Zimbabwean Hyperinflation

Imagine walking into the supermarket with bags full of currency notes or waiting at the bank, in long lines, to withdraw money, whose value is fast eroding. Such scenarios have become common place in Zimbabwe. Records were broken when the inflation rate in Zimbabwe hit the annual rate of one-lakh rupees in January 2008. The country has been facing periods of recessions and very high inflations (of the nature that characterizes only war zones) during the past decade. Besides, the unemployment rate has been as high as 70% which translates to 80% during the non agricultural period or the lean season.

So, when hyperinflations seemed to have faded into macroeconomic textbooks the recent example of the Zimbabwean hyperinflation has generated keen interest in economic circles. With inflation rate estimations close to 1000,000%, it has become a serious crisis for the government and people alike. The people are the worst affected- their income is inadequate to counter the rising prices of commodities.

Though, it is not as severe as the Weimar Germany hyperinflation of 1923 (which was four times as acute), the current situation leaves much to improve and implement. Government services have started to crumble under the effect of this hyperinflation. Besides, the purity of drinking water has been dubious and lead to increased instances of diseases such as cholera and dysentery. Apart from frequent electric blackouts, piles of garbage have become a major source of nuisance around towns and cities.

People are not saving in banks since they get a paltry rate of interest of around 4%. In fact, commodities, such as grain and corn, have become sources of investment for the people. Rising prices has made it difficult for people to pay for essential services such as education, since their income is insufficient. The crisis is worse for the unemployed, who as stated above form a vast majority of the existing labour force. However, this hyperinflation also has a political turn to it. Zimbabwe’s president for the past 26 years, Robert G. Mugabe, has left the country in the hands of his supporters. The bank has also printed currencies to support salaries of key supporters of the government, to pay the IMF to keep its membership intact and to pay its debt in American dollars. Such indiscriminate and unjustified printing has further fueled the rising rates of inflation. Besides, key diplomatic areas of the country seem unaffected by the inflation, in spite of prices being quoted in millions of Zimbabwean dollars.

In a nutshell, the main reasons cited for this crisis have been rampant violence, lawlessness in the country and violation of basic human rights, poor economic policies, continued recession, deindustrialization and movement of skilled labour out of the country. Each of these reasons have reinforced the other to aggravate the high rates of inflation. Zimbabwe seems far from reaching a solution at this stage. It cannot cut its current spending or increase its tax rates, besides it is continually printing currency to bail itself out of the crisis- so the near future seems bleak with predictions of inflations rates touching new highs.

Charulata Somal

[Image Courtesy: http://www.flickr.com/photos/sokwanele/776055382/sizes/o/ ]