Praveen Kumar's blog

In the two years since the Government of National Unity (GNU) was formed and Zimbabwe dollarized fully, there have been encouraging developments on the economic front.

The economy grew at nine percent in 2010, following on six percent in 2009. Government revenues climbed to 29 percent GDP in 2010; they were just three percent of GDP in 2008. And the banking sector which had dis intermediated almost fully during the hyperinflation grew its dollar deposits briskly to around 30 percent of GDP at the end of 2010. But election talk has suddenly mushroomed in 2011, setting off political competition that could slow down Zimbabwe’s return to normalcy.

Much has changed in Zimbabwe since last November. There are signs of recovery following the return of price stability after full dollarization in January. However doubts about the political situation continue to obstruct further recovery.

The most visible sign of improvement is the demise of surreal hyperinflation which according to one estimate peaked at about 80 billion percent. Interestingly, full dollarization initially occurred not because the government chose it as a deliberate stabilization measure.  Exasperated residents simply abandoned the Zimbabwean dollar and moved on to using multiple hard currencies.  In January, the Government too abandoned the Zimbabwean dollar and started using the US Dollar and the South African Rand for both collecting taxes and spending.  Hyperinflation died a natural death in Zimbabwe, it was not tamed.