Why did Zimbabwe's government pursue policies that led to hyperinflation? What specific action led to massive inflation? Why couldn't Zimbabwe's government balance its budget?
Different people have different stories about what caused the hyperinflation in Zimbabwe in the 2000s. I tend to believe in the mainstream argument, as laid out in this report from the Federal Reserve. Basically, Zimbabwe’s government printed and spent too much money in response to negative economic conditions. They were not able to balance their budget because their sources of income had been destroyed and their people demanded relief from the government. President Mugabe did not want to risk having widespread protests against his regime, so he printed and spent huge amounts of money.
Although hyperinflation did not arise until 2007, the conditions that led to hyperinflation were present as early as 1999. Beginning in that year, Zimbabwe, whose economy is dependent on agriculture, experienced droughts. Soon after that, Mugabe’s government started to reallocate land. In and after 2000, this process consisted of forcing white commercial farmers off their land and redistributing it to subsistence farmers. This led to steep declines in production of corn (Zimbabwe’s main food) and tobacco (its main export).
Along with this fall in revenues, the government greatly increased spending. Part of this was because it owed money to international groups like the IMF. Most of it, though, was meant to try to stimulate the economy and raise people’s standards of living.
The government of Zimbabwe, then, helped to cause the hyperinflation by doing the land reform and by spending excessively. It could not balance its budget because it lacked revenue and felt the political need to spend tremendous amounts of money.