AN International Monetary Fund (IMF) document says Zimbabwe’s inflation for January has galloped to about 150 000% as the economy continues to crum
This is the same rate reached by Germany during the Weimar Republic in the 1920s in the post-First World War era.
The document which contains the figures has not yet been officially released but was distributed to government and RBZ officials who attended an IMF seminar as part of a lecture package.
The seminar which was held mid-December was conducted by the IMF team which visited Zimbabwe in December to educate key government and RBZ officials about hyperinflation.
The document said by November 2007 Zimbabwe’s inflation had reached 85 000% which is almost the same level that the Democratic Republic of Congo (DRC) reached in November 1993 (91 253%).
The IMF said Zimbabwe’s inflation had reached 115 000% by December last year. Zimbabwe is the only country that has reached such alarming inflation levels since the mid 1990s. The government has refused to release inflation figures for the past eight months, ostensibly to hold down the prices of basic commodities. That plan is collapsing as businesses now use their own inflation figures to raise prices.
The result has been a huge surge in prices forcing government to implement price controls which have however failed.
The last known inflation figure, which was leaked to the media by officials at the Central Statistics Office in October, was 14 800%.
Before that government had blocked the release of the figures for more than four months.
The document said even the previous inflation figures released by government were not a true reflection of the situation on the ground. The correct inflation is that which is measured using the black market rates.
“The parallel market exchange rate — measured by the black market rate and notional rate — better gauges the declining purchasing power in Zimbabwe.”
The document blamed the inflation rise on the government’s over reliance on money printing to fund its operations.
“Money creation has been the main source of financing quasi-fiscal activities, which form the bulk of public sector spending,” the document said.
The document added: “In an economy where money creation is the main source of deficit financing, the overall public sector deficit (central government, public enterprises, quasi-fiscal etc) becomes a principal determinant of money growth and hence inflation.”
It said the foreign currency rate mismatch was also at the root cause of the spiralling inflation.
“Depreciation (of local currency) reduces government revenue, leads to increased implicit subsidies in the presence of multiple currency practices.
“In a hyperinflationary environment movements in the exchange rate become a primary determinant of inflation.”
The document said the introduction of a new currency does not help reduce inflation unless it is accompanied by broad based stabilisation reforms.
“Price controls increase inflation instability.” The document warns that inflation is likely to continue galloping unless the government institutes comprehensive policy measures.
The document said only 13 countries have experienced hyperinflation since 1950.
Average duration of hyperinflation is 17 months, the longest is 59 month which was experienced by Nicaragua, the document said.
Analysts said the recent decision by the central bank to go on a money printing spree to ease the cash crisis would worsen the inflation problem.
The central bank will today launch higher denominations of bearers’ cheques — $1 million, $5 million and $10 million — to help solve the cash crisis.
Analysts however said while the move would solve the cash problem for now it was going to have serious consequences in the long-term.