Economic Crisis in Zimbabwe

Zimbabwe experienced an economic decline that resulted in an inflation rate of 231 million per cent and an unemployment rate of over 90 percent. Academic research concluded that the economic decline of Zimbabwe was mainly caused by poor monetary policies and failure of fiscal policies to control the budget deficit.^[1]

The economic crisis was characterised by economic instability in Zimbabwe that began in the late 1990s shortly after the confiscation of private farms from landowners towards the end of Zimbabwean involvement in the Second Congo War. During the height of inflation from 2008 to 2009, it was difficult to measure Zimbabwe's hyperinflation because the government of Zimbabwe stopped filing official inflation statistics. However, Zimbabwe's peak month of inflation is estimated at 79.6 billion percent in mid-November 2008.

The situation improved during the government of national Unity from 2009 to 2013 but worsened again in 2018.

Historical Context

Zimbabwe gained independence from Southern Rhodesia in 1980 and the Rhodesian dollar was replaced by the Zimbabwean dollar at par value. The Zimbabwean dollar was more valuable than the United States Dollar at the official exchange rates. See Value Of Zimbabwe Dollar. But this did not reflect reality, as in terms of purchasing power on the open and black markets, it was less valuable, due primarily to the higher inflation in Zimbabwe. In its early years, Zimbabwe experienced strong growth and development. Wheat production for non-drought years was proportionally higher than in the past. The tobacco industry was thriving as well. Economic indicators for the country were strong.

Between 1991 to 1996, the Zanu-PF government led by Robert Mugabe embarked on an Economic Structural Adjustment Programme (ESAP) that had serious negative effects on Zimbabwe's economy. See Bernard Chidzero. In the late 1990s, the government instituted Fast Track Land Reform Programme intended to evict white landowners and place their holdings in the hands of black farmers. However, many of these resettled farmers had no experience or training in farming. From 1999 to 2009, the country experienced a sharp drop in food production and in all other sectors. The banking sector also collapsed, with farmers unable to obtain loans for capital development. Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%. See Black Friday.

The purchasing power of the average Zimbabwean in 2005 fell back to the same level as in 1953. For people in extreme poverty, a collapse like this translated directly into sickness and death. Academics estimated that the persistence in the economic shock cost the lives of at least 3 900 Zimbabwean children annually which was about half the infant death toll from HIV/AIDS.

Causes

Government's view

The government blamed its economic problems on external forces and drought. The Reserve Bank of Zimbabwe blamed the hyperinflation on economic sanctions imposed by the United States of America, the IMF and the European Union. According to the government, these sanctions affected the government of Zimbabwe through asset freezes and visa denials targeted at 200 specific Zimbabweans closely tied to the Mugabe regime. ^[2]