Zimbabwe's recovery tests resilience

Zimbabwe is experiencing one of its strongest periods of macroeconomic stability in years, with inflation falling sharply and the central bank beginning to ease monetary policy. However, economists caution that deep structural challenges continue to threaten the sustainability of the recovery.

After years of runaway inflation and currency instability, annual inflation has dropped dramatically from about 90 percent a year ago—peaking at 95.8 percent in July 2024—to 4.7 percent, according to data compiled by Trading Economics.

The sharp decline has been accompanied by improved price stability despite continued global economic uncertainty and challenges in the domestic economy.

Reflecting growing confidence that inflationary pressures are easing, the Reserve Bank of Zimbabwe recently reduced its policy interest rate by 500 basis points to 30 percent, marking its first rate cut since 2024.

According to Bloomberg, Zimbabwe became the first central bank to lower interest rates following the interim peace agreement between the United States and Iran that led to the reopening of the Strait of Hormuz.

Much of the country's recent monetary stability has been attributed to the introduction of the Zimbabwe Gold (ZiG) currency in 2024, alongside a tighter monetary policy framework.

Ashok Chakravarti, Senior Economic Advisor to the United Nations Development Programme (UNDP), said the launch of the ZiG was accompanied by strict controls on money supply.

"The inauguration of the ZiG came with very tight monetary policy, with strict controls in the growth of reserve money and broad money," Chakravarti said.

He said authorities had also implemented measures aimed at reducing excess liquidity while promoting domestic value addition.

Among those initiatives is the ban on the export of unprocessed lithium unless mining companies invest in local beneficiation, a policy intended to encourage refinery development and retain more value within Zimbabwe.

Agriculture has also shown signs of recovery following the devastating drought of 2024, which prompted the government to declare a national disaster.

Chakravarti noted that Zimbabwe has now achieved self-sufficiency in soft wheat production, describing it as "a major boost to all agro-based industries."

Despite the encouraging macroeconomic indicators, analysts warn that significant obstacles remain.

Werner Jansen, an economist with Oxford Economics Africa, said borrowing costs remain prohibitively high despite the recent interest rate reduction.

"The still elevated policy rate discourages borrowing in the domestic currency... Weak trust means few people use it as a store of value," Jansen said.

Zimbabwe continues to maintain one of the highest policy interest rates in the region.

Confidence in the ZiG also remains fragile, with the United States dollar continuing to dominate everyday transactions.

According to the International Monetary Fund, the ZiG accounts for only about 17 percent of cash circulating in the economy.

While rising global gold prices have boosted export earnings, Jansen noted that much of the increase in production has come from artisanal miners rather than large-scale operators.

He said larger mining companies continue to grapple with persistent structural challenges, including unreliable electricity supplies and inadequate infrastructure.

The mixed picture suggests that while macroeconomic stability represents an important milestone, it will not by itself deliver sustained economic growth.

Economists argue that long-term recovery will depend on increased investment in critical sectors such as energy, transport and industrial infrastructure.

Nevertheless, there are growing signs of optimism.

Chakravarti believes that if inflation continues on its current trajectory, the Reserve Bank of Zimbabwe could implement additional interest rate cuts before the end of the year, potentially providing further support for economic recovery.