Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe

By Jens R Clausen, Sharmini Coorey, Bakar Ould-Abdallah, Sònia Muñoz, Norbert Funke

April 1, 2007

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Jens R Clausen, Sharmini Coorey, Bakar Ould-Abdallah, Sònia Muñoz, and Norbert Funke. Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe, (USA: International Monetary Fund, 2007) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Budget planning and preparation, Economic sectors, Fiscal consolidation, Fiscal policy, Fiscal stance, Inflation, Prices, Public enterprises, Public financial management (PFM)

Keywords: Budget planning and preparation, Deficit, Eastern Europe, Exchange rate, Financial support, Financing requirement, Fiscal consolidation, Fiscal stance, High Inflation, Inflation, Inflation expectation, Inflation rate, International Experience, Macroeconomic Stabilization, Price, Price deregulation, Price distortion, Price liberalization, Public enterprise, Public enterprise reform, Public enterprises, WP, Zimbabwe

Publication Details

Pages:

16
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/099
Stock No:

WPIEA2007099
ISBN:

9781451866636
ISSN:

1018-5941

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