Unfortunately, less than a year later, the currency is facing a dramatic loss in value, forcing the government to devalue the Zimbabwe Gold, once again highlighting the country’s enduring struggle with economic instability.

Since the early 2000s, Zimbabwe has faced persistent economic turmoil, characterised by extreme inflation, currency devaluations, and a reliance on multiple foreign currencies for daily transactions. Despite the government’s repeated efforts to introduce new currencies, these measures have often been short-lived, failing to inspire lasting confidence in the local currency. The Zig was supposed to be a breakthrough, but it has rapidly lost value, exacerbating the country’s already fragile economic situation.

To understand the underlying causes of this crisis, Channel Africa spoke to Prosper Chitambara, a development macroeconomist based in Zimbabwe, who explained that Zimbabwe’s currency problems are fundamentally linked to deeper structural issues within the country’s economy. "The core issue is unsustainable public spending, which is not matched by revenue generation," Chidambara explained. "This leads to a rapid increase in the money supply, which in turn fuels inflation and currency depreciation."

Zimbabwe has been grappling with chronic inflation for years, and the hyperinflation crisis of the late 2000s is still fresh in the minds of many citizens. As the government continues to finance its budget deficit by printing more money, the value of the local currency erodes, leading to rising prices and worsening economic hardship for the population.

Chitambara also pointed to the increasing burden of public debt, which has reached an estimated $12.3 billion, with around 80% of that debt in arrears. This debt crisis further fuels inflation as Zimbabwe struggles to service its obligations.

While external factors such as climate induced droughts have added pressure on public spending, he argues that Zimbabwe’s economic woes are largely self-inflicted. Corruption, inefficiency in government spending, and the mismanagement of state-owned enterprises are significant obstacles to progress. A 2022 study by the African Development Bank revealed that for every dollar spent on public investment, Zimbabwe loses almost half of it due to inefficiency and corruption.

Another paradox that continues to plague Zimbabwe is its rich natural resource base. The country is one of Africa’s largest producers of gold, platinum, and diamonds, yet its people remain among the poorest in the world. "This is the development paradox," Chitambara remarked. "While we have abundant resources, poor institutional governance prevents these resources from benefiting the wider population. The key to unlocking Zimbabwe’s potential lies in addressing the institutional challenges."

Indeed, despite Zimbabwe’s wealth in minerals, economic growth has been hindered by poor governance, weak institutions, and a lack of transparency and accountability in key sectors, such as public spending and management of natural resources.

With a rapidly depreciating currency and a mounting fiscal crisis, the government faces mounting pressure to implement reforms. However, Chitambara cautioned that while political will is crucial, the pace of reform has been slow, and there remains a significant trust deficit between the government and its citizens. "To restore confidence in the local economy, the government must move swiftly to implement meaningful reforms," he said.

Meanwhile, the Zimbabwean business community is also feeling the effects of this economic turbulence. Takunda Muguga, Chief Economic Officer of the Zimbabwe National Chamber of Commerce, emphasized that currency volatility continues to pose serious challenges for businesses. "We are seeing companies go under because of the unpredictability of the currency," Mugunga noted. "The key issue here is money supply growth, which is directly linked to inflation and currency depreciation. Until the government addresses this, Zimbabwe’s businesses will continue to face severe instability."

Muguga argued that relying on foreign currencies like the US dollar is not a sustainable solution, as it merely masks the underlying structural problems. "What we need is a credible monetary policy, alongside fiscal policies, to ensure long-term macroeconomic stability," he said. "The problem is not the currency itself, but the mismanagement of the economy that leads to a lack of trust in our financial system."

The economic crisis has also affected Zimbabwe’s public service sector, which remains the country’s largest employer. With a rapidly growing public sector, the strain on government resources is becoming more evident. "The pension system is under pressure, and with a large portion of the economy informal, the government is struggling to generate the necessary revenues to meet its obligations," Mugunga explained.

As Zimbabwe battles to stabilise its currency and economy, the challenge remains: how to overcome the deep-rooted institutional weaknesses and political factors that have perpetuated the crisis for so long. Both Chidambara and Mugunga agree that until these structural issues are addressed, Zimbabwe will continue to face an uphill struggle in its quest for economic stability.

--ChannelAfrica--