Conditions precedent to pre-occupy RBZ

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) says it is devoted to fulfilling stringent conditions precedent (CPs) to lay an unassailable foundation for a smooth transition to mono-currency by December 31, 2030.

The assurance comes as Zimbabwe enjoys a spell of relative macroeconomic stability, even as markets remain jittery, haunted by the deep scars of past hyperinflation episodes that continue to shape behaviour across the economy.

In the five-year strategic plan, RBZ Governor Dr John Mushayavanhu said the move to a single currency would only proceed once the fundamentals are firmly in place and that those fundamentals are non-negotiable.

They include sustained single-digit inflation; foreign-currency reserves sufficient to cover three to six months of imports; a unified and efficient foreign-exchange system; stable exchange rates with minimal distortions around the Zimbabwe Gold (ZiG), deeper demand for the local currency driven by tax incentives and public-sector usage; a sound financial sector anchored by a robust National Payments System; and tight fiscal-monetary coordination that keeps deficits low and sustainable.

“While the transition to a mono-currency will largely be market-driven, the need to ensure the prerequisites for its success will pre-occupy the Reserve Bank in the foreseeable future,” Mushayavanhu said.

“The main CPs include sustained and low inflation, adequate reserve buffers, safe and sound financial and payment systems, and an efficient exchange-rate system and congruence between monetary and fiscal policies. The Reserve Bank will work on the timely achievement of the conditions precedent for a smooth transition to mono-currency.”

It is a message designed to steady a market where dollarisation, long entrenched as a survival mechanism, still dominates large swathes of the economy, particularly the informal sector.

Analysts warn that any premature move risks reopening old wounds.

Morgan & Co investment analyst Tafara Mtutu stressed that the conditions make sense, but the clock may not.

“The conditions are reasonable, the timeline isn’t. You cannot rush dedollarisation,” Mtutu said.

“Better to take the needed time and do it right than rush it and risk failure. No country has ever done so.”

He argued that unresolved structural weaknesses, notably debt, arrears and persistent confidence deficits, remain formidable obstacles.

“A currency is a medium of exchange that governs trade and business. If you have an independent shadow economy that chooses its own currency (USD in this case) and it’s become so pervasive that it has every sector with its constructs, including financial services, then you cannot impose your own currency in that economy if it doesn’t meet their requirements,” he said.

Economist Enock Rukarwa agreed that, in principle, the conditions are achievable — but only with discipline and realism.

“In terms of meeting the conditions precedent by 2030, indeed we should be able to meet [them] as an economy, if we commit to the necessary measures,” he said, pointing to prudent and contractionary fiscal and monetary policies as essential to keeping inflation and exchange-rate volatility in check.

Yet some targets loom large. “Other CPs like three times import cover are a huge milestone to chase,” Rukarwa said. “Currently our import cover is around 1.1 times. To build reserves to three times imports over five years is a huge task, and we may need more time to achieve some of these CPs.”

Economist Titus Mukove said progress is visible, but uneven.

“There is some progress that has been noted because in 2025 inflation dropped to less than 20%, the ZiG has gained traction and the use of electronic means of payments has risen,” he said.

But the structure of the economy remains the elephant in the room. “The challenge is that the economy is dominated by the informal sector, which is heavily dollarised. This dominance can undermine policy effectiveness,” Mukove warned, adding that selective taxation that largely spares the informal sector further distorts the playing field.

“There is no way we are going to use a mono-currency if we remain with an economy dominated by the informal sector,” he said, calling for aggressive formalisation, deeper financial inclusion, and stronger governance and regulatory frameworks.

Annual inflation, which fell 15% in December in 2025, is projected to reach single digits in 2026, aligning Zimbabwe with regional macroeconomic convergence targets.

The RBZ says it will stick to a deliberate disinflation strategy, keeping policy decisions data-dependent to avoid the premature reversals that have undone past stabilisation efforts.

Economist Malone Gwadu said the central bank’s emphasis on conditions precedent is critical to restoring confidence.

“Low inflation, adequate reserve buffers and a sound financial and exchange-rate system, together with fiscal synergy, lay the groundwork for a currency to thrive,” he said. “Most likely the CPs will be met if discipline is sustained.”

He pointed to improving indicators: reserves edging towards US$1 billion, inflation largely tamed, and parallel-market premiums falling below the 30% international benchmark. Still, he cautioned that high borrowing costs and tight liquidity tools are choking industry and constraining bank lending.

Mushayavanhu said these concerns will be addressed in the RBZ’s five-year Strategy Plan (2026–2030), reiterating that price stability remains the cornerstone of policy.

“A tight monetary policy stance adopted at the onset of the ‘back-to-basics’ strategy served the country well in taming inflation,” he said. “Going forward, the thrust will focus on disciplined money-supply management, calibrated to emerging inflationary pressures.”

Foreign-exchange reserve accumulation, he added, will remain a top priority. “Robust foreign reserve buffers remain indispensable in anchoring the currency, bolstering resilience and absorbing external shocks.”

The governor also pledged a gradual shift from direct to market-based monetary instruments to improve liquidity management and entrench disinflation.

Yet he acknowledged formidable headwinds: a large informal sector that blunts policy transmission, climate shocks that disrupt output and prices, fiscal cash-flow pressures that demand close coordination, and rising cyber-risks as technology reshapes financial services.

Stakeholder consultations, spanning industry, farmers, retailers and consumer groups, revealed broad support for the RBZ’s consultative approach and recent stability, but also a clear demand for certainty.