Mthuli Ncube, Zimbabwe’s new Finance Minister, presided over the conversion of foreign currency to a new Zimbabwean currency in 2019, resulting in the return of hyperinflation. Inflation was expected to have surpassed 500 percent in 2019. Zimbabwe’s annual inflation rate was 540 percent in February 2020, according to Trading Economics. With a grim economic prognosis due to the consequences of a drought in 2019 and the COVID-19 pandemic, the annual inflation rate has increased to 676 percent in March 2020.
Why is Zimbabwe’s inflation so high?
Zimbabwe experienced the second highest incidence of hyperinflation in history during a financial crisis a decade ago – the country’s inflation rate in November 2008 reached a stunning 79,600,000,000 percent (essentially a daily inflation rate of 98 percent ).
Every day, prices in Zimbabwe roughly doubled, with products and services costing twice as much the next day. With an unemployment rate of more than 70%, Zimbabwe’s economy has almost ceased to function, transforming the country’s economy into a barter economy.
Numerous economic shocks have been blamed for Zimbabwe’s hyperinflation. Political corruption was linked with a basically poor economy, and the national government boosted the money supply in response to mounting national debt. There were major decreases in economic output and exports, and political corruption was combined with an essentially weak economy.
In Zimbabwe, hyperinflation spiraled out of control, forcing the use of a foreign currency (such as the South African rand, Botswana pula, or US dollar) as a means of exchange instead of the Zimbabwean dollar.
Is Zimbabwe’s inflation high?
After years of hyperinflation, the country formally abandoned the Zimbabwean dollar in 2015 and replaced it with a temporary multi-currency platform, which further added to the system’s uncertainty. To promote transparency in the foreign currency market and facilitate the discovery of a market-based exchange rate, we adopted a new Zimbabwe Dollar as the domestic currency in 2019 and a foreign exchange foreign currency auction system in 2020.
As a result, consumer prices have steadied, with annual inflation falling from 761 percent in August 2020 to 50 percent in August 2021, and predicted to end the year in the 45 percent to 55 percent range. We will continue to monitor the system to ensure it serves the twin objectives of boosting domestic currency and removing arbitrage opportunities, even though it has achieved relative price stability.
What causes Zimbabwe’s poverty?
Zimbabwe was once a burgeoning African economy, propelled forward by its mining and agricultural industries. Zimbabweans, on the other hand, are currently dealing with conflict, internal corruption, hyperinflation, and industrial mismanagement. A thorough examination of the country sheds light on the country’s poor situation.
Facts About Poverty in Zimbabwe
- As of 2020, poverty affects 76.3 percent of Zimbabwean youngsters in rural areas.
- Approximately 74% of the population lives on less than $5.50 per day, while the average monthly pay is $253.
- Half of Zimbabwe’s 13.5 million people are food insecure, with 3.5 million children suffering from chronic hunger.
- As of 2016, over 1.3 million Zimbabweans were infected with HIV. However, thanks to advancements in HIV prevention, treatment, and support services, the incidence of HIV cases has been falling since 1997.
- Period poverty affects over 60% of rural Zimbabwean women, who lack access to menstruation products and knowledge. Period poverty is projected to cause girls to miss 20% of their schooling.
- As of 2018, the average life expectancy for a Zimbabwean was only 61 years due to starvation and the HIV/AIDS catastrophe. However, since 2002, when it was only 44 years, life expectancy has significantly increased.
- Due to the effects of the drought, two million Zimbabweans were without safe drinking water in 2019.
- Education receives a major amount of the national budget from the government. As a result, Zimbabwe has one of the highest adult literacy rates in Africa, at 89 percent.
Why Poverty is Rampant in Zimbabwe
Zimbabwe’s economy has been mostly reliant on its mining and agricultural industries since its independence in 1980. The Great Dyke, the world’s second-largest platinum deposit, is located in Zimbabwe, giving the country’s mining industry enormous potential. Furthermore, Zimbabwe has around 4,000 gold resources.
