THE United States’ decision to freeze foreign aid will pile more economic uncertainty onto Zimbabwe’s fragile economy, worsening liquidity constraints, foreign currency shortages and inflationary pressures, while also increasing investment risks, according to FBC Securities, one of the country’s leading advisories.
Through an executive order re-evaluating and realigning American foreign aid, US President Donald Trump suspended all foreign assistance for 90 days, except for lifesaving humanitarian aid, as per the new waiver announced this week.
FBC Securities said the aid withdrawal will increase fiscal pressures on Zimbabwe, as the government might be forced to divert scarce resources to fund essential services.
Job losses in donor-funded sectors, such as non-governmental organisations (NGOs) and humanitarian projects, will negatively impact household incomes, lowering aggregate demand and consumption.
FBC Securities singled out the banking sector among sectors to be worst affected by Trump’s action.
“With reduced donor inflows, the banking sector, stock markets, and formal businesses will struggle to maintain stability, while the exchange rate and inflation are likely to deteriorate further,” the securities firm said in its report titled US Foreign Aid Halt: Impact on Zimbabwe’s Economy.
“Other Western financial institutions, which are already cautious about Zimbabwe’s arrears burden, may become even more hesitant to engage in debt restructuring or new funding programmes.
“This could reduce infrastructure and private sector financing, limiting Zimbabwe’s ability to develop key industries such as mining, agriculture and manufacturing, making the 2025 gross domestic product growth forecast of 6% difficult to achieve,” the report said.
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FBC Securities said donor-funded projects and direct humanitarian assistance contribute to local foreign currency liquidity circulation, with NGOs and humanitarian organisations distributing US dollar payments to local suppliers, employees and contractors.
NGOs, for example, contributed 9% of total foreign currency receipts into Zimbabwe between January and September 2024.
“The reduction in these cash inflows will result in less disposable income, affecting consumer spending, particularly in rural and vulnerable communities,” the report reads in part.
“The freeze will also exacerbate foreign currency shortages in the economy, making it harder to finance imports and working capital requirements of private sector businesses.”
The report also warned that the freeze will reduce deposits in foreign currency accounts, leading to lower US dollar liquidity levels within commercial banks.
It said the banks may respond by restricting foreign currency withdrawals, which could trigger a parallel market rush for US dollars, increasing black market exchange rate volatility.
“With lower forex inflows from donor programmes, pressure on the Zimbabwe Gold (ZiG) will increase, leading to further depreciation and inflation.
“Some donor-backed funds support investments in Zimbabwe’s financial and capital markets. The freeze may reduce foreign currency inflows, lowering stock market liquidity and causing volatility in blue-chip stocks.
“With inflation and currency risks increasing, as US dollar liquidity shrinks, investors may move capital from stocks to gold, real estate and forex holdings.”
This could lead to a drop in stock valuations on both the Zimbabwe Stock Exchange and Victoria Falls Stock Exchange, as traders seek more stable US dollar assets.
To mitigate these challenges, the securities firm said, government must take decisive action by strengthening domestic revenue mobilisation, restoring investor confidence, restructuring state-owned enterprises and improving governance and fiscal discipline.
It said pursuing debt resolution efforts with multi-lateral institutions, diversifying export earnings and fostering a stable macroeconomic environment will be crucial for weathering the impact of declining external support and ensuring long-term economic resilience.
“Now more than ever, bold and strategic reforms are needed to steer Zimbabwe toward financial stability and sustainable growth,” FBC Securities said.
“The country could seek alternative funding from other international donors, regional partners and non-traditional allies.”
The advisory firm said engaging with organisations such as the African Union, Sadc and friends in the Global South could open new avenues for financial and technical assistance.
“Enhancing domestic resource mobilisation is another alternative, although the efficiency of such strategies might be thin given that the economy is already overtaxed and highly informal.”
Foreign aid has been a crucial component of Zimbabwe’s economic framework, supporting critical sectors such as healthcare, food security, infrastructure and social programmes, compensating for the lost government revenue from high informalisation, reduced access to external funding and lost dividends from state-owned enterprises.
The US has been the largest provider of health and humanitarian assistance, including the US President’s Emergency Fund for Aids Relief, food assistance and disaster relief to Zimbabwe.
