Cause and effect analysis of the Zimbabwean foreign exchange crisis:This paper was presented at ‘Business and Management Conference’ at the University of KwaZulu Natal, Durban, South Africa. on the 5th – 7th November 2009

Abstract

The paper explores the main causes and effects as well as possible solutions to the foreign exchange crisis in Zimbabwe. It analyses the currency crisis development from 1997 to 2009. In the process, some of its economic consequences are explored. Since 1997, Zimbabwe experienced various socio-economic and political crises, and there seems to be causal linkages among them. The paper identified the major causes of the foreign currency crisis, among other factors, as the rigidity of the exchange rate, political instability, failure of the financial system, lack of international balance of payments support, lack of manufactured exports and a significant decline in traditional exports due to recurrent droughts and a chaotic land reform process. The crisis led to other socio-economic and political problems like inflation, unemployment, negative economic growth and unprecedented poverty levels. Possible remedies to the crisis include fiscal restraint, ensuring political stability, value addition to exports and re-engagement of the international community.