US aligned World Bank warns Zimbabwe over rapid de-dollarisation

The World Bank has cautioned Zimbabwe against moving too quickly to end the use of the US dollar, warning that premature de-dollarisation could trigger capital flight and undermine economic stability.

Zimbabwe has set 2030 as its target for phasing out the domestic use of foreign currencies and making the bullion-backed Zimbabwe Gold (ZiG) its sole currency.

In a report released on Friday, the World Bank warned that the plan carries a risk of premature de-dollarisation if implemented before confidence in the local currency has been firmly established.

"The government's goal of transitioning to a mono-currency ZiG system carries a risk of premature de-dollarisation," the World Bank said.

The lender pointed to Zimbabwe's own experience in 2019, when authorities reintroduced the Zimbabwean dollar after years of using foreign currencies.

"Forcing a shift before local currency credibility is established triggers capital flight, widens parallel market premiums, and reverses stabilisation gains," the World Bank said.

The Zimbabwean dollar was eventually replaced by the ZiG in April 2024 following repeated currency crashes that fuelled inflation and eroded confidence in the local currency.

The World Bank stressed that the timing and sequencing of the transition would be critical.

"The pace and sequencing of any transition will be as important as the destination," it said.

Meanwhile, the World Bank said Zimbabwe has an opportunity to improve its access to external financing as it works with multilateral creditors to clear longstanding arrears and restructure its debt.

Zimbabwe has been shut out of international debt markets since 1999 following a default.

France and the United Kingdom recently agreed to co-chair a platform to assist Zimbabwe in restructuring the billions of dollars it owes to its creditors.

The World Bank said the developments represented a significant change in Zimbabwe's macroeconomic environment and created an opportunity for more ambitious economic reforms.

The lender expects Zimbabwe's economy to grow by 5% in 2026, matching the government's forecast, before slowing in 2027 as the effects of El Niño weigh on agricultural production and economic activity.

World Bank senior country economist Victor Steenbergen said the anticipated slowdown was linked to the impact of drought conditions.

Forecasters have warned that the current El Niño cycle could be among the strongest on record, raising the risk of severe drought across parts of southern Africa.