Lessons from High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe

18 Pages Posted: 8 May 2007

See all articles by Sharmini Coorey

Sharmini Coorey

International Monetary Fund (IMF)

Jens R. Clausen

International Monetary Fund (IMF)

Norbert Funke

International Monetary Fund (IMF) - African Department

Sònia Muñoz

London School of Economics & Political Science (LSE); International Monetary Fund (IMF)

Bakar Ould-Abdallah

International Monetary Fund (IMF)

Date Written: May 2007

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

Coorey, Sharmini and Clausen, Jens R. and Funke, Norbert and Munoz, Sonia and Ould-Abdallah, Bakar, Lessons from High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe (May 2007). IMF Working Paper No. 07/99, Available at SSRN: https://ssrn.com/abstract=984615

Sharmini Coorey

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jens R. Clausen

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Norbert Funke (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Sonia Munoz

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Bakar Ould-Abdallah

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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