Monetary policy fails to address core economic challenges: Economists

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ)’s 2025 Monetary Policy Statement (MPS), presented by Governor Dr. John Mushayavanhu, has come under heavy criticism from economists, who argue that it fails to address the country’s fundamental economic challenges.

As businesses struggle with currency instability, exchange rate volatility, and widespread closures, analysts say the new policies provide little relief and instead impose additional financial strain.

Multiple economists said instead of offering relief, Dr Mushayavanhu, introduced further strain on companies by reducing the foreign currency retention threshold from 75% to 70%, despite widespread calls for an upward revision due to the severe Zimbabwe Gold (ZiG) liquidity squeeze.

Additionally, the central bank’s failure to honour local currency obligations is worsening working capital constraints for businesses.

Economist and former Monetary Policy Committee member Eddie Cross described the statement as “very disappointing” and ineffective in stabilizing the economy or the local currency.

“The Monetary Policy Statement did not address the key fundamentals. It contributes little to stabilizing the ZiG or the broader economy,” Cross told Business Times.

“The Governor’s remarks blaming retailers for the crisis were uncalled for. We need serious efforts to stabilize the local currency and a structured de-dollarization process. Over the past two months, we have lost significant ground, and nothing in this policy will reverse that.”

Zimbabwe continues to battle rising inflation, currency instability, and eroding consumer confidence.

Economist Tony Hawkins echoed these concerns, arguing that the MPS lacks credibility and fails to inspire confidence in the ZiG.

“This is yet another attempt to push the market into accepting the ZiG, despite ten months of evidence showing its rejection. The policy lacks both credibility and innovative solutions,” Hawkins said. “Claims of exchange rate and price stability ring hollow, especially after a month where consumer prices—both in ZiG and US dollars—rose above the annual average for sub-Saharan Africa.”

Hawkins also raised concerns about excessive money supply growth, which he estimates at 600% for reserve money. Another economist, Professor Gift Mugano criticized the MPS as punitive, particularly for exporters.

“The policy effectively weakens exporters by reducing their forex retention threshold. Many are already struggling with working capital shortages due to the previous 75% retention, and this reduction will only worsen their position,” Mugano said.

“It makes Zimbabwe less competitive globally.”

The Horticultural Development Council (HDC) also expressed concern over the policy shift, warning that it threatens Zimbabwe’s export sector.

“This change presents serious challenges for horticulture, which depends on foreign earnings to sustain production, invest in growth, and remain competitive. Most input costs—including power, fuel, seed, fertilizers, packaging, and freight—are denominated in US dollars,” HDC said.

The reduction in forex retention will constrain cash flow and investment, particularly for crops like peas, which have high production and logistics costs. Some farmers may be forced to pivot to local cash markets, reducing foreign currency inflows.

HDC urged authorities to align local utility pricing with the ZiG retention framework to ease exporters’ financial burden.

“Currently, exporters must pay many local obligations in foreign currency while retaining less forex. This imbalance needs urgent correction. We urge policymakers to engage the sector to find a balanced solution that supports both reserves and industry sustainability,” the council stated.

Yet another economist Dr. Prosper Chitambara noted that the policy remains highly contractionary, aimed at maintaining stability through tight monetary controls.

“The reduction in forex retention is part of the government’s broader de-dollarization efforts and an attempt to build foreign currency reserves. Reserves are crucial as they provide cover for the ZiG,” Chitambara explained.

However, he pointed out that Zimbabwe’s current reserves—estimated at around US$500 million—are far below the minimum three-month import cover of US$3 billion required for economic stability.

“While reserve accumulation is essential, this policy effectively acts as an indirect tax on exporters, who would prefer to retain more of their forex earnings,” he noted.

On a positive note, Chitambara welcomed the increase in deposit rates, which he believes could encourage a stronger savings culture. However, he emphasized that sustained economic stability and low inflation are necessary to prevent erosion of savings.

Economist Malone Gwadu argued that the RBZ is prioritizing the stability of ZiG at the cost of industry growth.

“Policies like high interest rates and tight reserve controls are aimed at preventing excess liquidity and inflation. The central bank’s push to liberalize the forex market is a step in the right direction, but the industry is in distress,” Gwadu said.

“The tight monetary policy must be balanced with measures that support production. Perhaps gradually refining the Targeted Finance Facility (TFF) could help provide relief to struggling industries,” he suggested.

The 2025 Monetary Policy Statement has drawn widespread criticism for failing to address Zimbabwe’s core economic challenges.

While the RBZ insists that tightening monetary policy will stabilize the ZiG, economists and business leaders argue that these measures stifle growth, discourage investment, and weaken the country’s competitiveness. With inflation rising and foreign currency reserves still inadequate, calls for a more balanced approach between stability and economic expansion are growing louder.