zimbabwe hyperinflation episode 2003-2010

7/29/2019 Zimbabwe Hyperinflation Episode 2003-2010

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Zimbabwe Hyperinflation Episode 2003 - 2010

SIBM

Pune

EPGDBM -2010-11 .

Subject : Economics

Presented By :

Abhijit Malankar ( Roll - AV 102 )

Email - [email protected]


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Geographical

Location of

Zimbabwe

Zimbabwe is situated in Southern Africa, area is 399 thousand sq km,

landlocked by neighbors like South Africa, Zambia, Botswana and

Mozambique. Population of Zimbabwe is 12.5 M. Its economy is driven

by agriculture (crops corn, cotton, tobacco), mining (metals coal,chromium ore, copper, iron ore, gold, diamonds ,nickel), tourism and

limited industries once like Agriculture based and that of Tourism.

Agriculture was until independence the major source of exports and

employment (providing 400k jobs). Acquired independence from UK in

1980.Government is a political democracy, but practically the country is

headed by Mugabe since independence. Until recently the opposition

political parties were dramatically placed into power via elections.


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Agenda

- Causes of this Crisis

- What the Zimbabwe Hyperinflation crisis is all about

- Remedial Measures taken by the Zimbabwe Government

to keep the crisis under control

- What additional remedies that can be tried to keep a

check on the crisis from further escalating and revert

back the hyperinflation to normalcy over the next five

years time


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Causes of Zimbabwe HyperinflationCrisis.


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Location of the country :

- Zimbabwe is land locked country in Africa.

- It was earlier a British colonial settlement. Mineral

exports, crude diamond exports, agriculture and tourismwere the highest foreign currency earners.

- It is not a market oriented economy, although attempts

have been made after independence to adopt it. It

admeasures approximately 399 thousand sq kms.

Causes of Hyperinflation:


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Independence and Governance:Zimbabwe acquired independence from British

rule in 1980. Since then practically Robert

Mugabe has been leading a dictatorial regime,

although it has adopted democracy . Since 1987,Mugabe is the President of the country. There

have been multiple general elections held since

independence. In 2008, Morgan Tsvangirai was

elected as Prime Minister.



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Participation in Congo War:

- Zimbabwe supported and sent troops in Congo war.

- This war which involved 8 countries and lasted for years furtherweakening the countries economy as Zimbabwe had to use its scarce

valuable resources like diamonds etc. to buy arms and maintain an

army instead of working towards improving its economy.

- The war also led to a huge loss of important skilled human capitalwhich migrated to other nearby peaceful countries .



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GDP growth started getting negative


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Socialistic reforms:

The government made attempts at socialistic reformsthrough regulating business ownership, labor friendly and

difficult to hire and fire policies, and redistribution of

industrial ownership from established businesses to

government kith and kin. These reforms backfired withoverall economic activity taking a dip.



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International Sanctions:

With violence, forced seizure of lands and social unrest

within country and illegal smuggling of blood diamonds ,

use of forced child labour in mining of diamonds and the

military to control the mining operations- finally USpassed statute putting curbs on trade with Zimbabwe and

the International community placing severe sanctions

over any further aid to the country.



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Land Reforms:

Governments decisions were major factors in causing a

hyperinflationary situation.

Land redistribution and reforms scheme attempted by

government and later the forced seizure led to ownership

and management of farm lands going to those who were

not as skilled as the earlier farmers. The agricultural

produce saw a decreasing trend as a result of this

mismanagement which further fuelled the crises .



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ZimbabweHyperinflation crisis.


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Effects of Hyperinflation on common man:

By July 4, 2008 at 5PM, a bottle of beer costing 100billion Zimbabwean dollars, but an hour later, theprice had gone up to $150 billion

the Los Angeles Times further reported on July 15,

2008 that the printing presses were running out ofpaper to print the money

On July 30, 2008, the Governor of the RBZ, GideonGono announced that the Zimbabwe dollar would

be redenominated by removing 10 zeroes, witheffect from August 1, 2008. ZWD10billion willbecome 1 dollar after the redenomination.


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Inflation makes it to the Headlines


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Finer points:

By the beginning of July 2008, official figures put theinflation rate at 355,000 percent and with someindependent estimates as high as 8,500,000 percent

On July 16, the official inflation rate was reported byZimbabwe's central bank as 2.2 million percent

On 19 July 2008, the Reserve Bank of Zimbabweannounced plans to introduce a Z$100 billion bank

note On January 16, 2009, Zimbabwe announced plans for

imminent issue of banknotes of $10 trillion, $20trillion, $50 trillion, and $100 trillion.


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Media Reactions to Inflation


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ZWD Vs. USD


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Rise of Inflation over the years.


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Effects of Hyperinflation:

Domestic Production began to decline rapidly

Supply of essential commodities could not cope up with their

Demand in the Market .Prices hence shot through the roof.

Rising Prices and falling currency value

Demand Pull Inflation.

Due to inflation money supply needed to be increased whichresulted in local Currency getting more and more devalued

Foreign Debt started increasing as a result .


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Current account balance started worsening :

Year Current Account Balance Bal as % of GDP

2003 US$ -0.374 Billion -

2004 US$ -0.492 Billion -

2005 US$ -0.628 Billion -13.22%2006 US$ -0.468 Billion -10.12%

2007 US$ -0.38 Billion -8.16%

2008 US$ -0.945 Billion -24.05%

2009 US$ -1.323 Billion -30.09%


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Overall Inflation Vs. Food & non-alcoholic

beverages Vs. Non-food YOY


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Money Supply Vs. US Dollar Value


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Remedial Measures taken bythe Zimbabwe Government to

keep the crisis under control.


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Remedial Measures Taken By ZimbabweGovernment:

Printing more money with increased denominations , which wasincorrect .

In 2009, the Zimbabwe currency was withdrawn and US and SouthAfrican Dollars were recognized as official currencies.

Fixing commodity prices which started adversely impacting thebusinesses and they started suffering losses.

Wage control , the inflation rate would not be considered in case ofwages.

Seeking for international assistance to comeout of this situation.

Appealing for waiver of debts.


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Additional Remedial measures which can be tried outlike .

Have a good and stable governance and fiscal discipline in

place

Implement growth oriented long-term economic policies with

more focus on sustaining fundamental high value creators

like -

- Mining and supporting ancillary Industries

- Stop illegal smuggling of Blood Diamonds

- Agriculture and Agri-based Job creations

- Tourism and supporting ancillary Industries

Become part of International trade policies to reap benefits

of global trade

Improve on Humanitarian reforms to win back more

International Aid and support , softening of sanctions .


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Q & A


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Thank You!!

zimbabwe hyperinflation episode 2003-2010

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