.01~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Policy, Research, and External Affairs WORKING PAPERS, Macroeconomic Adjustment l [ _______ Country Economics Department The World Bank September 1991 WPS 772 Macroeconomic Adjustment to Oil Shocks and Fiscal Reform Simulations for Zimbabwe, 1988-95 Ibrahimn Elbadawi and Klaus Schmidt-Hebbel 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. The Policy. Research, and Extemal Affairs Complex distnbuies PRE Working Papers to disseminate the find.ngs of work in progress and to encourage the exchange of ideas among Bank staff and all others interested in development is5acs. These papers carry the names of the authors, reflect only their views, and should he used and cited accordingly. 'Ihc findings, interpretations, and conclusions are the authors' own. They should not be attributed to the World Bank. its hoard of Directors, its management, or any of its meonber counLnes. Policy, Research, and External Affalrs Macroeconomic Adjustment and Growth ] WPS 772 This paper - a product of the Macroeconomic Adjustment and Growth Division, Country Economics Department - is part of the division's development of RMSM-XX, an applied macroeconomic general equilibrium model for policy simulations and economic projections. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Susheela Jonnakuty, room NIl - 049, extension 39074 (94 pages). September 1991. Elbadawi and Schmidt-Hebbel develop and The oil shock is shown to reduce growth, apply a macroeconomic general equilibrium increase inflation, depreciate the real exchange model for Zimbabwe. The rnodel integrates a rate, and reduce private investment in Zimba- behavioral estimated model structure, taken from bwe, a country heavily dependent on imported a companion paper, with the relevant budget oil. constraints for a six-sector disaggregation into a comprehensive framework. Fiscal adjustment is a major challenge for stabilization and growth faced by Zimbabwe's Starting with 1988 as a base year, they policymakers today. The paper's simulations present simulations for a base scenario covering show that deep fiscal reforn will significantly the period 1988-95. From the different macro- help Zimbabwe achieve a sustainable debt path, economic issues and reform requirements a decline in interest rates paid on public debt, identified in the companion paper as relevant for and a recovery of private consumption and Ziimbabwe today, they select two for performing investment. alternative scenario simulations here: a continua- tion of the current oil shock and strong fiscal (See companion paper, "Macroeconomic stabilization. Structure and Policy in Zimbabwe: Analysis and Empirical Model, 1965-88," WPS 771.) The PRE Working Paper Series disscminatcs the findings of work under way in the Bank's Policy, Research, and Extemal AftairsComplex. Anobjectiveofthe series is to get thcse findingsoutquickly, even if presentations are iess than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy. Produced by the PRE Dissemination Center Table of Contents 1. INTRODUCTION.. . . . ... 1 2. A MACROECONOMIC GENERAL EQUILIBRIUM (RMSM-XX) MODEL FOR ZIMBABWE . . 2 2.1 Bue2get Constraints . . . . . . . . . . . . . . . . . . . . . 8 2.2 Market Equilibrium Conditions and Behavioral Structure . . . 12 3. MODEL CLOSURE AND GENERAL EQUILIBRIUM . . . . . . . . . . . . . . . . 23 3.1 Closure Options and Choices . . . . . . . . . . . . . . . . . 23 3.2 Zimbabwe RMSM-XX Closure and General Equilibrium . . . . . . 30 4. BASE SCENARIO SIMULATION RESULTS . . . . . . . . . . . . . . . . . . 34 4.1 Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.2 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 5. ADJUSTMENT UNDER ALTERNATIVE SCENARIOS . . . . . . . . . . . . . . . 45 5.1 Strong Oil Shock Scenario . . . . . . . . . . . . . . . . . . 45 5.2 Fiscal Adjustment Scenario . . . . . . . . . . . . . . . . . 51 6. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . 