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Macroeconomic adjustment to oil shocks and fiscal reform : simulations for Zimbabwe, 1988-1995, Volume 1
Author:Elbadawi, Ibrahim; Schmidt-Hebbel, Klaus; Collection Title:Policy, Research, and External Affairs working paper ; no. WPS 772. Macroeconomic adjustment and growth
Country:Zimbabwe; Date Stored:2001/04/26
Document Date:1991/09/30Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; International Terrorism & Counterterrorism; Economic Theory & Research; Economic Stabilization; Banks & Banking ReformLanguage:English
Major Sector:(Historic)Economic PolicyRegion:Africa
Report Number:WPS772Sub Sectors:Macro/Non-Trade
Volume No:1  

Summary: The authors develop and apply a macroeconomic general equilibrium model for Zimbabwe. The model integrates a behavioral estimated model structure, taken from a companion paper, with the relevant budget constraints for a six-sector disaggregation into a comprehensive framework. Starting with 1988 as a base year, the authorssent simulations for a base scenario covering the period 1988-1995. From the different macroeconomic issues and reform requirements identified in the companion paper as relevant for Zimbabwe today, they select two for performing alternative scenario simulations here: a continuation of the current oil shock and strong fiscal stabilization. The oil shock is shown to reduce growth, increase inflation, depreciate the real exchange rate, and reduce private investment in Zimbabwe, a country heavily dependent on imported oil. Fiscal adjustment is a major challenge for stabilization and growth faced by Zimbabwe's policy-makers today. The paper's simulations show that deep fiscal reform will significantly help Zimbabwe achieve a sustainable debt path, a decline in interest rates paid on public debt, and a recovery of private consumption and investment.

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