity for reform.” It is vital for policymakers to acknowledge that statistical adjustments cannot substitute for genuine economic reform, lest they find themselves in dire straits when financial conditions worsen.

4. Deep-Rooted Dollarisation

Despite announcing single-digit inflation at 4.1%, the underlying reality remains that Zimbabwe’s economy is deeply entrenched in dollarisation. Large corporations continue to operate primarily in US dollars, with firms like Delta Corporation reporting that around 90% of their sales transactions are dollar-denominated. This reliance on foreign currency suggests that confidence in the local currency, the ZiG, remains tenuous at best.

This dollarisation complicates the government’s claims about inflation and economic health. As Rothbard pointed out, “Inflation is always and everywhere a monetary phenomenon.” It allows businesses to operate under the stability of a more reliable currency while distinctly separating them from the fluctuations of the ZiG. Consequently, many economic actors view the inflation figure in ZiG as largely irrelevant in their day-to-day operations.

In a dollarised economy, the touted achievements of the RBZ may resonate hollowly among the populace. While officials celebrate milestones of macroeconomic stability, the reality for many remains one of uncertainty and mistrust, highlighting the need for substantial policy reforms that transcend mere statistical manipulation.

Conclusion

In conclusion, while the RBZ’s announcement of a 4.1% inflation rate may shine like gold on the surface, a deeper inquiry reveals a complex web of fiscal management issues, statistical rebasing, and entrenched dollarisation. As economist Ludwig von Mises observed, “The greatest danger of inflation is that it leads ultimately to its own destruction.” These factors compound to raise significant questions about the true health of Zimbabwe’s economy. As analysts indicate, genuine economic recovery will require more than just policy gimmicks; it necessitates a comprehensive approach focused on substantive reform, transparency, and confidence-building measures. True stability will only emerge when the underlying economic issues are genuinely addressed rather than merely obscured by the allure of seemingly favorable statistics.

Tonderai Godknows Mapfumo is the Research and Advocacy Officer for COMALISO (Coalition for Market and Liberal Solutions) in Zimbabwe and an Associate of the Free Market Foundation.