Zimbabwe's gold-backed ZiG extends rare advance against dollar

Zimbabwe's gold-backed currency, which has been battered on foreign exchange markets since its April debut, rose against the dollar for a second day on the back of tighter monetary policy.

The ZiG, short for Zimbabwe Gold, strengthened 4% to 26.90 per dollar, according to data posted Tuesday by the central bank. The move extended Monday's gains that were the first since October 17. The ZiG remained at 35 to 40 per dollar on the unofficial market.

Harare-based economic analyst Prosper Chitambara said the currency was benefiting from tighter monetary conditions engineered by the central bank, which devalued the unit in late September, raised interest rates to 35% from 20% and increased reserve requirements.

But he cautioned it would probably "prove a tall order" to sustain the unit's momentum in the face of typically high demand for dollars during the upcoming planting season, when the nation's farmers purchase seeds, fertiliser and other crop inputs.

"We have just entered the agriculture season and obviously there is going to be a lot of support to farmers," he said. "So that could cause an increase in public spending."

The ZiG is the southern African nation's sixth attempt in 15 years to stand up a stable local currency to replace the dollar as the main unit of exchange.

The government has already taken a number of steps to provide it with support and Finance Minister Mthuli Ncube may announce fresh measures in his budget later this month, such as requiring utilities, duties and local council payments to be made in ZiG.

Speaking to reporters Tuesday in Harare, the capital, he said that the budget was undergoing "fine-tuning" to foster an economic recovery after the country's worst drought in 40 years.

"We have to extend incentives to industry, the mining sector, to the agriculture sector," he said. "Expect a balance, some fine-tuning here and there, but really we want to give more incentives to the economy."