57 Appendix 1: ADDITIONAL MODEL EQUATIONS Appendix 2: BUDGETARY DATA CALIBRATION FOR 1988 BASE YEAR Appendix 3: BASE SCENARIO: 1988-95 PROJECTION OF EXOGENOUS VARIABLES Appendix 4: BASE SCENARIO: 1988-95 SIMULATION RESULTS FOR ENDOGENOUS VARIABLES AND COMPLETE BUDGET CONSTRAINTS Appendix 5: SUGGESTIONS FOR FUTURE MODEL AMENDMENTS AND EXTENSIONS List of Tables 2.1 Variable Definitions 2.2 Sector Budget Constraints and Income/Expenditure Equation by Current and Capital Accounts Sources and Uses of Funds: Zimbabwe, 1988 (Z$ mi.) 2.3 Values of Coefficients of Behavioral Eqvations 3.1 Alternative Closure Rules For Income-7xpenditure Equation, Asset Markets Block and Goods Market Block 3.2 Endogenous Variables under Alternative Closure Rules for the Capital-Account Budget Constraints 3.3 Sets of Endogenous Variables under Alternative Closure Rules for the Capital-Account Budget Constraints in the Zimbabwe RMSM-XX Model 4.1 Base Scenario: Key Macroeconomic Indicators (Zimbabwe, 1988-95) 4.2 Base Scenario: Sector Budget Constraints and Income/Expenditure Equation by Current and Capital Accounts Sources and Uses of Funds: Zimbabwe, 1988 (As Percentage of 1988 GDP) 4.3 Base Scenario: Sector Budget Constraints and Income/Expenditure Equation by Current and Capital Accounts Sources and Uses of Funds: Zimbabwe, 1995 (As Percentage of 1995 GDP) 5.1 Strong Oil Shock with Foreign Saving Not Binding Scenario: Key Macroeconomic Indicators (Zimbabwe, 1988-95) 5.2 Strong Oil Shock with Foreign Saving Binding Scenario: Key Macroeconomic Indicators (Zimbabwe, 1988-95) 5.3 Fiscal Adjustment Scenario: Key Macroeconomic Indicators (Zimbabwe, 1988-95) List of Diagrams 2.1 Structure of Zimbabwe RMSM-XX Model 3.1 Zimbabwe RMSM-XX General Equilibrium under Closure 1: Positive Closure and Foreign Saving Binding/Public Sector Adjustment/Domestic Debt Financing List of Figures 3.1 Macroeconomic General Equilibrium: Neutrality of a Generalized Nominal Shock 4.1 Base Scenario: Output Capital and Potent'al Output/Capital Ratios, 1979-1995 4.2 Base Scenario: Real Exchange Rate and Real Wage, 1979-1995 5.1 Base and Strong Oil Slhock Scenarios: GDP growth, 1988-1995 5.2 Base and Strong Oil Shock Scenarios: Real Exchange Rate, 1988-1995 5.3 Base and Fiscal Adjustment Scenarios: Domestic Pu')lic Debt/GDP and Nominal Interest Rate on Public Debt, 1988-i995 * This paper is part of the CECMG Division's development of RMSM-XX, an applied macroeconomic general equilibrium model for policy simulations and economic projections. The paper has benefitted from discussions with and comments from Vittorio Corbo, Carlos Elbirt, Roger Grawe, Miguel Kiguel, Lloyd Mckay, Luis Riveros, Luis Serven, Andres Solimano, Michael Walton, and participants at a World Bank seminar. Also, the country desk provided helpful comments that have been received and taken into account. Exceptionally efficient research assistance by R. Chun is gratefu.ly acknowledged. - 1 - 1. INTRODUCTION This paper develops and uses a macroeconomic general equilibrium model for Zimbabwe. The behavioral model structure is based on a companion piece (Elbadawi and Schmidt-Hebbel, 1991), which lays out in detail the specification and estimation results for goods and assets markets. This paper adds to the latter a detailed stock-flow consistent budget constraint structure for a 6-sector disaggregation, parameterized for the 1988 base year. It also discusses alternative closure rules and general equilibrium properties of the model. Our companion paper identifies the main issues and policy requirements relevant for Zimbabwe's current macroeconomic situation and its future stability and growth prosricts. This paper selects two of these issues to carry out simulations which address them: the uncertainty associated to the current oil shock and the need for fiscal adjustment. Section II presents the complete model structure, divided by budget constraints an-i related equations and the behavioral structure for goods and assets markets. Section III discusses in detail alternative closure rules for macroeconomic models in general and presents the closure choices and general equilibrium properties of the Zimbabwe model. Section IV