The International Monetary Fund (IMF) has acknowledged the significant role played by Zimbabwe’s newly introduced gold-backed currency, the ZiG, in stabilizing the nation’s economy.
The IMF’s assessment follows its recent Article IV Mission to the country, which concluded that the ZiG has effectively ended the economic volatility that marked the first quarter of the year.
In a statement released late Wednesday, the IMF said, “The ZiG official exchange rate has so far remained stable, ending a bout of macroeconomic instability in the first three months of the year. Assuming that macro-stabilization is sustained, cumulative inflation in the remainder of the year is projected at about 7 percent.”
The ZiG currency, introduced in the second quarter of this year, is backed by 2.5 tons of gold and $100 million in foreign currency reserves held at the central bank.
This measure is Zimbabwe’s sixth attempt in 15 years to establish a stable local currency.
Unlike its predecessors, the ZiG is strictly regulated to prevent overprinting, a practice blamed for the downfall of previous currencies.
The rapid decline of the Zimbabwe dollar had severely affected the economy, with inflation soaring and the local currency losing value daily on both official and parallel markets.
The instability made everyday transactions cumbersome, as prices needed constant adjustment to account for the currency’s depreciation.
IMF officials praised the Zimbabwean authorities for their improved monetary policy discipline, a crucial factor in achieving the current economic stability.
“The improvement in monetary policy discipline is commendable. Further refinements to the policy framework are encouraged to maintain this positive trajectory,” the IMF stated.
In a related move, Zimbabwe’s central bank’s monetary policy committee opted to keep interest rates unchanged at 20%, a decision aimed at sustaining the newfound stability.
Governor John Mushayavanhu emphasized the committee’s commitment to a tight monetary policy stance, saying, “The MPC has resolved to maintain the current tight monetary policy stance to ensure the sustenance of the current stability.”
Despite these positive developments, the IMF projects that Zimbabwe’s economic growth will slow to 2% this year from 5.3% last year, attributing the decline to an El Niño-induced drought.
However, growth is expected to rebound to 6% next year, supported by a recovery in agriculture and new projects in the manufacturing sector.
In a bid to further stabilize the economy, the Zimbabwean Treasury has been given oversight of the Sovereign Wealth Fund, also known as the Mutapa Investment Fund.
This move is intended to ensure that stabilization efforts are effectively managed and that the economy remains on a stable footing.