The country’s mining sector, on the other hand, is inefficient, with gold output dropping 30% in the first quarter of 2021. While illegal gold mining is bad for the business, Zimbabwe’s loose mining licensing regulations allow foreign companies to mine minerals for years at a low cost, resulting in a lack of incentive to increase mineral production.
Furthermore, the Zimbabwean government’s choice to back the Democratic Republic of the Congo in the Second Congo War depleted the country’s bank reserves, alienated allies, and resulted in sanctions from the United States and the European Union. Zimbabwe’s economy crumbled as a result. As a result, the government began printing additional money, resulting in widespread Zimbabwean dollar hyperinflation.
NGOs Combating Poverty in Zimbabwe
Zimbabwe’s situation is improving. Higher agricultural production, increased energy production, and the restoration of industry and construction activity could boost Zimbabwe’s GDP by approximately 3% in 2021. Unemployment rates are expected to continue to fall. The increase is mostly due to intensified immunization efforts, with China providing the country with two million doses of COVID-19 vaccine.
In addition, a number of non-governmental organizations (NGOs) are battling poverty in Zimbabwe. Talia’s Women’s Network, for example, aims to alleviate period poverty in the country’s rural areas by assisting 250 girls in obtaining menstruation products. The project also aims to educate the girls with knowledge of the menstrual cycle as well as access to resources to help them avoid early marriage, gender-based violence, and unwanted pregnancies.
In Zimbabwe, another charity, Action Change, provides lunch to 400 elementary school kids. It also attempts to break the cycle of poverty by supplying educational materials. Zimbabwe spends 93 percent of the projected $905 million it sets up for education on employment costs, leaving only around 7% for classroom materials. Action Change gives textbooks and other resources to schools.
The American Foundation for Children with AIDS provides livestock and food self-sufficiency training to 3,000 AIDS-affected children and their guardians. In the meanwhile, the group provides tools and training to combat food insecurity and guarantee that children have a healthy diet.
Stimulating the Agriculture Industry
In order to alleviate poverty in Zimbabwe, the country’s agricultural industry must be stimulated. The existence of about 66 percent of Zimbabweans is dependent on their tiny farms. However, there is a significant disparity in water access between the numerous small farms and the few major commercial farms in the country. Small farmers’ production and income would increase if they had equal access to water. In Zimbabwe, reviving the agricultural sector will boost economic growth and alleviate poverty.
Although there are still obstacles to overcome before the country can genuinely abolish poverty, it has enormous potential to become an African superpower.
What was Zimbabwe’s response to hyperinflation?
Zimbabwe found success by adopting a foreign currency as its national currency. It is less crucial whatever currency is used to assist business than that the government choose a single currency. Candidates included the US dollar, the euro, and the South African rand; the US dollar had the most credibility and was the most extensively traded currency in Zimbabwe. By publicly opting to adopt the rand to improve trade and stability, Zimbabwe might have joined the Common Monetary Area, or “Rand Zone,” which includes Lesotho, Namibia, South Africa, and Eswatini.
The government stopped printing Zimbabwean dollars entirely in 2009. This obviated the long-standing problem of public distrust in the Zimbabwean dollar by forcing citizens to use the foreign money of their choosing. Since then, Zimbabwe has utilized a variety of foreign currencies, the majority of which being US dollars.
The Reserve Bank of Zimbabwe introduced “convertible” coins in denominations ranging from US$0.01 to US$0.50 in 2014. According to the Bank, 80 percent of Zimbabweans use the US dollar, and the paucity of coins in the country forces shopkeepers to round up prices to the next higher dollar. The coins extend the dollar’s usage as a de facto currency, and the National Bank has stated repeatedly that it has no plans to reinstate a national currency. As of May 2016, the USD’s liquidity has rapidly diminished, prompting Zimbabwe’s governor, John Mangudya, to announce that the country will produce a new bond note that would be on par with the US dollar. This was supposed to be completed in the next two months. Some residents disagreed, claiming that the 2008 error had resurfaced and that they would refuse to accept the bond notes.
Zimbabwe’s official inflation rate in July 2018 was 4.3 percent (up from 2.9 percent in June). In June of this year, the official inflation rate was 97.9%.