discusses external environment and policy assumptions for a base scenario which combines a mild transitory oil shock and unchanged fiscal policies and structural features of the Zimbabweaa economy. The 1988-95 base scenario simulation results are presented and discussed in detail. Section V presents simulation results for two alternative scenarios. The first assumes a worsening external environment resulting from a prolongation and deepening of the current oil price shock. Simulation results for 1988-95 are also performed for a major fiscal adjustment, carried throughout the 1991-95 period. Section VI concludes. 2. A MACROECONOMIC CENERAL EQUILIBRIUM (RMSM-XX) MODEL FOR ZIMBABWE This section discusses in detail the model structure of the Zimbabwe RMSM-XX macroeconomic model. The specification of any macroeconomic model requires to make decisions in three areas: sector disaggregation, marKet disaggregation, and behavioral and closure rules. The decisions in these areas, based on the economy's structure, the use of the model, and macroeconomic theory., give rise to the three main building blocks of a macroeconomic model: sector budget constraints, market equilibrium conditions, and behavioral equations/selection of endogenous variables, the latter determined by the closure rule decided for the model. One should note that the budget constraints and market equilibrium conditions are independent of the chosen closure rule. In particular, the market equilibrium conditions are specified independently of having instantaneous market clearing achieved by flexible prices or fix-price equilibria with quantity adjustment. The latter choice is reflected by the decision in the third area: closure rule (th selection of endogenous/exogenous variables) and behavioral equations (the structure of demands and supplies). The macroeconomic specification chosen for Zimbabwe, reflected by particular decisions in these three areas which give rise to the corresponding building blocks, is summarized in diagram 2.1. Six agents comprise our economy: the budgetary (or central) government (b), the other public sector (o, comprised by public enterprises and local government), the central bank (cb, the Reserve BalkJ of Zimbabwe), the commercial banking sector (bs, the consolidated deposit banks), the non-financial private sector (p), and the external sector (f, the rest of the world). This disaggregation is consistent with data availability', ' A data base for the other public sector, collected by Walton (1988), used by Khadr et al (1989), and extended by Schmidt-Hebbel (1990), is available. No systematic data is available for disaggregating the non-financial private sector into households and firms. DIAGRAM 2.1 STRUCTURE OF ZIMBABWE RMSM-XX MODEL I. AGENTS OR SECTORS Consolidated Non- I 1. Budgetary Government Consolidated Total Financial Public Sector I 2. Other Public Sector (Fin. and Non-Fin.) Monetary 3. Central Bank Public Sector System I 4. Comm. Banking System Consolidated Total 5. Non-Financial Private Private Sector 6. External Sector Budget Constraints II. MARKETS 1. Goods Markets: Domestic Goods Imported Goods 2. Assets Markets: Foreign Assets and Liabilities Domestic Monetary Assets and Liabilities Domestic Non-Monett&j Assets and Liabilities MARKET EQUILIBRIUM CONDITIONS III. BEHAVIORAL RULES 1. Market Clearing in Goods and Assets Markets at Endogenous Goods Prices and Assets Returns 2. Behavioral Specification of Goods and Assets Demand and Supplies 3. Alternative Closure Rules for External Financing and Domestic Financing of Public Sector SELECTION OF ENDOGENOUS VARIABLES BEHAVIORAL EQUATIONS DEMANDS/SUPPLIES the structure of the Zimbabwean economy2, and the relevant questions to be addressed by the model. With regard to the latter, our disaggregation allows to address directly issues of monetary and domestic debt financing of public sector deficits, by constructing consolidated total public sector outstanding debt stocks. These are obtained by aggregating the b, o and cb sectors into the consolidated total (financial and non-financi&l public