June 23, 2007 (LBO) – Zimbabwe’s currency has started to freefall with heavy money printing to finance state expenses reports said, while Sri Lanka’s central bank has maintained some stability despite a widening budget deficit. Analysts are now predicting that Zimbabwe may soon see the end of a populist regime headed by Robert Mugabe that promised a false prosperity by money printing, budget deficits, autocratic rule and the suppression of dissent.
Bread basket to begging bowl
Once known as the ‘bread basket of Africa’ Zimbabwe’s woes started with the taking of farmland from experienced white settlers and handing them to locals who lacked experience.
This resulted in the collapse of food production, agricultural related industry and trade and loans given to the sector going bad, creating a banking crisis.
As tax revenues fell, the government resorted to printing money to finance expenses, which created a balance of payments crisis as excessive local currency volumes chased decreasing dollar revenues.
The central bank also printed money outside the budget (quasi-fiscal activities) to finance collapsing local banks, industry, state-owned industries and local government bodies, worsening the balanc