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.
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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.

RBZ Expects Price Increases To Slow As ZiG Stabilises

Economist Professor Gift Mugano has called on the government to clarify the relationship between the value of the Zimbabwe Gold (ZiG) currency and gold, as well as other precious metals.
Mugano asserted that the government appears to have changed its stance on exchange rate determination and should provide an explanation of how fluctuations in gold prices affect the ZiG exchange rate.
Posting on X, Mugano noted that when the Reserve Bank of Zimbabwe (RBZ) launched the ZiG in April 2024, the initial exchange rate of ZiG to USD was calculated as follows:
<blockquote>
– ZiG1 = 1 milligrams of gold (ZiG1 = 1/1000)
– Price of 1 gram of gold on 5 April 2024 = US$73.3
– 1 milligrams of gold (i.e., ZiG1) = 73.3/1000 = US$0.0733
-Using a direct formula of exchange rate determination, US$1 = 1/0.0733 = ZiG13.64
If we use the same formula &amp; take into account the price of gold which has since shot to US$85.52 per gram (i.e., US$2,653.25 today), our new exchange should be:
US$1 = 1/0.08552 
US$1 = ZiG11.69
Ko US$1 = ZiG25 (exchange rate after devaluation) yabvepi?
Please give us the correct government position on the ZiG exchange rate determination &amp; gold price movement nexus so that we can speak we are guided accordingly.
</blockquote>
Mugano also urged the government to reconcile statements made by Finance Minister Mthuli Ncube on Wednesday with an excerpt from the RBZ’s Monetary Policy Statement (MPS) that explains the value of the ZiG in relation to other currencies. An extract of the MPS reads as follows:
<blockquote>
17. What is going to determine the exchange rate of the structured currency in relation to other currencies?
The starting exchange rate shall be determined by the prevailing closing interbank exchange rate as at 5 April and the London PM Fix price of Gold as at 4 April 2024. The intervening exchange rate shall be determined by the inflation differential between ZiG and USD inflation rates and the movement in the price of the basket of precious minerals held as reserves. The weights will be determined by the composition of reserve assets.
</blockquote>
Mugano was responding to remarks made by Minister Ncube during an interview with journalists in Mt Hampden on Wednesday, following President Emmerson Mnangagwa’s State of the Nation Address (SONA) to Parliament.
During the interview, Ncube was asked to explain the central bank’s decision to devalue the ZiG by 42.55 per cent against the United States dollar while gold prices were on the rise.
In his response, Ncube stated that although the ZiG is backed by gold, its exchange rate is not fixed to gold prices. He said:
<blockquote>
There is a difference in fixing an exchange rate and there is a difference in backing an exchange rate. Gold backs the exchange rate. So as I speak, our reserves are about US$370 million.
And the central bank has been intervening in the market and has been able to sell the gold which is backing the ZiG to supply the market with much-needed US dollars for importation purposes.
</blockquote>
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Economist Gift Mugano wants government to explain how gold prices affect ZiG exchange rate. When ZiG launched, 1 USD = ZiG13.64, now should be ZiG11.69. Mugano asks for clear government position on ZiG exchange rate and gold price connection. Mugano also wants government to clarify statements made by Finance Minister Mthuli Ncube on ZiG devaluation. Ncube says ZiG backed by gold, but exchange rate not fixed to gold prices. Central bank selling gold to get US dollars for imports.

"Exchange Rate Should Be ZiG11.69 Per US$1"

Finance Minister Mthuli Ncube said the Zimbabwe Gold (ZiG) currency is indeed backed by gold, but its exchange rate is not tied to gold.
Ncube made these remarks during an interview with journalists in Mt Hampden on Wednesday, following President Emmerson Mnangagwa’s State of the Nation Address (SONA) to parliament.
In recent days, many Zimbabweans have questioned how the central bank devalued the ZiG by 42.55 per cent against the United States dollar while gold prices were rising.
Ncube clarified that while the ZiG is backed by gold, its exchange rate is not fixed to it. He said (via <a href="https://www.herald.co.zw/salary-review-for-civil-servants/">The Herald</a>):
<blockquote>
There is a difference in fixing an exchange rate and there is a difference in backing an exchange rate. Gold backs the exchange rate. So as I speak, our reserves are about US$370 million.
And the central bank has been intervening in the market and has been able to sell the gold which is backing the ZiG to supply the market with much-needed US dollars for importation purposes.
</blockquote>
Ncube said enough reserves are backing the money in circulation. He added:
<blockquote>
But the issue is about the exchange rate. The rate itself as opposed to the backing, but adequate reserves are backing the ZiG.
</blockquote>
Ncube said the government will implement measures to address the resurgence of the forex black market, but he declined to disclose the specific actions or timeline for these measures.
The Minister also said discussions are ongoing within the framework of the Tripartite Negotiating Forum (TNF) to improve the working conditions for civil servants. He said:
<blockquote>
Yes, we have to, I think we have to. We are looking into it and we are already negotiating through the Tripartite Negotiating Forum to adjust the wages of civil servants.
Hopefully, we will reach an agreement soon and then we can move forward and assist the civil servants.
</blockquote>
He said the adjustments will be implemented before the end of the year, adding that the induced devaluation of the local currency made the salary adjustment necessary. He said:
<blockquote>
It is a matter that we are already looking into. That is why I mentioned that it will require some adjustment in wages.
Wages have to be adjusted both in the public sector and private sector to improve the buying power of wages for workers, so that has to happen.
But that is what happens when a currency is adjusted. It causes those other negative impacts.
But also there are other positive impacts on the business front. We are determined to save jobs in our formal economy.
</blockquote>
It’s important to recognise that the exchange rate of a currency backed by gold can vary according to market conditions, supply and demand, and other economic factors.
In contrast, a currency fixed to gold (commonly referred to as a gold standard) maintains a set exchange rate with gold, meaning the currency’s value is directly linked to the price of gold.
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Zimbabwe's ZiG currency is backed by gold, but its exchange rate is not fixed to gold, according to Finance Minister Mthuli Ncube. This means that the value of ZiG can change depending on market conditions and other factors. The Minister also mentioned that discussions are happening to improve civil servants' wages and working conditions. Adjustments to wages will be made before the end of the year due to the devaluation of the local currency. Overall, it's important to understand that a currency backed by gold can have a flexible exchange rate, unlike a currency fixed to gold.

