ZIMBABWE’S inflation crisis has escalated alarmingly, with consumer prices rising by an astonishing 37,2% month-on-month in October, a jump driven by the dramatic devaluation of the Zimbabwe Gold (ZiG) currency.
This came after Zimbabwe’s central bank allowed the ZiG, backed by the nation’s gold reserves, to drop over 40% in value against the United States (US) dollar in late September.
The ZiG was launched in April with hopes of curbing Zimbabwe’s legacy of hyperinflation — a recurring problem over the last 15 years that first emerged under former leader Robert Mugabe. Yet, Zimbabwe is now experiencing inflation rates unmatched by its southern African neighbours, who have adopted and implemented policy measures to mitigate similar risks.
In Mozambique, where inflation is holding steady at around 8,8%, the government has focused on controlling the money supply by setting a firm ceiling on government borrowing. This measure, combined with interest rate adjustments by the Bank of Mozambique, has enabled the country to keep inflation in check while achieving a projected 5% GDP growth for 2024.
Meanwhile, Botswana, which has an inflation rate of around 4,2%, relies on a unique policy of pegging its currency within a managed range against the South African rand and a basket of international currencies.
This approach provides relative exchange rate stability, supporting both price stability and investor confidence. Botswana’s diversified economy, anchored in mineral wealth and a robust tourism sector, is expected to grow by about 4,6% this year, reflecting the success of consistent fiscal policies.
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In Zimbabwe, however, the International Monetary Fund (IMF) recently revised its 2024 growth projection down to 2% due to inflationary pressures and institutional instability. Although a rebound to 6,1% growth is anticipated in 2025, high inflation remains a pressing risk, underpinned by weakened institutional capacity and monetary policy inconsistencies.
Despite attempts to stabilise the currency with the ZiG, the government’s inflationary policies — such as compensating former farmers with treasury bills — continue to increase money supply, potentially worsening inflation.
Unlike Botswana, which manages its currency within predictable ranges, Zimbabwe’s recent currency devaluation reflects ongoing vulnerability to market shocks, impacting both local households and businesses.
In South Africa, the South African Reserve Bank (SARB) has taken a cautious but steady approach to inflation control, maintaining a 5,4% inflation rate by adjusting interest rates in response to market trends and using inflation targeting to stabilize expectations.
The SARB's clear communication and forward guidance — allowing the market to anticipate policy decisions—help moderate inflationary expectations. Zimbabwe, on the other hand, lacks a clear and reliable monetary policy framework, often leading to erratic market responses.
Establishing a similar inflation-targeting policy or at least providing a transparent roadmap for interest rate adjustments could lend Zimbabwe’s central bank more control over inflation expectations.
Another example is Zambia, which has recently prioritised structural reforms to support economic diversification and attract foreign investment, helping to control its 10% inflation rate and achieve an expected 3,6% growth rate for 2024.
Key to Zambia's approach has been an emphasis on supporting sectors beyond copper mining, which has made the economy less vulnerable to price shocks in the global commodities market. Zimbabwe could benefit from a similar approach, diversifying beyond its reliance on mining and agriculture by supporting sectors like manufacturing and technology to create a more resilient economic base.
To effectively tackle inflation, Zimbabwe could adopt a range of targeted policy reforms. First, reining in government expenditure and limiting reliance on treasury bills would help prevent excess money supply growth, which fuels inflation.
A similar cap on public borrowing, as seen in Mozambique, could stabilise the currency by reducing the risk of currency devaluation. Furthermore, establishing an independent monetary policy committee, similar to those in Botswana and South Africa, could help enforce transparent, consistent, and data-driven policies for inflation control.
Improving institutional transparency and accountability is also vital. Zimbabwe could strengthen its central bank’s autonomy, reducing the influence of political cycles on monetary policy.
Transparent reporting on monetary policy decisions and inflation forecasts, similar to the SARB’s communication strategy, could bolster market confidence and help manage inflation expectations.
Additionally, to mitigate the inflationary pressures linked to Treasury bill compensation for former farmers, Zimbabwe might consider extending the repayment timeline or issuing alternative non-monetary compensation methods, such as land leases or tax breaks, to avoid further money supply increases.
Such measures would ease the burden on the national treasury and stabilise the currency. In the short term, Zimbabwe could also explore regional partnerships to secure temporary financial assistance or foreign currency support, which could help stabilise the ZiG while more sustainable policies take effect.
Additionally, regional trade agreements, particularly with Botswana and Mozambique, might allow Zimbabwe to strengthen its trade balance and reduce inflationary pressures caused by import dependencies.
As Zimbabwe’s inflation surges and the IMF forecasts modest economic growth, adopting more consistent and transparent monetary and fiscal policies, paired with strategic reforms, is critical to establishing the stability that neighbouring countries have achieved. By implementing a combination of prudent monetary policies, strengthened institutional oversight, and economic diversification, Zimbabwe could potentially chart a path out of its inflation trap toward sustainable economic recovery and growth.
Equity Axis is a financial media firm offering business intelligence, economic and equity research. The article was first published in its latest weekly newsletter, The Axis.