sector and the bs and p sectors into the consolidated total (financial and non-financial) private sector. On the- other side, consolidation of cb and bs into the monetary system allows to relate "ultimate" monetary (base money) and non-monetary (total consolidated interest-bearing) public debt holdings to "intermediate" financial holdings of the non-financial private sector (MI and quasi-money). Goods markets are disaggregated into domestic (or national or Zirrbabwean) goods and imported goods. Domestic goods are all goods produced at home, hence GDP is equal to the supply of domestic goods. Having only one good on the production side, it is not necessary to distinguish between domestic final and intermediate goods supply, although the production of the domestic good requires intermediate imports. Demand (for consumption and investment, by the public and private sectors) falls on domestic and national goods. Demand decisions on the composition between dcmestic and imported goods and supply decisions on intermediate imports determine total import demand; therefore there is no need for specifying independent import equations. Finally, a foreign demand for exports (which are undistinguishable from other domestic goods on the supply side, reflecting a large-country assumption for exports) completes the goods market structure. Asset markets are disaggregated into 10 foreign assets and liabilities, 4 monetary assets (currency, bank reserves, MI and quasi-money) and 12 non- monetary interest-bearing assets. The relatively high number of 2 Zimbabwe has a well-developed commercial banking sector and a sizable public enterprise sector. These features justify treating the first sector separately from the central bank (as opposed to the Zimbabwe RMSM-X model which aggregates the comme-cial banking sector and the central bank into one monetary sector) and the second sector separate from the non-financial private sector (where it would stay implicitly if not treated explicitly). -5- monetary/financial assets is consistent with the intersectoral capital account financing flows among the economy's 6 agents. The economy's aggregate physical capital stock is the only physical asset. No labor markets are considered in our model. With regard to behavioral rules, the model assumes continuous market clearing in the main goods and asset ma;kets. Within-period adjusting domestic goods prices (the GDP deflator) clear the market for domestic goods, the within- period adjusting public bond interest rate clears the market for domestic public debt, and the within-period adjusting interest rate on quasi-money (time and banking deposits) clears the market for quasi-money. These three central, pivotal (relative) prices and returns act as anchors for many other prices and interest rates. Domestic prices of imported goods are given by PPP rules, being proportional to the exogenously fixed nominal exchange rate (which acts as the nominal price anchor or numeraire), international prices, and tar-iff rates. Some prices of domestic-good aggregate demand components are determined exogenously. Most int rest rates of domestic interest-bearing assets are anchored to the above-mentioned rates. Interest rates of foreign assets and liabilities are set exogenous ly. The behavioral specification of goods and assets demands and goods supply, based fundamentally on Elbadawi and Schmidt-Hebbel (1991), reflects standard eclectic specification practices combining neoclassical and Keynesian elements under backward-looking expectations, as discussed in that paper. Finally, the discussion of alternative closure rules and the model's general equilibrium properties is postponed until section 3. The six sectors' budget constraints and related equations are introduced in the next subsection, followed by the presentation of market equilibrium conditions and behavioral equations for goods and asset markets. - 6 - TABLE 2.1 VARIABLE DEFINITIONS Sector specific variables and intersectoral flows are represented by the following subindices: b Budgetary Government o Other Public Sector cb