Lessons from high inflation episodes for stabilizing the economy in Zimbabwe, Issues 2007-2099
International Monetary Fund, 2007 - 16 pages
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.
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24 countries 50 percent accelerating inflation Achieving sustained growth Angola annual inflation Appendix Table assistance and official Bolivia broad-based CD CD CD Central and Eastern credible decline Disinflation exchange rate expenditure external support financing requirement fiscal and monetary fiscal deficit Fund arrangement growth in Zimbabwe hard budget constraint high inflation episodes High Inflation Periods highest priority reform hyperinflation IMF staff including public enterprises inflation peak initial stabilization interest payments International Financial Statistics length months medium term newly-absorbed QFAs Nicaragua official aid official development assistance output growth output recovers percent of GDP percentage points period of high points of GDP price and exchange property rights public entity quasi-fiscal activities quasi-fiscal deficits reduce inflation Sahay sample Soviet Union stabilization package stabilize the economy state-owned enterprises stylized facts successful stabilization programs t+1 t+2 t+3 t+2 t+3 t+4 t+3 t+4 t+5 t+4 t+5 Note transition economies Turkmenistan upfront Vegh