How did Zimbabwe’s hyperinflation influence the country?
Zimbabwe, a country in southern Africa, has one of the worst records in the world when it comes to hyperinflation. When a government prints more money into the money supply than the country’s economic activity can support, hyperinflation ensues, in which prices of goods and services rise uncontrollably. In Zimbabwe, hyperinflation has resulted in a 38 percent drop in GDP per capita and a more than 70 percent increase in unemployment, resulting in increased poverty. Zimbabwe has tried a variety of approaches to stabilize its inflation rate, but the country continues to face severe inflation rate volatility. The inflation rate in May 2020 was 785.55 percent, significantly above the 50 percent threshold that is called hyperinflation. This article discusses Zimbabwe’s political and economic conditions, which led to hyperinflation, as well as proposed countermeasures.
Rampant Corruption and Mugabe’s Regime
Robert Mugabe ruled Zimbabwe from 1980 to 2017, following the country’s independence from the United Kingdom. Mugabe was a socialist revolutionary who became president after the revolution but ultimately deteriorated into an authoritarian dictator. Zimbabwe’s economic troubles are mostly caused by Mugabe’s strong grip on power, pervasive corruption, and his regime’s monetary policies. Mugabe’s power was usurped after nearly four decades in power. In 2017, he was succeeded by Emmerson Mnangagwa, his longstanding vice president. Mnangagawa’s presidency has kept Zimbabwe’s ruling party, the Zimbabwe African National Union-Patriotic Front, in power (ZANU-PF). Corruption has pervaded all sectors of society during both administrations, including many of Zimbabwe’s governmental institutions. Bribes and facilitation payments are frequent among police officers, commercial firms, municipal governments, and government officials. These types of payments are responsible for Zimbabwe’s annual loss of $1 billion in state funds.
The 2009 Hyperinflation Crisis
During the global financial crisis of 2008, Zimbabwe’s own financial crisis caused the country’s inflation rate to rise. Mugabe’s policies of redistribution of land from white commercial farmers to the majority black population resulted in widespread food shortages and economic penalties from the United States and the European Union. The rate of hyperinflation eventually reached unfathomable levels of 79.6 billion percent. While the ZANU-PF claims that these events were the primary reasons of Zimbabwe’s hyperinflation, every effort Zimbabwe has made to manage hyperinflation has been hampered by the ZANU-corruption-ridden PF’s status quo.
The monetary policies that cause the Reserve Bank of Zimbabwe (RBZ) to print too much money are the core economic causes of Zimbabwe’s hyperinflation. In order to combat inflation, the government demonetized the Zimbabwean dollar in 2009 and adopted a variety of currencies, including the US dollar, South African Rand, Euro, Chinese Yuan, and others. This increased transparency, which resulted in deflation. The dollar became more scarce throughout the next decade. The Zimbabwean currency was reintroduced in 2019, bringing significant levels of hyperinflation back to the country. To fully address this trend, some analysts believe that a major transformation in the financial system as a whole is required. Changing from a dissatisfactory central bank to a currency board or free banking system, in instance, could allow for better monetary policy.
Non-Governmental Institutions Helping the Situation
Several non-governmental organizations are striving to tackle Zimbabwe’s corruption and financial problems. Transparency International Zimbabwe and Zambuko Trust are two of them.
Transparency International was founded in 1993 and now operates in over 100 countries. They do research and lobby for policies and legislation to combat systemic corruption. They provide statistical data, such as the global corruption barometer and the corruption perceptions index, as well as information on the condition of corruption and their activities through their own blog, magazine, and academic publications. Transparency International and other civil society organizations across Africa have become major players in the battle against corruption and the misappropriation of public funds.
Zambuko Trust is a microfinance institution that has provided financial opportunities to a large number of people, particularly those in the informal sector. It was founded in 1990 by Christian businessmen who wanted to help the needy with financial services. Small company loans, horticultural funding, agricultural jobs, business management training, consultancy services, and loan insurance are among the services they offer. Before the 2009 hyperinflation crisis, the Zambuko Trust served 16,000 individuals. The organization was able to resurrect after the country demonetized the Zimbabwean currency and created other currencies. During times of economic hardship, these services have allowed businesses to survive and individuals to buy a home or attend school.