Central Bank (Reserve Bank of Zimbabwe) bs Commercial Banking Sector (Consolidated Deposit Banks) p Non-financial Private Sector f External Sector Intersectoral flows list first the paying sector and second the receiving sector, (for instance, Nbp denotes net interest payments paid by b to p), unless the variable identifies one of the two sectors. For instance, COGb is the current transfers from abroad; i.e. from f to b. Asset or liability stocks are distinguished from flows by adding the prefix S to the former. For example, SMI is the current-period Ml stock, while MI denotes the current-period flow -- the difference between SM1 and SM1-,. Liability stocks denote first, the sector holding the liability and next the issuer, (for instance, SLpb is the stock of loans held by the private sector and issued bv the budgetary government), unless the stock variable identifies either the holder of issuer. For example, SNOLcb denotes the stock of net other liabilities held by the private sector and issued by the central bank. Interest rates denote the holder and issuer in the same order followed by the liability stocks above. For instance, ipb is the interest rate paid by the budgetary government to the private sector; hence Nbp - i'b * SLpb..l. The prefix R denotes a revaluation effect (capital gains/losses from nominal exchange rate depreciation). National-accounts subindices are as follows: c consumption i fixed investment dom domestic (or national) good imp imported goods mint intermediate imports exp exports The supra index * denotes an external, foreign currency (USS) denominated variable. The following list introduces variable definitions in alphabetical order. In general, lower-case letters denote constant-price variables and upper-case letters represent current price variables. B consolidated total public sector debt held by p c consumption chst change in stocks COG current transfers from abroad DFI direct foreign investment dom domestic goods DRS depreciation and retained surplus of o DY current disposable income of p DYp permanent disposable income of p - 7 - TABLE 2.1 (Cont.) E average-period nominal exchange rate (Z$/US$) Ea end-of-period exchange rate EO errors and omissions exp exports FA foreign asssts FL foreign liabilities fi fixed investment grp growth rate of prices H monetary base imp imported goods sh share variable K physical capital stock KOG capital transfers from abroad Knei capital flows not elsewhere included L loans LS short-term loans from f to p mint intermediate imports Ml sum of currency and demand deposits N interest payments NFA interest payments on FA NFL interest payments on FL NIMF interest payments on IMF Nknei interest payments on Knei NNIOL interest payments on NOL NOL Net other liabilities held by p NS interest payments on LS OthR Other revenue of b from p P GDP deflator; domestic price index QM quaSi-money Res reserves of bs at cb Resid net current-account surplus of financial institutions PR profit remittances pro private sector profits S saving PH t-expected private fixed investment inflation in t+l SuA subsidies to p pg productivity gains T current transfers to p (with subindices) T time counter ta ad valorem tariff rate Td direct taxes Ti indirect taxes WI wage index y GDP Yf factor income yp potential output -8- 2.1 Budget Constraints The within-period (or flow) budget c nstrain.s for the six sectors are introduced next, following closely the structure of equations of the RMSM-X models (see in particular Ventura (1990) and Khadr et al. (1990) for Zimbabwe). Each sector's budget constraint is split into two equations: one for the difference between current-account sources and uses of funds (equal to above-the- line saving) and the second for the difference between capital-account use& and sources of funds (equal to below-the-line saving). All variables, defined in table 2.1, are measured in current-price, local currency units, unless otherwise specified. The following equations (A1.1) - (Al.12) co;ustitute the set of 12 budget constraints. Bu&getary Government: (A11.1) Yfb + Td + Ti + Residb + Ot2R + CoGb + Nob -Pcb - Cb - SUbb - T - Tbp Nb Nbbs - Nbp Nbf = Sb (A1.2) Pib fib + Lb. - KOGb - LCbb - LbBb - Lpb Lfb =Sb Other Public Sector: (A1. 