Zimbabwe

Zimbabwe replaced its previous currency shortly after independence, but had difficulty controlling the (nominal or real) exchange rate in the presence of tight import and exchange controls but high fiscal deficits. Attempts at stabilisation and structural reform were repeatedly undermined by fiscal dominance, which eventually produced hyperinflation and (USD and rand) dollarisation. A brief interlude, with a coalition government which accepted dollarisation and implemented some reforms, was followed by a reversion to one-party government and previous policies, with a return to fiscal dominance and the adoption of opaque and inappropriate monetary arrangements.

YearsTargets and attainmentClassification
1980-82transition to majority rule and independence early 1980 leads to removal of longstanding international economic sanctions, re-integration into world economy, and some gradual and limited liberalisation; March 1980 Zimbabwe dollar, replacement at par for Rhodesian dollar (pegged to South African rand), pegged to (regularly reviewed) basket dominated by USD and rand with narrow spreads, within system of continuing exchange and import controls; relatively developed financial system with discount and accepting houses, money and bond markets; monetary policy had long relied on direct instruments, from 1981 central bank sets interest rates and uses liquidity ratios, reserve requirements, moral suasion, and credit controlsaugmented exchange rate fix AERF
1983-99devaluation late 1982 followed by further periodic depreciations designed to reverse previous and prevent further real appreciation; import and exchange controls tightened; monetary expansion intended to allow growth but not accommodate inflation; monetary instruments remain mainly direct; efforts to restrict monetary impact of budget deficits, e.g. 1983 nonbank financial intermediaries required to hold more government securities; 1989-92 liberalisation including move towards more active and anti-inflationary monetary policy with banks’ interest rates no longer set by central bank from late 1991; exchange rate 1992-3 stabilised periodically to contain inflation; slippages in fiscal policy affecting monetary growth; 1994 forex reforms including abolition of official exchange rate and central bank withdrawal from forward market, but stabilising intervention continues; central bank starts to issue treasury bills for monetary control purposes, but reserve requirements remain important;  broad money targets set from 1993 but largely missed, emphasis shifted to reserve money but money multiplier unstable; overall, 1991-5 liberalisation programme undermined by uneven policy implementation notably in fiscal control and public enterprise reform; mid-1997 monetary easing, talk of compulsory land reform and decision to award large compensation payments to liberation war veterans feed into currency crisis, followed by attempts at stabilisation which become increasingly ineffective; 1998 continued depreciation, exchange rate pegged to USD early 1999 (via severe import compression) then sharply devalued 2000 with move to crawling peg; military involvement of Zimbabwe in Democratic Republic of the Congo from August 1998, financing obscure; statistical database poorloosely structured discretion LSD
2000-082000-8 severe economic crisis; GDP continuously falling despite high fiscal deficits and rapid monetary growth; rising inflation, widening spread between official and parallel forex rates, rising vulnerability of financial system, together with drought, food shortages, spread of HIV and deteriorating health conditions, extra-legal farmland occupations; government devalues (multiple) exchange rates from time to time, makes central bank undertake growing quasi-fiscal activities, tightens price controls and exchange restrictions, and fails to adopt sustained stabilising fiscal and monetary policies; by 2008 soaring hyperinflation and near-collapse of most public services; statistical database remains poorunstructured discretion UD
2009-142009, under national unity government, abandonment of Zimbabwe dollar initially until end-2012 (later revised to at least 2018) of in favour of a multi-currency system (mainly use of rand and USD, both already widespread), i.e. use of several other sovereigns’ currencies; this move, together with some liberalisation of prices, goods markets and forex transactions, plus end to central bank’s quasi-fiscal activities, produces ‘spontaneous’ stabilisation with strong growth 2009-12 and sharp reduction of fiscal deficits, but external position remains fragile and public sector wage increases crowd out public investment; large external debt arrears, increased by nonconcessional borrowing; pressures on banking system eased but central bank suffers from financial distress and weak governance, which government is slow to address; internal political tensions remain severe, re-engagement with international community proves difficult; 2013 growth rebound comes to end; elections lead to return to one-party governmentuse of another sovereign’s currency UASC
2015-172015 central bank, now recapitalised, removes legal tender status of old Zimbabwean dollar and issues bond coins indexed to USD, while banking system is partly stabilised; but with rising fiscal deficits central bank overdraft loans to government lead to creation of deposits within real time gross settlements (RTGS) system, which function as money without any increase in USD holdings; from 2016 central bank issues small ‘bond notes’ at par with USD; in context of USD shortages government adopts current and capital account controls, which lead to growth of parallel market in bond notes, RTGS balances and treasury bills (all used as media of exchange) at increasing discount to USD, and then to rise in inflation; 2017 military coup brings new government initially claiming to be more open economically and politically; statistical database improvedunstructured discretion UD

Selected IMF references: RED 1981 pp35-41, 50, 60; SR 1981 pp1-3, 9-10; RED 1982 pp38, 48, 53; SR 1983 p17; RED 1984 pp50-1; RED 1985 p37; SR 1985 pp13-15; RED 1987 pp40-2; SR 1987 pp14-15, 17; RED 1988 pp37-41; SR 1989 pp15-16; RED 1990 pp3, 33, 36-8, 40-3, 50a, 89-92; SR 1990 pp16-17, 22; SR 1992 pp5-7, 8a, 15; BP 1993 pp24-39; SR 1993 pp10-11; BP 1994 pp29-32; SR 1994 pp6-8, 14-16, 23; RED 1996 pp29-31, 41; SR 1996 pp1-10, 17-19; RED 1997 pp11, 18, 24-6, 36; SR 1997 pp13-14; RSBA 1998 pp9-11, 14-17, 20; SR 1999 pp5-13; REDSISA 2000 pp14-20; SR 2001 pp5-14, 19-20; SR 2003 pp4-17; SR 2004 pp5-13; SISA 2005 pp18-21; SR 2005 pp4, 11-17; SR 2007 pp4-17; SR 2009 pp5-10, 13-14; SR 2010 pp4-6, 9-10, 13-14; SR 2011 pp4-8, 18-20, 23-5; SR 2012 pp4-8, 17-20; SR 2014 pp4-7, 14; SR 2016 pp5-8 13-14; SR 2017 pp4-10, 15-18; SR 2020 pp5-13; SI 2020 pp2-4.

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