While Zimbabwe’s financial institutions struggle to contain the recent wave of hyperinflation, non-governmental organizations (NGOs) are able to battle the effects of economic turbulence on small enterprises and the poor, as well as push for a corruption-free society.
Zimbabwe has a population of how many millions?
According to Trading Economics global macro models and analysts, Zimbabwe’s population is predicted to reach 14.84 million by the end of 2020. According to our econometric models, the Zimbabwe population will trend around 15.04 million in 2021 and 15.24 million in 2022 in the long run.
What is the state of Zimbabwe’s economy?
Higher agricultural production, increased capacity utilization in industries, and price and exchange rate stability are all helping the economy rebound in 2021. After a two-year downturn, GDP is predicted to return to 5.1 percent. A better rain season in 2020/21 anchors the solid recovery, benefitting agriculture, energy, and water. Domestic demand was boosted by price stabilization and increased public infrastructure expenditure.
As the negative effects of COVID-19 fade, rain levels remain high, and policy execution of the National Development Strategy advances, growth is likely to rise even more in 2022. Good vaccination progress is expected to enhance tourism, trade, transportation, and other industries that have been harmed by pandemic disruptions.
In 2022 and 2023, continued disinflationary policies and fine-tuning of the foreign exchange auction market are likely to keep annual inflation in the two digits. Following the implementation of rule-based reserve money management, a foreign exchange auction, and the relaxation of dedollarization, annual inflation fell to 50% in August 2021, down from a high of 838 percent in July 2020. However, with annual inflation forecast to average 94 percent in 2021, the rising gap between parallel market and official currency rates is going to wreak havoc on price stability.
Zimbabwe got US$961 in SDRs from the IMF, which had an immediate impact on the country’s severely low gross international reserves.
Although social conditions improved as the economy improved, poverty levels remained high. Since the outbreak of the pandemic, a large proportion of households have had limited or no income, and social assistance program coverage remains low. In 2021, the number of persons living below the international poverty line is predicted to be 6.1 million, with a slight decrease in 2022, thanks to expected economic development and decreasing inflation.
In response to a government request, project preparations are ongoing for the Health Emergency Preparedness Response Trust Fund to contribute to the National Vaccination and Deployment Strategy.
The epidemic has caused some deterioration in results after a decade of favorable improvement in human capital indices. Less than 30% of school-aged children in rural areas participated in education and learning immediately after the pandemic began, compared to 70% of urban youngsters. Most youngsters are attending school now that the lockdown has been lifted and schools have reopened. However, some students were still absent from school as a result of the epidemic, with teacher absence being the predominant cause (Zimstat, Rapid PICES phone surveys July 2020 and December 2020-March 2021). Doctor strikes, staff turnover, particularly among nurses, and insufficient amounts and slow access to personal protective equipment are all concerns that plague the health-care system. Reduced antenatal care visit frequency and timing may lead to a worsening of mother and newborn mortality. The loss of essential social services by households, as well as the deepening of negative coping techniques, threatens Zimbabwe’s relatively high human capital as well as the pace and inclusivity of economic progress.
The drought, cyclone, and pandemic have created economic challenges and unusual shocks, but they have also provided opportunities to go forward with measures to preserve lives and livelihoods while also supporting Zimbabwe’s long-term recovery.
The NDS lays out a comprehensive plan to aid rehabilitation. Zimbabwe’s domestic policies must continue to maintain price stability and the efficient use of public resources, particularly in light of the country’s enormous finance needs to avoid a decline in human capital.
Is Zimbabwe Africa’s poorest country?
Conclusion: Zimbabwe is not the poorest country in the world. The data used by a US business journal to rank countries from poorest to wealthy has been revised since then. According to the most recent IMF data, Zimbabwe’s GDP per capita in international dollars is $2,099, ranking it 26th out of 187 nations.