3) DRS + Tbo + COGo -PoCc, - SUb0- Top -Nb -NCb - Nb. - Np -No* So (A1. 4) Pi, fio - KOGo -L - Lbso Lpo Lfo o Central Bank: (A1. 5) Nbcb + NOcb + Nbscb + Npcb + NFAcb -NRES - NNOLCb -NFLcb - NIMF- ResidCb = scb (Al.6) La,b + Lebo + Lcbbs + Lcbp + FACb + RFACb ReS - Cu - NOLCb - FLcb - RFLCb - IMF - RIMF = SCb Commercia, Banks: (Al.7) Nbbs + Nobs + NRes + Npbs + NFAbs -NbBcb NQ - NNob,:, - NFLbS - ResidbS= Sba (A1.8) Lbsb + Lbso + Res + LbSp + FAb5 + RFAbS Lcbbs - (Mi-CU) - QM - NOLbS - FLbS -RFLbs = Sb5 Private Sector: (Al.9) Yfp + Tbp + Top + Tfp + Residb, + COGp + Nbp + Nop NOLb +N + N LbS - Pcp C, - Td- OthR - PR - Npcb - -Lpb, - Npf - NSpf - Nknei =Sp (Al.10) Pip fi p + Pchsc chst + Lpb + Lpo + NOLCb + MI + QM + NOLbs - KOGp - DFI - Lcbp - Lbsp - Lfp - LSfp fCnei P External Sector: (Al.11) P,,p imp - Pxp exp - COGb - COG, - COGp - Tf + PR + Nb! + Nof + NFL,b + NIMF + NFLbs + N,f + NSpf + Nknei - NFACb - NFAbS = Sf - 10 - (A1. 12) KOGb + KOGo + KOGp + DFI + Lfb + Lfo + FLcb + RFLCb + IMF + RIMF + FLbs + RFLbS + Lfp LS + Knel + EO - FA,b - RFAb - FAbs - RFAb, = Sf As an implication of Walras' law, one equation of the complete set of equations comprised by the budget constraints introduced here and the market equilibrium conditions introduced below, is redundant. For our model we choose this to be the external sector budget constraint (the balance of payments equation). Hence its two components, equations (AI.11) and (A1.12), are listed above for accounting completeness, not for determining any endogenous variable in the Zimbabwe RMSM-XX mode:. Assumptions on the monetary system While government accounts are generally defined on a cash basis, the exteinal, national and monetary acc=nunts are typically on an accruals basis.3 This paper does not attempt to solve this inconsistency, implying that the residual sector in constructing the data base (the private sector) implicitly reflects discrepancies between accrual and cash flows from other sectors. However, one particular source of differences between accrual and cash flows is addressed by our framework: capital gains and losses due to exchange rate variations. With regard to this particular accruals source, the budget constraints of the central bank and the commercial banking sector are defined on accruals basis, while the four non-bank sectors' budget constraints are defined on cash basis. The reason for this is that the source of information for deriving the capital account flows for the former two sectors is the balance sheets of these sectors. To insure consistency between these two accruals-basis budget constraints and the cash-basis budget constraints of the other four sectors, the changes in the domestic-currency values of foreign assets and 3 See Host-Madsen (1979) for a more detailed discussion. - 11 - liabilities held by cb and bs are decomposed into the foreign-currency (or cash) asset accumulation and the capital gain (or loss) due to a depreciation of the nominal exchange rate.' Another feature of the two monetary-system sectors, shared with the RMSM-X models, is the assumption that saving is zero in each of them. The difference between gross interest receipts and payments is assumed to be fully paid by cb to the budgetary government (ResidCb) and by be to the non-financial private sector (Residbd). The zero-saving assumption is simply: (A2 1) Scb = 0 (A2. 2) Sbs = Interest Payments Domestic-currency interest payments from sector j to sector k on liability SL issued by j and held by k are defined as: (A3.