Mishma Chakanyuka, Staff Writer 
BUSINESS is reeling from the country’s ailing economy and the unintended consequences of recent interventions by authorities to steady the ZiG and curb inflation.
While these policy measures have brought relative stability to the market, experts who spoke to The Financial Gazette — the country’s number one business publication and prime voice for commerce and industry — said this week that they had also created a liquidity crunch that was now stifling economic growth and threatening many businesses and livelihoods.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, described the worsening liquidity squeeze in the country as “quite damaging”.
“If you look at the central bank’s position, they are insisting that there is no liquidity crunch in the country. But to us as the private sector, I can certainly tell you that the liquidity squeeze is a reality, especially local dollar liquidity.
“The ZiG is hard to come by, to the extent that some companies are failing to have their salaries in ZiG being honoured on time because of the currency’s unavailability.
“The move by the Reserve Bank of Zimbabwe (RBZ) to push up interest rates and statutory reserve requirements to 30 percent can actually attest to some of the challenges which we are having, which is very sad. This is a big problem,” Mugaga said.
“This has further restricted the ability of banks to lend, because most of the funds are at the central bank. As a counter-measure, the central bank then came up with that term facility which they introduced a few weeks ago.
“The monetary authorities are in a very tough position, because it’s either they take an expansionary monetary policy position and increase lending, or they maintain a tight position like they are doing and control money supply and also liquidity.
“But the unintended consequences of the liquidity squeeze that we are having are quite damaging. The local currency is difficult to access,” Mugaga added.
“Consumer demand also remains very low. Because if you look at spending, even in the informal sector, you see it’s much more about import demand — goods from outside. For most businesses in the country, they are under pressure, as there is not much spending.
“There is an irony here. Because if you look at the market conditions right now, almost 87 percent of money supply and about 90 percent of bank loans are in US dollars. And certainly, there is no incentive to hold the Zimbabwe Gold.
“The government itself is also under pressure. This is why they are talking about that 50 percent payment in ZiG and all that. It’s a way of trying to somehow improve the supply of the ZiG, not only to the overall economy, but also to themselves — as they feel the pressure of having to pay their workers in ZiG,” Mugaga said further.
“If you look at the period from March 2024 to October 2024, total bank lending increased to ZiG46 billion, of which about ZiG35,5 billion were loans to the private sector.
“So, looking at this figure, lending to the private sector has been substantial, using the March to October numbers. But liquidity is still tight regardless of all this.
“This also suggests that inflation is much higher than is being officially reported, as the total bank lending going to the private sector is not being felt in the market, which is quite strange,” Mugaga also said.
An analyst at IH Securities, Vanessa Machingauta, said the current liquidity situation was being felt on the Zimbabwe Stock Exchange (ZSE).
“Concerning the ongoing current liquidity crunch, we have definitely seen some impact on the ZSE, with prices trending below the yearly average as of the end of December into the new year.
“Activity has been relatively subdued, and using our database, average daily trades fell nine percent quarter-on-quarter in real terms between the third quarter of 2024 and the fourth quarter,” she said.
The chief executive of the SME Association of Zimbabwe, Farai Mutambanengwe, also bemoaned the gravity of the liquidity crisis.
“The liquidity challenge has been a severe problem for many businesses, particularly because it is emanating from the non-payment of suppliers by the government.
“What is happening is that the government is not paying suppliers or it’s paying them late. So, this affects their viability and their ability to meet commitments to workers and other suppliers, and ultimately impacts the whole economy,” he said.
Mutambanengwe further reiterated the urgent need for a market-determined exchange rate and timely payments by the government to stabilise the economy.
However, economic analyst Nyasha Kaseke said for businesses that were dependent on imports, the recent stability of the exchange rate had been beneficial.
“But for those dealing in local currency, the gap between the official and parallel exchange rates has been detrimental.
“The majority of businesses operate using the parallel exchange rate. So, and despite the formal stability, they are unable to benefit fully from this.
“The continued preference for US dollars as a store of value adds further strain, as people seek to protect their earnings,” Kaseke also said, while further calling for policies that fostered confidence in the local currency.
Financial analyst, Brian Nyakabawo, also highlighted how the liquidity crunch had negatively impacted the stock market.
“The stock market has experienced reduced trading volumes due to limited access to investable funds.
“This has led to increased volatility, declining market capitalisation and dampened investor sentiment,” he said.
As a result, many investors had had to sell stocks to cover their short-term operational needs.
“The sell-offs have driven prices down, further eroding market confidence,” Nyakabawo added, saying further that the ongoing liquidity challenges were creating a negative cycle that hindered investment and growth.
Another economist, Stevenson Dhlamini, also noted the broader economic implications of the current tight monetary stance by authorities.
“The liquidity constraints have slowed sales growth, particularly for businesses reliant on local currency.
“This has negatively impacted cash flows and operational viability.
“High interest rates and expensive working capital discourage local production, leading to potential job losses in the short to medium term,” Dhlamini said.
While recognising the importance of stabilising inflation and exchange rates, he cautioned against overtightening policies, advocating for a balanced approach that would stimulate production and support economic growth.
However, the RBZ’s deputy governor, Innocent Matshe, defended the central bank’s measures — citing successes in stabilising the local currency and prices.
“In 2024, the reserve bank walked the talk on sound monetary policy, achieving relative price and currency stability.
“The ZiG currency has been fully backed by foreign reserves since April, and the economy has shown resilience.
“The anticipated rebound in economic growth from two percent in 2024 to six percent in 2025 will support optimal monetary policy management and further entrench stability,” Matshe said.
Economist and research fellow at the Public Policy and Research Institute of Zimbabwe (PPRIZ), Vincent Moyo, called for a shift in monetary policy focus.
“Liquidity tightening is a demand-side policy, but Zimbabwe’s issues are primarily on the supply side. We need policies that enhance efficiency and productivity to achieve sustainable stability.
“Standards of living are already low, and further tightening will exacerbate the situation,” he said, while also urging a balanced approach to policy-making.
Speaking during a tour of Glytime Foods Manufacturing’s plant in Sunway City on Tuesday, Finance minister Mthuli Ncube said the government’s liquidity management programme was designed to maintain macro-economic stability.
“The issue in terms of liquidity has really been the protection of the domestic currency, where we wanted to curtail the growth of liquidity because any excessive growth of liquidity will impact the volatility of the currency, instability and hence macro-economic stability in general and inflation trends in general.
“So, at the moment, we feel that things are being managed in the right way. You have seen the launch by the central bank of a targeted facility programme, where the bank is releasing liquidity into the market via banks for targeted productive sectors.
“So, we think that this is also a very good thing that will assist in unlocking additional liquidity into the economy. But in a way, that doesn’t inject excess liquidity which then impacts the currency negatively.
“So it’s all very positive. And the interest rate also will be palatable — lower than what is panning out in the market from this facility. And that’s a positive development,” Ncube said then.
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