Zimbabwe Loses US$1.15 Billion in Revenue Due to Informal Economy Between 2020 and 2023

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HARARE – Zimbabwe’s informal economy has cost the country at least US$1.15 billion in potential fiscal revenue between 2020 and 2023, according to a research paper presented at the Zimbabwe Economic Development Conference (ZEDCON) in Victoria Falls.

The growing levels of informality across various business sectors have been identified as a significant threat to the country’s manufacturing industry and broader economic development.

Despite government efforts to encourage the formalisation of businesses, thousands of entrepreneurs continue to operate in the informal economy, which now employs the majority of Zimbabwe’s workforce. This trend is not unique to Zimbabwe, as many African nations face similar challenges, with informal businesses often evading taxes and eroding government revenue.

The findings come as the Zimbabwe National Statistics Agency (ZimStat) prepares for the 2025 Economic Census, a comprehensive survey of the country’s business landscape. The census, set to begin in April 2025, will provide critical data on both formal and informal sectors, offering insights into the true size and health of Zimbabwe’s economy.

University of Zimbabwe researcher Curren Pindiriri, who presented the paper titled “The Fiscal Costs of Monetary and Exchange Rate Distortions in Zimbabwe,” highlighted that informalisation, combined with high inflation and exchange rate distortions, has significantly impacted Zimbabwe’s revenue base. Pindiriri explained that exchange rate distortions, particularly before the introduction of the Zimbabwe Gold-backed currency, exacerbated the economic situation.

“Inflation has also continued to trouble the country, surpassing 700 percent year-on-year by the end of 2023,” Pindiriri noted. “By April 2024, the official exchange rate had depreciated by more than 95 percent since December 2023, while the parallel market gap exceeded 50 percent.”

These economic challenges, including inflation and exchange rate disparities, have imposed additional burdens on tax collection, often overlooked in fiscal planning.

The paper, co-authored by Pindiriri, Victor Steenbergen of the World Bank, Jimmy Psillos of the Confederation of Zimbabwe Industries (CZI), and economist Marko Kwaramba, underscores the need for policies to address both the informal sector and monetary distortions to bolster the country’s fiscal sustainability.

While the informal sector provides opportunities for many, industry leaders warn that it undermines the formal, productive sector, hampering Zimbabwe’s long-term economic growth.