Discredited IMF says ZiG stability artificial

The International Monetary Fund (IMF) has cast doubt on the government's claims that the stability of the Zimbabwe Gold (ZiG) currency reflects sound economic management, revealing that the Reserve Bank of Zimbabwe (RBZ) has been heavily intervening to maintain its value.

In its 2025 Article IV Consultation report, released last week, the IMF said the ZiG's exchange rate is overvalued and not market-driven, noting that the apparent stability of the currency masks deep structural weaknesses.

The ZiG, introduced in April 2024 as Zimbabwe's sixth attempt in a decade to establish a stable domestic currency, has maintained relatively stable exchange rates. The official willing buyer, willing seller (WBWS) rate has hovered between US$1–ZiG28, while the parallel market has ranged between US$1–ZiG36 in recent months.

The RBZ attributes this stability to tight monetary policies and limited growth of the monetary base - which slowed to around 30% between October 2024 and April 2025. However, the IMF said the true picture is less encouraging.

"The RBZ has remained a dominant seller in the WBWS market, stabilising the rate within a narrow range through foreign exchange interventions funded by surrender requirements, raised to 30% in February 2025," the IMF said.

While the RBZ has managed to build some reserves, they remain precariously low. "Gross international reserves stood at US$683 million by late May 2025, covering less than one month of imports," the report stated. "Staff assess the external position to be weaker than the level implied by fundamentals and desirable policies."

The IMF observed that the WBWS rate does not fluctuate in line with market dynamics, indicating that it is being administratively managed. "The rate does not systematically respond to a buildup in FX demand when the RBZ is absent from the market, as agents expect periodic interventions at the stabilised rate," the Fund noted.

Exchange restrictions and capital flow measures, including increased surrender requirements, were also cited as factors distorting the foreign exchange market.

The IMF urged authorities to reduce RBZ intervention and allow the ZiG to find its true market value. "Establishing a market-determined exchange rate requires gradually redirecting surrender requirements into the market through authorised dealers and eliminating market barriers," the report said.

Such steps, it added, would narrow the gap between official and parallel market rates, improve transparency, and boost confidence in the local currency.

Economists argue that for the ZiG to compete effectively, it must represent at least 15% of total money in circulation - a benchmark it is far from reaching. As of June 2025, 72.4% of the total money supply (ZiG97.34 billion) was held in foreign currency deposits, underscoring the dominance of the US dollar and other hard currencies.

Given that Zimbabwe's formal sector accounts for only 23.9% of the economy, the IMF noted that the ZiG remains largely rejected by informal traders and the broader public.

The Fund recommended a more transparent, market-based foreign exchange system and a coherent monetary framework. "A credible policy regime is essential to establish the ZiG as a stable and widely used national currency," it said.

In the long term, the IMF proposed a shift toward a flexible exchange rate system and inflation targeting, but in the short term, it advised maintaining price stability by pegging the ZiG to a basket of currencies and managing liquidity instead of relying on heavy forex interventions.

The IMF's findings challenge the RBZ's narrative of success, suggesting that Zimbabwe's currency stability remains fragile and dependent on policy controls rather than genuine market confidence.