Macroeconomic Imbalances and Adjustment Reforms: a CGE Model Simulation

Abstract

Since 1980, the government of Zimbabwe has pursued two diametrically different policy regimes – namely, the controlled and fiscally-driven redistributive, import substitution policy regime of the 1980s followed by the structural adjustment reforms which began in 1991. The macroeconomic outcomes of the 1980s policy regime were, at best, very modest while those of the 1990s reforms were very poor. This chapter attempts to answer the question of whether the modest performance outcomes realized in the 1980s would have been sustainable without reform and addresses the issue of why macroeconomic performance in the 1990s has apparently been so poor. To analyze the nexus of these issues, we develop a computable general equilibrium (CGE) model of Zimbabwe and simulate the impact of the broad macroeconomic reforms pursued by Zimbabwe since independence. The simulated results are compared and contrasted with observed performance outcomes and from this we draw inferences and policy lessons for the future of the economic reform process.