Zimbabwe is facing a host of pressing challenges that voters dearly want the next president to address. Persistently high inflation, elevated interest rates, and a slumping and volatile Zimbabwe dollar have combined to fuel a cost of living crisis for households and battered business activity.
The central bank responded by hiking interest rates to 150% from a previously elevated level of 140%. This move intensifies the pullback on business and consumer spending caused by currency weakening. Additionally, the high pace of price growth has outpaced nominal wage growth, leaving many people struggling to afford everyday essentials. Fewer jobs add to these concerns.
Governance vulnerabilities Governance broadly refers to institutions used to exercise authority by the government. Long-running weaknesses in fiscal and central bank governance institutions have undermined the capacity of the government to effectively formulate and implement sound fiscal and monetary policies for many years.
The influx of printed cash in the economy fanned domestic demand but did nothing to spur the production of goods and services to meet it. Inflation spiked and drove the value of the currency lower, raising the cost of imported goods and thus amplifying inflation pressures. Because of these vulnerabilities, inflation skyrocketed to 255% in 2019 – a 23-fold increase from a year earlier as money supply growth quickened from 28% to 250% amid a widening government budget deficit which topped 10% of GDP in 2017. Since then, the central bank has not been able to get a sustained deceleration in inflation despite aggressive rate hikes.
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