The recent fuel price hikes in Zimbabwe are a clear reflection of the country’s fragile fiscal and monetary systems. The sudden adjustment, which came quickly after the geopolitical turmoil triggered by the Iran conflict, underscores the instability that results from the short-term assumptions built into Zimbabwe’s economic framework.

While global events, such as the oil price shock, undeniably influence price movements, Zimbabwe’s failure to create a dynamic and adaptive fuel price formula exposes a critical vulnerability. The country’s formula lacks a sliding scale to cushion shocks, which could have provided the flexibility needed to protect citizens and businesses from such volatile price movements.

This rigid system, compounded by one of the highest fuel taxes in the region, demonstrates that Zimbabwe’s fiscal policies are more punitive than protective, placing undue strain on the public while exacerbating the existing structural challenges.

What stands out is the lack of reserve utilization to buffer these price hikes. Zimbabwe claims to have a three-month cover for fuel imports and US1.2 billion in broader gold and forex reserves. The primary use of these reserves is to anchor currency by intervening in the market when shocks such as the one caused by the US-Iran war occurs.

Zimbabwe's decision to adjust prices upwards without tapping into these reserves shows the absence of a structured response to mitigate economic volatility, questioning even the extend of their availability. If the reserves were substantial as touted and intended to anchor the currency, they should have been deployed to absorb some of the shock caused by rising fuel costs.

The country imports US$165 million of fuel per month requiring US$500 million for 3 months cover. However the smoothening effect would have required only 20% of this amount per month, which would reflect the percentage increase in global sourcing prices.

This is not a call to fully subsidise but rather be strategic by foregoing some reserves to achieve intended economic goals auch as smoothening to shape perception when currency matters are at stake.

Instead, the lack of action on this front, particularly as fuel is sold in USD while parallel market premiums continue at 30%, raises legitimate concerns about the availability of reserves. The reality is that the country’s monetary architecture appears to be built on short-term assumptions, and when external shocks occur, there is no cushion to stabilize the currency or protect against inflationary pressures.

This lack of foresight is particularly worrying when Zimbabwe is pushing for a new currency and higher denomination ZiG notes are being introduced to foster de-dollarisation. Yet, when gold prices have surged by almost 100% over the past year, the ZiG has remained static, failing to respond in a way that reflects the strength of its backing asset.

A currency that does not move, even as its underlying asset appreciates significantly, signals to both domestic and international actors that the currency lacks credibility and life. This growing mistrust is further compounded by the inflationary pressures caused by rising fuel costs, which the government has failed to address adequately.

Citizens are left questioning if the reserves that are supposed to back the currency even exist, especially when these reserves were not used to cushion the blows caused by external volatility.

This brings us to the wider economic picture, where the fiscal surplus celebrated by the government is, in fact, built on a punitive tax regime that places undue pressure on the productive sector, which is already struggling to perform.

The fuel tax hike and its immediate impact on prices are just one example of how the government is extracting every cent possible from its citizens, many of whom are already burdened by the informal economy that continues to grow.

The high taxes and rigid fiscal structure are not only stifling growth but are also making it more difficult to attract foreign investment, which remains elusive in the current environment.

The focus on taxes, rather than creating an enabling environment for business and sustainable growth, is creating an uneven economic landscape where the productive sector remains weak and reliant on the state’s ability to squeeze every cent from its citizens.

Ultimately, the ZiG remains an unreliable store of value and a symbol of the country’s economic mismanagement. If Zimbabwe’s currency had life and the backing it claims, it would have responded to the growth in gold prices, and the public would have seen some sign of movement.

The static nature of the ZiG against the USD, especially in the face of rising gold prices, sends a clear message to both domestic and foreign investors: the currency is unstable.

Until there is transparency around the use of reserves, a reworking of the fiscal policy to ease the burden on citizens, and a credible mechanism to manage external shocks, Zimbabwe will continue to struggle with economic trust and stability.