Effects of central bank intervention through quasi fiscal policies evidence from reserve bank of zimbabwe

Abstract

This was a research exercise which was conducted to establish the impact of newlineZimbabwe s Central Bank s interventions on the economy. As Zimbabwe s economic newlinecondition went through a nose-dive, the government found itself unable to respond to newlinethe numerous needs with no resources. The country was achieving negative gross domestic product (GDP) growth rate every year since the turn of the new millennium. The country could not borrow from the Bretton Woods institutions such as the International Monetary Fund (IMF) because of the illegal sanctions imposed by the United States and European Union following the country s land reform program which acquired farms from the majority of the 4,000 white farmers who owned about 80 percent of the country s arable area. The Zimbabwe Economic and Democracy newlineRecovery Act of 2001 (ZEDERA), enacted in the USA prevented American companies from doing business in Zimbabwe. The Reserve Bank of Zimbabwe stepped in to assist. The research was aimed at establishing the effect the central bank intervention on the economy. Was the effect of the intervention good, or bad? Did the central bank s intervention really make things worse or did it ameliorate the effects of the downturn in the economy? For newlineinstance, did it contribute to the increase in inflation? What would have been the newlinesituation had the Bank not intervened? This study sought to answer the basic question: newline What was the overall impact of the RBZ s quasi-fiscal activities on the Zimbabwean newlineeconomy? Hypotheses were formulated on the basis of the above objectives and were tested newlinevia a variety of statistical techniques. The research instruments for data collection newlinewere a questionnaire and interviews guides. The questionnaire was the main research newlineinstrument followed by interviews. The questionnaire had a fusion of open ended and newlineclosed questions. The research showed that the RBZ s quasi-fiscal operations helped newlinethe country most in containing emergency situations and improved access to financial newlineresources by the productive sectors.