ANALYSIS OF ZIMBABWE’S ECONOMY AND INFLATION
RATES FROM 1990-2023
TREND ANALYSIS
From 1990 to 2023, Zimbabwe experienced periods of extreme hyperinflation, followed by a
period of relative stability.
In the 1990s, Zimbabwe's inflation rate remained relatively low, hovering around 10% for
much of the decade. However, in the early 2000s, the country's economy began to experience
significant problems, including political instability and a decline in agricultural productivity.
This led to a rapid increase in inflation, with the rate reaching 622% by 2004.
The hyperinflationary period peaked in 2008, with the inflation rate soaring to an astronomical
79.6 billion percent. The country's currency, the Zimbabwean dollar, became almost worthless,
and Zimbabweans were forced to rely on foreign currencies for daily transactions. This period
of hyperinflation was caused by a combination of factors, including excessive government
spending, a decline in agricultural output, and a shortage of foreign currency reserves.
In response to the hyperinflation, the government of Zimbabwe abandoned the Zimbabwean
dollar and adopted a multicurrency system, in which the US dollar and other foreign currencies
were used for transactions. This helped to stabilize the economy and bring inflation under
control. From 2009 to 2017, inflation remained relatively low, with an average annual rate of
around 2%.
However, beginning in 2018, inflation began to rise again, reaching a peak of 837.5% in July
2020. This resurgence of inflation was caused by a variety of factors, including a shortage of
foreign currency, a decline in agricultural output, and the COVID-19 pandemic. In response,
the government has implemented a range of measures to try to bring inflation under control,
including tightening monetary policy, increasing foreign currency reserves, and increasing
agricultural productivity.
Overall, the trend in Zimbabwe's inflation rates from 1990 to 2023 has been one of extreme
volatility, with periods of relatively low inflation followed by periods of hyperinflation. While
the country has made progress in stabilizing its economy in recent years, it continues to face
significant challenges, and inflation remains a major concern for both the government and
ordinary Zimbabweans.
Reasons for Zimbabwe’s high levels of inflation
The direct cause of Zimbabwe’s inflation woes was due to monetary policy mismanagement
by Zimbabwe’s president Robert Mugabe and his government.
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Land reforms - In the late 1990s, the Zimbabwe government introduced a series of
land reforms. This involved redistributing land from the existing white farmers to black
farmers. But, with little experience, the new farmers struggled to produce food, and there was
a large fall in food production.
•
Fall in output- The economy experienced a sharp fall in output (both agricultural and
manufacturing), and this caused a collapse in bank lending.
•
Printing currency to meet demand- The government began increasing the rate at
which they were printing money and increasing the money supply. This started with printing
money to finance a war in the Congo and also to increase the salaries of officials and soldiers.
But, as the economic crises worsened, printing money became a very short-term solution to
try and placate people relying on government pay.
•
Increase in Government debt- With the economy in decline, government debt
increased. To finance the higher debt, the government responded by printing more money,
which caused more inflation. Inflation meant bondholders saw a fall in the value of their
bonds and so it was hard to sell future debt.
•
Political instability and corruption- The upcoming Zimbabwean elections are
shaping up to be the bloodiest on the continent this year as the ruling Zimbabwe African
National Union-Patriotic Front (ZANU-PF) ramps up its use of violence and intimidation in
the attempt to retain its 43-year grip on power.
As seen from the above, this is a clear case of Demand-pull inflation. Demand-pull inflation
exists when aggregate demand for a good or service exceeds aggregate supply. It starts with
an increase in consumer demand. Sellers meet such an increase with more supply. Demandpull inflation is based on the concept of “Too much money chasing too few goods”. But
when additional supply is unavailable, sellers raise their prices. That results in demand-pull
inflation, also known as "price inflation."
Zimbabwe was printing money at an extraordinary rate to fund government wars, projects,
and salaries. In tandem, there was a shortage of goods across the nation and, to make matters
worse, the country had already been hit by an ongoing food shortage. In some ways, demand
was already significantly higher than supply, and the addition of printing exorbitant amounts
of money only made matters worse. Additionally, the country had been experiencing high
inflation rates for decades, creating the expectation of inflation among consumers.
ZIMBABWE’S HYPERINFLATION CRISIS IN 2008-09
Zimbabwe suffered a period of hyperinflation in 2008-09, where Zimbabwe's peak month of
inflation is estimated at 79.6 billion percent month-on-month, 89.7 sextillion percent year-onyear in mid-November 2008. This was due to a variety of factors, starting with a fall in food
production due to poorly implemented land reforms, collapse of the banking sectors, and fall
in output of almost all the main industries- Food, manufacturing
Another motive for excessive money creation has been self-dealing. Transparency
International ranks Zimbabwe's government 157th of 177 in terms of institutionalized
corruption. The resulting lack of confidence in government undermines confidence in the
future and faith in the currency.
In an effort to correct the falling value of Zimbabwe’s currency, the Reserve Bank of
Zimbabwe simply increased its money printing efforts, declared inflation illegal by instituting
price freezes , redenominated its currency from Z$5, Z$10, and Z$20 bills into
Z$100,000,000 and Z$200,000,000 bills, intentionally avoided updating its foreign exchange
rates or inflation rates, and announced new currency regimes that did not address the
underlying causes of inflation and further reduced citizens’ confidence in the stability of
currency.
As a result, the black market for foreign currencies became a common method for obtaining
basic goods and services at a relatively consistent value, despite the illegal use of foreign
currency. Many ranked government officials participated in the currency exchange black
market.
ZIMBABWE’S CURRENT ECONOMIC AND POLITICAL STATE
As of January 2023, Zimbabwe’s yearly inflation hovers around 229.8%, although it has seen
a constant monthly decrease from September 2022. This new spike in inflation was a direct
result of Zimbabwe introducing its new currency, known as the Real time Gross Settlement
(RTGS) dollar. They also banned the use of foreign currencies in an attempt to end the multicurrency system: the BBC reported widespread opposition to the ban, partly due to continued
public distrust, partly due to high inflation, and partly due to traders still having to use hard
currencies to import goods from abroad. The onset of the coronavirus pandemic eventually
forced the Reserve Bank to reinstate the multi-currency system, on 29 March 2020.
The fifth Zimbabwean dollar continues to experience very high inflation, due to continued
public distrust, and the continued shortage of hard currency as a result of importers being
unable to use Zimbabwean dollars.
Zimbabwe’s central bank also began issuing gold coins as a hedge against inflation. The gold
coins will be introduced as a “store of value,” meaning that Zimbabweans can exchange them
in the future without worrying about the coins deteriorating in value as has happened with the
local Zimbabwean dollar, which has been devalued by over 40% since the beginning of the
year.
The public will be able to buy gold coins using both Zimbabwean dollars as well as the U.S.
dollar, and other foreign currencies. Buyers can either hold on to the coins or place them in the
custody of a bank. Holders can trade the coins for cash at any point, and that the coin can “also
be used for transactional purposes.”
The inflation rates have decreased from a high of 557.8% in 2020 to 229.8% as of Jan 2023.
Zimbabwe’s central bank followed a series of stringent monetary policies to drive down the
rate of inflation. After Inflation soared in July 2022, the Central bank hiked the interest rates
from 80% to 200%, and the recent trend of declining inflation have allowed them to reduce it
back to 150%