The Zimbabwean government has been forced to cut spending on certain budget items following a 43% devaluation of the ZiG currency against the US dollar in late September.
The country’s Treasury has instructed government departments to prioritise their spending commitments for the remainder of the year, as non-wage budget support will be severely limited.
A circular sent to Permanent Secretaries and the Clerk of Parliament on November 13 warned that non-wage budget allocations will be restricted.
Finance, Economic Development and Investment Promotion Permanent Secretary George Guvamatanga said:
<blockquote>
As you may be aware, the local currency unit (ZWG) recently depreciated by 43 per cent against the United States dollar, resulting in a substantial mismatch between revenue inflows, collected in some cases with a one-month lag and local currency expenditures that immediately adjusted to the new exchange rate, in the process severely constraining fiscal space for the last quarter of 2024.
The imbalance was further exacerbated by a backdated review award in October 2024 to the civil service.
Given the consequent limited fiscal space and the need to mobilise additional resources to fund critical inescapable expenditures that include the 2024 bonus award, food deficit mitigation support, 2024/25 agriculture input support, and utilities among other critical requirements, Treasury wishes to advise that non-wage budget support for the months of November and December 2024 will be severely constrained. MDAs are, therefore, requested to prioritise their expenditure commitments during this period.
To support the prioritisation programme, Treasury shall be implementing the following complementary expenditure containment measures for the remainder of the 2024 fiscal year:
<ul>
<li>Prioritise payment of outstanding unfunded payment runs;</li>
<li>Treasury concurrence for foreign travels shall only be granted where funding is provided by Agencies other than Government, Local Authorities and State-Owned Enterprises;</li>
<li>Deferment of all local workshops with the exception of those granted prior approval by Treasury;</li>
<li>Rationalisation of fuel for operational requirements by 50%…</li>
</ul>
</blockquote>
Zimbabwe is set to present its 2025 budget at the end of this month. However, Finance Minister Mthuli Ncube said that funding bids have already exceeded ZiG700 billion, far surpassing the budget ceiling of ZiG140 billion.
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The Zimbabwean government had to cut spending because their currency lost value against the US dollar. They told government departments to spend carefully for the rest of the year. The Finance Secretary said the currency lost value by 43%, which made it hard to pay for things. They need more money for important things like bonuses and food. They will limit spending on things like travel and workshops. Zimbabwe is making plans for next year's budget, but they already need more money than they have.

Government Cuts Spending As ZiG Drop Hits Budget

The government plans to mandate that most taxes and fees be paid exclusively in Zimbabwe Gold (ZiG) currency to increase demand and stabilise its value.
This was said by Finance, Economic Development and Investment Promotion Minister Mthuli Ncube during a dialogue with development partners in Harare on Wednesday. Said Ncube:
<blockquote>
Already, customs duties are now payable in local currency. Going forward and in line with the de-dollarisation roadmap, other taxes will also be paid exclusively in local currency, including payment for government services.
</blockquote>
However, most Zimbabweans believe that confidence in the ZiG currency would increase if essential items like fuel and services such as passport fees were payable in the local currency.
According to Reserve Bank of Zimbabwe (RBZ) governor John Mushayavanhu, the ZiG is supported by US$450 million in foreign reserves as of October 10, 2024.
Since its introduction in April, the ZiG has depreciated from US$1: 13.5616 to US$1: 26.6718 as of October 16.
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The government wants people to pay taxes and fees in Zimbabwe Gold (ZiG) to make the currency stronger and more valuable. Finance Minister Mthuli Ncube said this during a meeting. Right now, only customs duties can be paid in local currency, but soon all taxes may be paid that way. People want essential things like fuel and passport fees to also be paid in ZiG. The currency is supported by $450 million in reserves. Since it started, ZiG's value has gone down. The government hopes this change will help the economy.

