Business Writer
Local currency, the Zimbabwean Gold (ZIG), is set to face depreciation pressures in the second half of 2024, driven primarily by increased import demands and substantial infrastructure spending, according to an economic outlook report by Morgan & Co.
With the country grappling with acute food security issues, the Government is expected to import large quantities of grain, putting significant pressure on fiscal balances.
Furthermore, the ongoing infrastructure spending, currently estimated at around US$180 million, is straining the Government’s already limited tax revenues.
Morgan & Co. notes that this figure far exceeds the transport ministry’s budget, doubling the planned expenditure.
“ZIG liquidity is expected to remain tight in the second half,” the report states. “We maintain that pressure remains on fiscal balances to address acute food security issues through grain imports. This could result in the continued depreciation of the ZIG in the second half, albeit at a slower rate than the ZWL’s depreciation in the first quarter.”
The central bank’s recent measures to absorb excess liquidity from the market have been commendable, aiming to curb the parallel market rates, which had surged in recent weeks.
However, these liquidity – tightening measures could also mean that liquidity on the Zimbabwe Stock Exchange (ZSE) will remain constrained in the near term.
Despite this, the ZIG money supply has increased to 30 percent of the total money in circulation, reflecting the Reserve Bank of Zimbabwe (RBZ) governor’s recent comments on efforts to manage the currency’s stability.
Morgan & Co. warns that ZIG inflation will likely track the currency’s depreciation, given that its volatility largely stems from exchange rate fluctuations.
The gradual depreciation of the ZIG, coupled with inflationary pressures, presents challenges for Zimbabwe’s economic stability, particularly as the Government navigates competing demands for fiscal resources.
As the country continues to balance its fiscal challenges with the need for economic growth, the pace of ZIG depreciation will be closely watched, particularly in relation to the Government’s ability to manage its import bill and infrastructure spending.
