Hyper-Inflation in Zimbabwe

Guided by: Prof Suhas V

By Group 9Jitesh Choudhary 76 Ashish Sawalakhe 87

Anilkumar Jain 96

Atul Roy 97

Manish Jha 98

Tejaswini Gupta 103

If You Need Something & Have Cash You Buy It . If You Have Cash

You Spend It Today Because Tomorrow Its Going To Be Worth

5% Less

- Mike Davis(Combined Harare Resident Association)

Agenda:

a. Introductionb. Hyperinflation in Zimbabwec. Root Causesd. Statistical Datae. Consequencesf. Solutiong. Conclusion

Inflation is defined as a sustained & appreciable rise in the general price level

Types of Inflation:

Galloping Inflation

Hyper Inflation

Moderate Inflation

Until 2000, Zimbabwe was one of Sub-Saharan Africa’s best performing economies.

In fact, the country’s long-run growth record is unimpressive, even by Sub-Saharan standards, which are dismal.

Beginning:

Over the long haul (1965-2008) real per capita incomes have fallen more than 20% meaning that Zimbabweans are no better off today than 50 years ago.

The chart tells the story.

0

500

1000

1500

2000

2500

1965 1974 1979 1981 1991 1997 2008-est

PCY

Inflation in Zimbabwe Government reports 66,212% rate of inflation

in February 2008• At that time IMF believes it’s closer to

150,000% & now it is around 3.2bn%

Hyperinflation diminishes savings• Shortage of basic goods

Annual Inflation in Zimbabwe

0

200

400

600

800

1000

1200

0 5 10 15 20 25 30

Year 1980-2006

Infla

tion,

Con

sum

er P

rices

(ann

ual %

)

Series1

Characterizations

Rapid uncontrolled increase in : inflation rate nominal money growth

http://funtasticus.com/20080326/hyperinflation-in-zimbabwe/

Mugabe’s Price RestrictionsCitizens cannot hold more than Z$500

million in cash

Companies may not settle bills over Z$250 million

Government’s attempt to control money supply and put “cash barons” out of business

Causes of HyperinflationLand reforms

Government price restriction

Exchange rate instability

Printing of money

Land reformsReallocation of land owned by white

commercial farmers to local citizensNew owners lacked the knowledge or

means to farm productionMost of the land was actually given to

government officials

Government price restrictionCitizens cannot hold more than Z$500

million in cashCompanies may not settle bills over

Z$250 millionRBZ declared inflation "illegal", for any

raise in prices on certain commodities between March 1 and June 30, 2007.

Officials have arrested executives of some Zimbabwean companies for increasing prices on their products.

Exchange rate instability

Printing of money

Government printed ZWD 21 trillion in order to buy foreign currency to pay off IMF arrears

Printed ZWD 60 trillion to finance 300 percent increase in salaries for soldiers and policemen and 200 percent for other civil servants

Statistical Data of Zimbabwean Economy

GDP growth

-15

-10

-5

0

5

10

15

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Percentage per annum

Agricultural output

150020002500300035004000450050005500

Z$ (1990)

Manufacturing value added

150020002500300035004000450050005500

Z$ (1990)

Formal employment

700

800

900

1000

1100

1200

1300

1400

Employment (000)

Wages

010002000300040005000600070008000

Z$(1990)

Consequences Prices in Zimbabwe are doubling constantly

Hyperinflation = 2.2m per cent annually

50 billion Zimbabwean dollars = 70 American cents

Most Zimbabwean workers currently make $2 a month

This salary can buy merely 2 loaves of bread

The Reserve Bank of Zimbabwe had capped maximum daily withdrawals at 500,000 Zimbabwean dollars: about 25 U.S. cents

What is the solution?Stop printing money

Dollarization

Currency board

Free Banking

Thank You…