Government officials don’t like it when they are reminded that they are known for policy inconsistency. Yet, by sending unsure signals on the future of its currency policy, government is not exactly going out of its way to fix that reputation.
In 2022, the government issued a statutory instrument making it law that Zimbabwe would stick to the multicurrency regime until 2025, the remainder of the current five-year economic plan, NDS1. The regulation was meant to reassure investors, edgy over the government’s intentions. The Zimbabwe dollar was weakening and speculation was growing that the country would, again, ditch the multicurrency system to enforce sole Zimdollar use.
As 2025 approaches, many fear yet another major policy shift. Banks are reluctant to lend long term, past 2025. They are afraid of what has happened to others before – lend in USD and be forced to accept repayment in Zimdollars. This uncertainty has left businesses – from miners to farmers – struggling to secure long-term lending to grow their operations.
“I think in the short term it does keep our activities more short-dated and less long-term looking until we get more certainty. Banks and any business require certainty in the regulatory environment to be able to make long-term decisions,” according to Mike Brown, the CEO of the Nedbank Group, recently in Zimbabwe meeting his bank’s customers.
Investors are seeking reassurance, but it hasn’t been coming.
Meeting businesspeople in Victoria Falls at the Zimbabwe Economic Development Conference recently, President Emmerson Mnangagwa declared: “We must bite the bullet, whether it gives us some suffering for a period, we shall proceed to have our own currency, not a situation where the economy has a regime of currencies in use. We want a single currency and we are going there.”
At the meeting, business leaders told the government that the currency uncertainty is making it impossible to plan. George Guvamatanga, Ministry of Finance Permanent Secretary, read out their recommendations.
He said: “Stakeholders in this conference have requested that government provides the market and the economy with a clear currency reform roadmap as the financial sector is now hesitant to extend long-term foreign currency loans as the 2025 deadline looms.”
Last Thursday, on a call with reporters, Finance Minister Mthuli Ncube was asked about the 2025 deadline. We are still thinking about it, he replied.
“As to what we will do beyond 31 December 2025, we are mulling over that, so we will come back on that,” Ncube said.
“For now, I want to assure businesses that whatever we do, we will make sure that we are able to protect business, transactions, jobs. We will not do things in a manner that will jeopardise the growth that we have seen so far. We are mulling over that. For now, we have a multicurrency regime.”
This will be hardly reassuring for businesses.
According to Nedbank’s Brown: “Anybody in the system will want more certainty as to what is or isn’t going to happen. Because in any economy that is largely dollarised at 80-90% to suddenly come at a point in time where they say they are going to change to a different currency is massively disruptive.”
A sudden shift to sole Zimdollar use would not be easy. By January, more than 75% of all local transactions were in foreign currency, according to the government’s own data. Numbers from listed companies show that USD now dominates the economy even more; dairy and food manufacturer Dairibord says USD sales peaked at 92% in July, up from the average of 39% in the first half of last year. Sales at beverage company Delta reached 85% in the year to March.
Almost all bank loans, 94% according to the Reserve Bank of Zimbabwe, are now in USD, after authorities went on a campaign to limit the circulation of Zimdollars to tame inflation.
In June, the President’s spokesman said a measure compelling companies to pay part of their taxes in Zimdollars “gives us a basis for post-election big changes”, adding more speculation on future currency policy.