ZiG Is Backed By Gold, But Not Fixed To Gold, Says Mthuli Ncube

Minister of Finance, Economic Development, and Investment Promotion, Mthuli Ncube, has said civil servants will soon receive a salary increase to help mitigate the effects of a recent decision by the Reserve Bank of Zimbabwe (RBZ) to devalue the ZiG by over 40%.
In interviews with journalists following President Emmerson Mnangagwa’s State of the Nation Address (SONA) to parliament on Wednesday, October 2, Ncube explained that the devaluation was intended to close the gap between the official and parallel market values of the local currency.
He acknowledged that the decline in the ZiG has affected salaries, hence the need to restore their purchasing power. However, Ncube said salaries for civil servants will not be fully restored. He said:
<blockquote>
Putting in place a flexible exchange rate or devaluation does have an impact immediately on incomes, on prices.
And for us as a government, we will make some adjustments, naturally, to civil service salaries to make sure that the purchasing power of the salaries is somewhat restored.
Maybe not in full, but because someone wants to get in there. So, there is bound to be pain, there’s bound to be impact, and that’s what happens with any policy.
Any policy does have negative impacts and that’s what will happen. But we will make some adjustments to make sure that those who are losers can be compensated somewhat.
It won’t be everybody who will be looked after, but we’ll do our best.
</blockquote>
Meanwhile, about a fortnight ago, civil servants’ representatives rejected a Cost of Living Adjustment (COLA) offer presented by the government during a National Joint Negotiating Council (NJNC) meeting.
The Zimbabwe Confederation of Public Sector Trade Unions (ZCPSTU) said that they had decided to escalate the matter to higher authorities for further engagement.
This means that even if civil servants receive a salary increase now, which Ncube acknowledged will not bring their salaries back to pre-ZiG devaluation levels, they will still be worse off and unlikely to feel satisfied.
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The government is going to increase the salaries of civil servants in Zimbabwe because the value of the local currency has decreased a lot. This decrease is causing problems for people who work for the government. The Finance Minister said that even though the salaries will be increased, they won't go back to what they were before. This means that the civil servants may still not be happy with their pay. The union for civil servants rejected an offer from the government, so the issue is still not solved.

Civil Servants To Get Salary Increase

The Zimbabwe Congress of Trade Unions (ZCTU) has criticized the Reserve Bank of Zimbabwe for unilaterally devaluing the Zimbabwean Gold (ZiG) currency without considering its impact on workers and ordinary citizens.
In a statement issued on Tuesday, October 1, ZCTU Acting Secretary General Kudakwashe Munengiwa said the ZiG has been devalued by over 44%.
He said this devaluation has reduced workers’ earnings, leaving them financially vulnerable, especially as many shops charge double prices for ZiG transactions.
Munengiwa condemned the government’s reluctance to engage with workers and businesses through the Tripartite Negotiating Forum (TNF), in violation of Section 13(2) of the Constitution, which mandates the government to involve citizens in development plans that affect them. He added:
<blockquote>
We would like to note that RBZ has been taking people for granted for quite some time now when introducing a new currency.
When it introduced the bond notes in 2016 RBZ claimed that the bond notes were adequately backed by lines of credit from Afreximbank and that the 1:1 exchange rate between the USD and RTGS$ were also backed by adequate lines of credit.
Lately, they also claimed that the ZiG was adequately backed by gold. These all have proved to be false guarantees as the local currency could not hold against the USD and other foreign currencies.
</blockquote>
Munengiwa said the government’s fiscal mismanagement and high inflation have significantly contributed to the devaluation of the ZiG, urging the government to take responsibility for the currency’s decline.
He asserted that workers are now earning in a rapidly depreciating currency that fails to fulfil basic economic functions, adversely affecting their earnings, pensions, and insurance.
Munengiwa urged employers to pay a substantial portion of wages in USD to support workers.
He also called on the government to establish a minimum wage in USD to protect vulnerable workers and ensure fair compensation to combat poverty and reduce inequality, including gender disparities.
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The ZCTU is unhappy with the RBZ for reducing the value of the ZiG currency by 44%, making it harder for workers to earn enough money. The government didn't talk to workers first, which is not fair. The RBZ has made false promises about the currency in the past. The government needs to take responsibility for the currency losing value. Workers should be paid in USD to help them. The government should also set a minimum wage in USD to ensure fair pay and reduce poverty.

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