Mthuli stokes market anxiety

LIVINGSTONE MARUFU / ROBIN PHIRI

Finance Minister Professor Mthuli Ncube has hinted that Zimbabwe’s long-awaited transition to a mono-currency regime will proceed only once strict condition precedents are fully met, a cautionary signal that has deepened anxiety across financial markets already jittery from past currency upheavals.

Professor Ncube stressed that the December 31, 2030 de-dollarisation target is conditional, not fixed, underscoring that economic stability and core fundamentals will take precedence.

He reiterated that Zimbabwe’s shift to a single currency will depend on meeting several key condition precedents.

These include sustained single-digit inflation, foreign-currency reserves covering three to six months of imports, an efficient and unified foreign-exchange system, stable exchange rates with minimal ZiG distortions, stronger demand for the ZiG through tax incentives and public-sector adoption, financial-sector stability, a robust National Payments System and tighter fiscal-monetary policy cohesion with low, sustainable deficits.

“We don’t need a date. Just remove the date. We should just make sure the CPs are met,” Professor Ncube said, an indication that the 2030 deadline could be pushed further if the required benchmarks fall short.

His remarks have unsettled markets, which remain haunted by past shocks such as Statutory Instrument 142 of 2019, which abruptly scrapped the use of foreign currency and triggered a collapse of the local dollar. Banks and corporates have already begun limiting credit maturities beyond 2030 due to repayment uncertainties and heightened currency risk.

To calm investor fears, Professor Ncube assured that existing US-dollar holdings will remain secure throughout the transition.

He emphasised that government is pursuing a gradual, market-led process designed to restore the Reserve Bank of Zimbabwe’s full monetary policy toolkit while strengthening domestic production competitiveness.

“For completeness, the transition to mono-currency entails the exclusive use of the local currency, ZiG, for domestic payments, while foreign currency will primarily be reserved for external transactions,” he said.

He further stressed that foreign-currency accounts, US-dollar savings, pension funds and VFEX-listed securities will stay protected, adding that all contractual obligations, including loans and advances, will be honoured.

“Such assets will continue to be protected and maintained in foreign currency,” he said.

 “Economic agents will not lose money or value due to the transition to mono-currency. The transition will be gradual and market-led, anchored on macroeconomic stability, and will only happen when the Government has successfully met the necessary condition precedents.”

Economists have largely endorsed the fundamentals-first approach.

Professor Gift Mugano told Business Times, a market leader in business, financial and economic reportage,  that the minimum requirements for a mono-currency system are “sound and good”, but argued that government misstepped by legislating a fixed date.

“The mistake the Government of Zimbabwe made was to legislate the date for changeover to monocurrency. Currency matters do not require roof-top announcements but real work which will see us meeting the minimum conditions of monocurrency and the switch happens naturally without anyone announcing it.

“The same way the US dollar introduced itself in late 2008 to early 2009 without any legislation is the same way ZiG should establish its position in the market.

“My humble submission and priceless advice to the Government is that it should consider repealing statutory instrument 218 of 2023 which sets 31 December 2030 as the expiry date of the multi-currency regime, that is, paving way for monocurrency,” Professor Mugano said.

He warned that maintaining a legislated deadline would fuel unnecessary risk, triggering a credit squeeze, restricting access to external capital and accelerating capital flight—factors that could eventually force authorities to extend the multi-currency regime.

Another eonomist Vince Musewe concurred, saying Treasury’s approach was the correct one.

“That’s the right approach. You cannot give deadlines to confidence because it depends on your behaviours and whether the market accepts those behaviours. As I have said before no country has ever completely de-dollarised. Policy announcements on currency issues should be minimal as they can contribute to increased risk perception,” Musewe said.

Yet another economist, Eddie Cross, said Zimbabwe must maintain the multi-currency system until economic fundamentals are firmly in place, warning that the transition may take many more years than anticipated.

Investment analyst Enock Rukarwa added that while rolling back the 2030 date may raise concerns, focusing on condition precedents is critical.

“…the issue about condition precedents is fundamental and it’s grounded on economic facts. If it can be followed to the fine print, it will to a greater extent ensure that reintroduction of monocurrency will be effective. If monocurrency is brought back without the enabling environment and key fundamentals around reserve accumulation, production, confidence-building measures within the economy, it may fail.

“If the condition precedents are achieved at the level of 80% the introduction of monocurrency will be successful. We hope and pray that all the authorities will work together to ensure the condition precedents are met,” Rukarwa said.