Zimbabwe is turning around faster than anyone thinks

Zimbabwe is breaking with its long history of triple-digit inflation, currency instability and monetary financing, with an economic turnaround beginning to take hold, according to Citigroup Inc.

The US-based investment bank, however, warned that Zimbabwe's long-standing reputation as an economic pariah could prevent investors from fully recognising the changes taking place under an International Monetary Fund-supported reform programme.

"Where perceptions and reality may now be increasingly out of kilter is the speed with which an economic turnaround has started to play out in Zimbabwe since 2025," Citigroup chief Africa economist David Cowan said in a client note.

Cowan said annual inflation, which averaged about 736 percent in 2024, is expected to fall sharply to around 8 percent this year.

At the same time, Zimbabwe's cash fiscal position is projected to move into balance after the deficit reached 6.7 percent of gross domestic product in 2023.

"Fiscal issues have long been at the heart of the country's poor macroeconomic performance," Cowan said, noting that Zimbabwe experienced economic contractions in six of the 20 years between 2005 and 2024.

The bank attributed the improving economic conditions to several factors, including elevated international gold prices, the emergence of the lithium sector, the introduction of the gold-backed Zimbabwe Gold (ZiG) currency in 2024 and an end to the printing of money to finance the government budget.

The 10-month staff-monitored programme with the IMF, approved in April, has also provided additional impetus to the country's economic reform efforts.

Zimbabwe has simultaneously been working with its creditors since 2022 to restructure its debt, although Citigroup cautioned that the country's debt remains unsustainable and in distress.

Earlier this month, Zimbabwe announced that France and the United Kingdom had agreed to co-chair a process aimed at helping restructure the country's estimated US$21.3 billion debt to creditors.

Despite the improvement in macroeconomic conditions, Cowan said significant challenges remained.

While the ZiG has remained relatively stable, Zimbabwe's economy continues to be highly dollarised, limiting the extent to which the local currency dominates economic activity.

The Reserve Bank of Zimbabwe also remains unable to fully satisfy demand for foreign currency under the country's "willing buyer, willing seller" exchange-rate system, according to Cowan.

This has resulted in the continued existence of a parallel foreign-exchange market, although the premium between the parallel and official exchange rates has remained below 20 percent.

The developments suggest that while Zimbabwe has made significant progress in stabilising its economy, the country still faces structural challenges in restoring confidence in its currency and fully normalising its financial system.

For investors, Citigroup's assessment points to a widening gap between Zimbabwe's historical reputation and its more recent economic performance, with the success of the turnaround likely to depend on whether authorities can sustain fiscal discipline, maintain monetary stability and resolve the country's long-standing debt and foreign-exchange challenges.