• Monetary Policy Impact: The Reserve Bank of Zimbabwe’s tight liquidity controls reduced money supply growth, curbing ZiG inflation
• Export-Driven USD Stability: A 21.3% surge in exports, with gold reaching USD 457.54 mn bolstered USD reserves, lowering USD inflation
• Arrears Settlement Outlook: Clearing ZiG over 5 billion in arrears could boost private sector activity but risks rekindling inflation unless offset by prudent monetary measures

Harare- Zimbabwe’s inflation, measured in both ZiG (Zimbabwe Gold) and US dollar terms, experienced a significant decline in August 2025, signaling improved macroeconomic stability.

According to Zimstat, annual ZiG inflation dropped to 93.78% from a historical high of 95.79% in July 2025, while monthly ZiG inflation slowed to 0.4% from 1.57%.

In US dollar terms, annual inflation eased to 14.2% from 14.4%, with monthly inflation falling to 0% from 0.27%.

This disinflationary trend in both currencies reflects a combination of stringent monetary policies, robust export performance, and favourable global conditions.

The decline in ZiG inflation was primarily driven by the Reserve Bank of Zimbabwe’s (RBZ) tight monetary policy and liquidity control measures. Since January 2025, the RBZ has stabilized the gold-backed ZiG currency by creating artificial scarcity through delayed payments, notably the 30% ZiG equivalent owed to exporters under export retention rules.

This led to a decrease in parallel market rates from 36 to 35 per US dollar.

Between January and June 2025, platinum group metals (PGM) exporters were owed approximately ZiG 5.7 billion, equivalent to USD 690 million, constraining money supply growth.

High borrowing rates at 35% and expensive bank accommodation further reduced aggregate demand, mitigating demand-pull inflation.

Additionally, stable exchange rates, anchored by the ZiG’s gold-backed framework, curbed cost-push inflation from imported goods, a critical factor given Zimbabwe’s import dependence.

The RBZ’s liquidity curtailment, while effective in stabilizing the ZiG, strained private sector operations. Delayed payments to exporters and suppliers, such as Masimba and Bitumen World, led to reduced output and workforce downsizing, depressing economic activity.

This inadvertently supported ZiG stability by limiting currency circulation. The repeal of Statutory Instrument (SI) 81A of 2024, which previously restricted businesses from indexing prices above formal market rates, was facilitated by these measures, preventing excessive price hikes.

However, these policies highlight a trade-off between short-term inflation control and long-term private sector viability.

In US dollar terms, inflation cooled due to a surge in export revenues and moderation in import costs.

In July 2025, gold exports increased to USD 457.54 million from USD 393.87 million, nickel mattes rose from USD 91.7 million to USD 139.89 million, and unmanufactured tobacco jumped from USD 43 million to USD 73 million, driving total exports to USD 877.5 million, a 21.3% increase from June’s USD 723.5 million.

Meanwhile, imports grew marginally by 0.5% to USD 886.2 million, with modest increases in diesel (1% to USD 98 million), leaded petrol (4% to USD 42 million), and crude soybean oil (10% to USD 22 million), while durum wheat imports fell sharply from USD 36 million to USD 12 million.

This narrowed the trade deficit to USD 8.7 million in July from USD 158.6 million in June, a 94.5% reduction, easing pressure on USD demand and imported inflation.

Global and geopolitical factors further supported USD stability.

Anticipation of a resolution to the Russia-Ukraine conflict and a trade deal with China reduced volatility in global commodity prices, particularly for energy and agricultural inputs.

This stability, combined with robust export performance, strengthened USD reserves and anchored inflation in US dollar terms. The interplay of these factors reflects the importance of external trade dynamics in Zimbabwe’s dual-currency economy.

Looking ahead, the settlement of government arrears, particularly the ZiG 5.7 billion owed to exporters and payments to suppliers, could reshape Zimbabwe’s economic landscape.

Clearing these arrears would increase ZiG liquidity, potentially raising money supply and aggregate demand.

According to the quantity theory of money (MV = PY), an increase in money supply (M) without a proportional rise in output (Y) could elevate prices (P), assuming stable velocity (V).

However, positive effects could mitigate these risks. Restoring working capital for exporters and contractors would boost production and employment, increasing aggregate supply and curbing cost-push inflation.

Enhanced export capacity in sectors like PGMs, gold, and tobacco could further strengthen USD inflows, reinforcing exchange rate stability. Additionally, arrears clearance signals fiscal discipline, potentially attracting foreign direct investment and supporting both ZiG and USD markets.

In conclusion, Zimbabwe’s declining inflation in August 2025 reflects effective monetary tightening, robust export growth, and favorable global conditions.

While liquidity controls strained private sector operations, they successfully curbed ZiG inflation, and increased USD inflows stabilized prices in dollar terms. Clearing arrears could stimulate economic activity but risks reigniting inflation unless accompanied by prudent monetary policy.

With sustained export growth and disciplined fiscal management, the government’s target of reducing ZiG inflation below 30% by year-end is achievable, paving the way for a more stable economic environment.

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