Zimbabwe's Inflation Crisis: Can the ZiG Currency Stem the Tide?

Zimbabwe’s inflation rate surged to 85.7% year-on-year in April 2025, marking a sharp escalation from the 57.5% recorded in April 2024. The figure, the first official year-on-year data since the launch of the Zimbabwe Gold (ZiG) currency in April 2024, underscores the fragility of economic reforms aimed at ending decades of hyperinflation. Despite hopes that the gold-backed currency would stabilize prices, the ZiG has depreciated nearly 50% since its introduction, exacerbating inflationary pressures.

The Anatomy of Inflation: Local and Global Drivers

The Reserve Bank of Zimbabwe (RBZ) attributes the surge to a mix of domestic and external factors. Domestically, the ZiG’s rapid depreciation against the U.S. dollar has fueled import costs, particularly for fuel and food. Zimbabwe relies heavily on imported petroleum products, and global commodity price hikes have strained its balance of payments. Meanwhile, power shortages and erratic rainfall—already a recurring issue—have disrupted agriculture, pushing food prices up by 31% in the latest CPI basket.

Globally, the fallout from the Ukraine war and post-pandemic supply chain bottlenecks have kept fuel and fertilizer prices elevated. These pressures are compounded by the RBZ’s challenges in maintaining monetary discipline. While interest rates have been raised to curb demand, the central bank’s ability to control liquidity is hampered by fiscal deficits and a reliance on central bank financing of government debt.

Historical Context: A Volatile Legacy

Zimbabwe’s inflation history is a cautionary tale. The infamous hyperinflation of 785.55% in May 2020—a product of Mugabe-era mismanagement—left a scar on the economy. The subsequent stabilization under the dollarization era brought a brief reprieve, with inflation dipping to -7.5% in December 2009. However, the reintroduction of local currencies, including the ZiG, has reignited instability.

The ZiG, designed to anchor value to gold reserves, was supposed to reduce reliance on the U.S. dollar and stabilize prices. Yet its rapid depreciation—driven by mistrust in its gold backing and a lack of confidence in the RBZ—has instead fueled inflation. The currency’s weakness has also made servicing foreign debt harder, with the government’s debt-to-GDP ratio hovering near 70%, a key vulnerability.

Risks Ahead and the Investment Conundrum

Investors weighing exposure to Zimbabwe must confront a stark reality: the economy remains hostage to structural weaknesses. Projections suggest inflation could hit 90% by year-end, while real GDP growth of 3.2% in 2023-2024—driven by mining and agriculture—has yet to translate into sustained stability.

Opportunities exist in sectors insulated from inflation, such as gold mining and agriculture. Zimbabwe’s platinum reserves and gold exports could benefit from a weak ZiG, as cheaper local costs boost export competitiveness. However, political risks—such as land disputes and governance concerns—remain.

Conclusion: A Delicate Balancing Act

Zimbabwe’s inflation crisis is a reminder that economic stability requires more than monetary fixes. The ZiG’s failure to curb inflation highlights the limits of a currency reform without addressing fiscal discipline, energy shortages, and global commodity volatility.

With inflation projected to near 90% by year-end and the ZiG down 50% since its launch, investors must proceed with extreme caution. Opportunities in mining and agriculture may emerge, but they are overshadowed by systemic risks. For Zimbabwe to stabilize, the RBZ must rebuild credibility, tackle fiscal deficits, and secure external financing. Until then, the ZiG remains a symbol of hope—yet the inflation data tells a different story.

Data sources: Reserve Bank of Zimbabwe, World Bank, IMF.