THE 2025 National Budget Statement has intensified public debate around the emergence of a “K-shaped” economy in Zimbabwe, a term increasingly used by economists to describe an economy in which different groups experience sharply diverging outcomes.
By Brighton Musonza
So what does it mean? Simply put, the upper part of the K refers to higher-income Americans seeing their incomes and wealth rise while the bottom part points to lower-income households struggling with weaker income gains and steep prices.
Here are some things to know about the K-shaped economy:
Not an L, U or V
Atwater, an American economist, actually popularised the label “K-shaped economy” during the pandemic after seeing it crop up on social media. Other economists were discussing different letters to describe how the COVID recession in 2020 could play out: Would it be a V-shaped recovery, meaning a sharp decline and then rapid bounce-back? Or would it be U-shaped, meaning a more gradual rebound? Or, worse, L-shaped: A recession followed by extended stagnation.
“There was sort of this land-grab for letters,” Atwater said. “The letter that made the most sense was K.”
Back then, it captured the differing fortunes between white-collar professionals still employed and working at home while stock prices rose, even as massive layoffs at factories, restaurants, and entertainment venues pushed unemployment to nearly 15%.
2025 National Budget Statement
The budget attempts to stabilise the macroeconomic environment, yet its measures reveal a widening gulf between households with access to foreign currency and assets and those surviving on low, ZiG-denominated incomes.
While Treasury projects economic growth driven by mining, improved energy supply, tourism, and infrastructure rehabilitation, the lived experiences of ordinary Zimbabweans remain far removed from these headline figures. The Budget’s heavy reliance on consumption taxes and its limited fiscal support for low-income households have become central to concerns that the economic recovery is disproportionately benefiting those already at the top.
Two Economies, One Budget
The upper arm of Zimbabwe’s K-shaped economy is represented by corporates posting solid USD earnings, strong mining receipts, and a growing class of urban and politically connected elites whose spending patterns remain robust. Treasury’s optimistic revenue projections are anchored on this group—formal businesses, high-income earners paying in hard currency, and sectors linked to exports.
But on the lower arm of the K, millions of households continue to face falling real incomes, rising cost-of-living pressures, and volatile prices. The Budget offers little meaningful relief to this segment beyond targeted social protection that analysts say is insufficient when measured against rising food prices, transport costs, and school fees.
The contrast is even sharper because most taxes and tariffs remain dollar-indexed, yet public-sector wages and large portions of the economy remain anchored in a depreciating ZiG currency. This duality is central to the widening inequality that the Budget inadvertently lays bare.
A Market Split by Currency
The Budget acknowledges dollarisation pressures but stops short of decisive reforms, instead reinforcing a dual-currency system that benefits USD earners while eroding the incomes of those paid in ZiG.
Although the Budget projects moderate inflation and exchange-rate stability, it does not fully address the structural mismatch between revenues and wages:
- Public servants continue earning far below the cost of living.
- SMEs and informal traders face taxes that are increasingly burdensome in hard currency.
- Households without access to USD find basic goods drifting out of reach.
These dynamics deepen the K-shaped pattern: stability and asset growth for the few, austerity and hardship for the many.
Corporate Adjustments Reflect Divergent Realities
Corporate behaviour—already adapting to this divergence—is reinforced by the Budget’s fiscal stance. Businesses oriented towards dollar-earning consumers welcome the improved investment climate, tax clarity in some sectors, and incentives for exporters. Meanwhile, retailers and manufacturers catering to low-income consumers brace for further weaknesses in demand as VAT and other taxes increase the final cost of goods.
Retail chains are expected to accelerate two strategies:
- Premiumisation – focusing on high-end, USD-priced goods for wealthier customers.
- Downsizing – offering smaller, more affordable package sizes to accommodate weakening purchasing power among low-income households.
The Budget’s tax measures—such as adjustments to VAT thresholds, excise duties, and intermediate money transfer taxes (MTT)—are likely to hit low-income earners hardest, reinforcing spending inequalities already visible in the market.
Wealth Concentration Intensifies Under Current Fiscal Measures
With the Budget continuing to rely heavily on consumption taxes, inequality is expected to widen further. Property owners, exporters, and mining sector investors stand to benefit from stability-oriented policies, while households without assets continue to absorb inflationary pressures.
The Budget’s silence on robust wage-indexation mechanisms means civil servants and low-paid workers remain vulnerable to inflationary erosion, even as the Treasury projects a stabilising macroeconomic environment.
Furthermore, the Budget’s assumptions depend significantly on mining revenues and private-sector capital expenditure—sectors that primarily reward elites and foreign investors. This structure, analysts warn, risks entrenching a narrow growth path that excludes most Zimbabweans.
Fiscal Risks and Social Tensions
Economists caution that a recovery led almost entirely by the upper segment of society is unsustainable. Should employment remain weak and real wages continue to decline, domestic consumption—already struggling—could contract sharply. This would undermine tax revenues, weaken manufacturing output, discourage private investment, and heighten social discontent.
There are also concerns that the continued reliance on hard currency taxation may push more businesses into informality, exacerbating the very revenue leakages the Budget seeks to control.
A Possible Opening?
Despite these concerns, the Budget does present opportunities:
- Increased capital investment in energy and infrastructure could stimulate medium-term productivity.
- Export incentives may support re-industrialisation if paired with governance reforms.
- Enhanced social protection, if implemented effectively, could cushion vulnerable groups.
However, without meaningful measures to expand domestic job creation, index wages to inflation, stabilise the currency, and broaden economic participation, the K-shaped trajectory is likely to persist.
Conclusion
The 2025 Budget Statement offers a stabilisation narrative, but beneath the policy commitments lies a deeper structural divide: an economy rising for a small elite while sinking for the majority. Zimbabwe’s challenge is no longer merely restoring growth—it is ensuring that growth is inclusive. Without deliberate intervention, the country risks entrenching a two-tier economy that could shape its economic and social outlook for years to come.
