Lessons From High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe
IMF Working Papers, April 1, 2007
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Bibliographic details
- Authors: Jens R Clausen, Sharmini Coorey, Bakar Ould-Abdallah, Sònia Muñoz, Norbert Funke
- Published: April 1, 2007
- Series: IMF Working Papers
Overview
- Authors: Jens R Clausen, Sharmini Coorey, Bakar Ould-Abdallah, Sònia Muñoz, Norbert Funke
- Date: April 1, 2007
- Context: Zimbabwe has the highest rate of inflation in the world (an annual rate of 1,730 percent in February, 2007) and an economy that has declined by about 30 percent since 1999. The paper examines stabilization experiences of countries with inflation rates above 1,000 percent during 1980-2005 to draw lessons for Zimbabwe.
Key Findings
- Rapid disinflation is feasible:
- With appropriate stabilization policies, the fall in inflation can be very rapid.
- Output normally recovers within the first year or two of stabilization.
- Fiscal consolidation is critical:
- A strong upfront fiscal consolidation, including elimination of quasi-fiscal activities, is a critical element of a successful stabilization program.
- Role of external support:
- 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.
Policy Implications and Recommendations
- Prioritize comprehensive reforms with an emphasis on:
- Strong upfront fiscal consolidation.
- Elimination of quasi-fiscal activities.
- Prepare for phased external engagement:
- Use external policy advice and technical support during stabilization.
- Seek increases in financial assistance in subsequent years after initial stabilization.
- Expect macroeconomic dynamics:
- Plan for rapid declines in inflation if stabilization policies are appropriate.
- Anticipate output recovery within the first one to two years following stabilization.
Scope and Focus Areas
- Timeframe analyzed: 1980-2005 (countries experiencing inflation above 1,000 percent).
- Core subjects: Budget planning and preparation, Economic sectors, Fiscal consolidation, Fiscal policy, Fiscal stance, Inflation, Prices, Public enterprises, Public financial management (PFM).
- Keywords emphasized in the analysis: 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.
IMF Working Paper No. 2007/099