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Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe

Author

Listed:
  • Mr. Jens R Clausen
  • Ms. Sharmini Coorey
  • Bakar Ould-Abdallah
  • Ms. Sònia Muñoz
  • Mr. Norbert Funke

Abstract

Zimbabwe has currently the highest rate of inflation in the world (an annual rate of 1,730 percent in February, 2007). The high rates of inflation have contributed to the contraction of the economy, which has declined by about 30 percent since 1999. This paper examines the stabilization experience of countries that experienced similar rates of inflation (above 1,000 percent) during 1980-2005 and draws lessons for Zimbabwe. First, with appropriate stabilization policies, the fall in inflation can be very rapid and output normally recovers within the first year or two of stabilization. Second, while reforms need to be comprehensive, a strong upfront fiscal consolidation, including elimination of quasi-fiscal activities, is a critical element of a successful stabilization program. Third, although stabilization itself can be done without significant external financing in the first year, most countries benefited from external policy advice and technical support, including from the IMF, during stabilization and from an increase in financial assistance in subsequent years.

Suggested Citation

  • Mr. Jens R Clausen & Ms. Sharmini Coorey & Bakar Ould-Abdallah & Ms. Sònia Muñoz & Mr. Norbert Funke, 2007. "Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe," IMF Working Papers 2007/099, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/099
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    References listed on IDEAS

    as
    1. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    2. Mr. Stanley Fischer & Ms. Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 2000/030, International Monetary Fund.
    3. Mr. Mark A Horton & Mr. George C. Tsibouris & Wojciech Maliszewski & Mr. Mark J Flanagan, 2006. "Experience with Large Fiscal Adjustments," IMF Occasional Papers 2006/003, International Monetary Fund.
    4. Sebastian Edwards, 1990. "The Sequencing of Economic Reform: Analytical Issues and Lessons from Latin American Experiences," The World Economy, Wiley Blackwell, vol. 13(1), pages 1-14, March.
    5. Reinhart, Carmen & Savastano, Miguel, 2003. "Realidades de las hiperinflaciones modernas [The Realities of Modern Hyperinflation]," MPRA Paper 13657, University Library of Munich, Germany.
    6. Ms. Sònia Muñoz, 2007. "Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe: A Note," IMF Working Papers 2007/098, International Monetary Fund.
    7. Saleh M. Nsouli & Mounir Rached & Norbert Funke, 2005. "The speed of adjustment and the sequencing of economic reforms: Issues and guidelines for policymakers," International Journal of Social Economics, Emerald Group Publishing, vol. 32(9), pages 740-766, September.
    8. Mr. Benedikt Braumann, 2000. "Real Effects of High Inflation," IMF Working Papers 2000/085, International Monetary Fund.
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    Cited by:

    1. Manoel Bittencourt, 2007. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 163, Ibero-America Institute for Economic Research.
    2. Chikweche, Tendai & Fletcher, Richard, 2010. "Understanding factors that influence purchases in subsistence markets," Journal of Business Research, Elsevier, vol. 63(6), pages 643-650, June.
    3. Daniel Makina, 2010. "Historical Perspective on Zimbabwe’s Economic Performance," Journal of Developing Societies, , vol. 26(1), pages 99-123, March.
    4. Yu Zhang & Xi Chen & Ya Wu & Chenyang Shuai & Liyin Shen & Gui Ye, 2020. "Peaks of transportation CO2 emissions of 119 countries for sustainable development: Results from carbon Kuznets curve," Sustainable Development, John Wiley & Sons, Ltd., vol. 28(4), pages 550-571, July.

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