Taxes And Fees To Be Paid Exclusively In ZiG - Mthuli

The Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu has said the gold reserves backing the ZiG (Zimbabwean Gold) currency have increased to over US$450 million, up from US$375 million in June this year.
He said this increase in gold reserves means the exchange rate will remain stable.
On September 27th, the RBZ adjusted the official exchange rate from ZiG14 per US$1 to ZiG24 per US$1.
However, by October 11th, the exchange rate had slid to ZiG26.33 per US$1, indicating a continued devaluation of the local currency since the initial adjustment.
In an interview with <a href="https://www.zbcnews.co.zw/rbz-assures-zimbabweans-of-currency-stability/">ZBC News</a> on Thursday, 10 October, Mushayavanhu said that the recent exchange rate movements cannot be described as a devaluation, but rather a response to market forces within the willing buyer and seller foreign exchange market. He said:
<blockquote>
First and foremost, what happened can not be described as devaluation. It was just a manifestation of the event on the ground where the parallel market had just set its agenda, including the retail sector and all the other economic agents in the economy.
</blockquote>
Mushayavanhu said the RBZ remains committed to economic stability and anchoring growth and does not expect any further significant movements in the exchange rate. He said:
<blockquote>
I am not expecting any further movements in the exchange rate. Let me give you some figures. As of yesterday, total deposits in this whole market were ZiG10.7 billion reserves, and our foreign reserves were US$450 million.
</blockquote>
Mushayavanhu further clarified the distinction between a gold-linked and a gold-backed currency.
He said the ZiG is backed by gold and other precious metal reserves, as well as foreign currency balances held with the Federal Reserve. Said the RBZ Governor:
<blockquote>
Our currency is backed by gold and other precious metals, and the foreign currency balances that we have with the Federal Reserve, there is a difference between backing a currency with gold and linking a currency to the prices of gold.
</blockquote>
Meanwhile, economic commentator Professor Gift Mugano has expressed scepticism about the RBZ’s ability to stabilise the exchange rate.
According to Mugano, the central bank lacks control over the excessive liquidity being injected into the economy by the Treasury.
Mugano predicted that in the coming weeks, several factors will contribute to further exchange rate volatility. Firstly, the government will be funding the upcoming agricultural season, which requires significant financial resources.
Secondly, there will be bonus payments and increases in ZiG (Zimbabwean Gold) salaries. Thirdly, the government will be increasing payments to contractors ahead of the rainy season.
Finally, the Treasury will be making last-minute payments to ministries, departments, agencies, and suppliers before the end of the fiscal year, as is typically the case in December.
More: <a href="https://www.pindula.co.zw/">Pindula News</a>

The Reserve Bank of Zimbabwe has a lot of gold to support the ZiG currency, worth over US$450 million. The exchange rate will stay stable because of this. The official exchange rate was adjusted recently, but it has been falling again. The RBZ Governor thinks that the exchange rate won't change much more. But some experts are not sure the RBZ can keep it stable because there is too much money in the economy. They think that the exchange rate might change a lot soon because the government needs to pay for many things.

ZiG Currency Gold Reserves Reach US$450 Million - RBZ

Reserve Bank of Zimbabwe (RBZ) Governor John Mushayavanhu said that the rise in prices at formal retail shops is expected to moderate in response to the recent monetary policy measures aimed at halting the depreciation of the local currency, ZiG.
Speaking to <a href="https://www.sundaymail.co.zw/prices-cool-as-rbz-policies-kick-in">The Sunday Mail</a>, Mushayavanhu claimed that the foreign exchange market has largely stabilised over the past two weeks, with the parallel market exchange rate showing signs of improvement following the bank’s intervention.
The RBZ recently devalued the official exchange rate to ZiG24: USUS$1, down from approximately ZiG14:US$1, in response to the depreciation of the ZiG on the parallel market. Said Mushayavanhu:
<blockquote>
In line with the stability observed in the exchange rate, the increase in the prices of goods has significantly moderated.
It seems most retailers had priced using higher exchange rates, expecting the currency to continue depreciating on the parallel market.
As such, the Reserve Bank expects prices of most goods to also decline in the forthcoming weeks as the exchange rate remains stable.
</blockquote>
The central bank injected US$110 million into the market between July and September to alleviate foreign currency backlogs. Said the central bank Governor:
<blockquote>
In addition to the previous interventions announced before, the Reserve Bank injected an additional US$50 million soon after the recent monetary policy measures.
In terms of supply of foreign currency from other generators of foreign currency, the Reserve Bank expects improvements in the near term.
It should be noted that, unlike prices, the supply of goods and services, including foreign currency, responds with a lag.
</blockquote>
Mushayavanhu expects prices to start declining in the coming weeks as the exchange rate remains stable. 
He said that many retailers had initially set prices based on higher exchange rates, anticipating further depreciation.
Although the prices of regulated goods like electricity tariffs have increased, the RBZ anticipates that the parallel market rate will appreciate soon due to strong foreign currency inflows, which rose by 13.4% in the first eight months of 2024 compared to the previous year.
Mushayavanhu said the Financial Intelligence Unit (FIU) is monitoring and penalising businesses that refuse to transact in ZiG or those using parallel market exchange rates.
He added that compliance levels in the formal sector have significantly improved, but efforts continue to improve compliance within the informal sector.
Meanwhile, since the recent induced devaluation of the ZiG from 14.1 to 24.3 per US$1 by the central bank, the currency has continued to lose value in the formal market, trading at an average rate of 25.8 on Tuesday, October 8.
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The RBZ Governor expects prices to stop rising soon because the ZiG currency is stabilizing. Prices had gone up because retailers thought the currency would keep losing value. The RBZ put in money to help and now expects prices to go down. The central bank is also monitoring businesses that don't follow the rules. Even though some prices (like electricity) have gone up, the RBZ thinks the currency will get stronger soon. The government is working to make sure everyone follows the rules.

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