*) NJk = ikJSLkj, -1 In the case of interest payments on foreign assets or liabilities (i.e. when either j or k are substituted by f), the domestic-currency value of the outstanding foreign-currency liability is valued at the preceding end-of-period nominal exchange rate: SLk, -1 = E ISL;j, 4 The changes in outstanding asset and liability holdings of the cb and bs sectors include accrued non-realized capital gains and losses due to changes in asset prices. In order to obtain consistency between these two sectors' accruals-basis budget constraints and the other sectors' cash-basis budget constraints, we have to deal explicitly with one source of capital gains/losses: the gains (losses) on foreign-asset (liability) holdings due to a depreciation of the nominal exchange rate. Hence the tota hange in the domestic-currency value of a foreign asset or liability stock, as reflected by the accruals-basis capital accounts in equations (AI.6) and (AI.8), is decomposed into its foreign- currency cash change (for instance, FA,b in equation A1.6), and the capital gain due to an increase in the nominal exchange rate (RFAC in Al.6). Finally note that this procedure is consistent with the treatment ot the relation between all foreign asset and liability stocks and flows in section 2.2 below, based on considering depreciation-induced capital gains and losses. - 12 - Appendix 1 presents all equations for interest payments. A Flow of Funds Matrix for Zimbabwe, 1988 Using the most recently available data on budgetary and other public sector current and capital accounts, balance of payments flows, foreign debt stocks, monetary system assets and liability stocks, and national accounts flows, the six sectors' budget constraints were parameterized for 1988. A detailed discussion of (i) the available data sources, (ii) the criteria for selecting certain data sources over alternatives, and (iii) the data transformations, is presented in Appendix 2. Combining the budget constraints with the current-price income-expenditure equation of the national accounts (equation B6.1 below), the flow-of-funds matrix for the 1988 base year is presented in table 2.2. Following standard RMSM-X presentations,5 the table displays the budget constraints divided into the current and capital accounts, each of them by sources of funds (rows) and uses of funds (columns). 2.2 Market Eauilibrium Conditions and Behavioral Structure Assets and goods markets equilibrium conditions and behavioral structure follow closely the specification and estimation results presented in our companion paper. Therefore the discussion here will be sparse, with exception of the treatment of financial asset accumulation equations, which are introduced only in this paper, and modifications on some of the estimated equations of our companion paper. Asset Markets Equilibrium Conditions The model notation does not distinguish explicitly between asset (liability) stock supplies and demands. The model distinguishes between 26 monetary and financial assets and one physical asset (physical capital). ' See for instance Khadr et al. (1989) and Ventura (1990). - 13 - TABLE 2.2 SECTOR BUDGET CONSTRAINTS AND INCOME/EXPENDITURE EQUATION BY CURRENT AND CAPITAL ACCOUNTS, SOURCES AND USES OF FUNDS: ZIMBABWE. 1988. CURRENT Budgetary Other Public Central Banking Private External National Total ACCOUNT Gov't Scctor Bank Sv*tem Sector Sector Accoune Sourcea Budgetary Nob 120.3 Resideb 59.4 Td 1.795.9 COGb 0 Yfb 0 3,908.9 Government Ti 974.8 ______________ ______________ ~~~~~~ ~~~~~~~~-Subb 0 Other Public tbo 469.S CO0o 0 DRS .23.1 446.7 Sc tor_ __ Central Nbcb 39.5 Nocb 23.6 Nbscb -4.5 Npeb 0 NFAcb 18.4 77.0 Bank I Banking Nbbe 50.0 Nobe 84.8 NRes 0 Npbp 200.3 N?Abe 1.7 336.8 Svstes . _ Private Tbp 470.9 Top 0 NNOLcb -4.9 NQ6 133.7 Tip 9 0 Yfp 9,690.3 10,897.0 Sector Nbp 365.6 Nop 32.5 NNOLBS 36.4 COp 0 External Nbf 192 .3 Nof 40.8 NFLcb 4.3 NFLbs 7.1 Npf 37.1 -Exp -3,325.6 -5.6 Sector NIX.F 18.1 Nspf 44.2 lIp 2.,31.5 PR 33. 6 _NKnel 0 1 National Cb 2 449.8 Co 0 Scb 0 Sbe 0 Cp 5,500.5 Sf -45.7 10,247.9 Accounts Sb -128.9 So 144.7 1 1 1 Sp 2,327.5 _ Total 3.909.0 446.7 76.9 336.8 10,897.6 -16.6 10,247. 9 Use I CAPITAL Budgetary Other Public Central Banking Private External National Total ACCOUNT Gov't Sector Bank System Sector Sector Accountx Sources Budgetary Lcbb -32.1 Lbeb 184.2 Lpb 393.0 LOGb 106.7 Sb .128.9 662.1 Government Lib 139.2 _____________ Othor Public Lbo 158.1 Lcbo -31.0 Lbeo 62.1 Lpo 112.4 LOGo 0 So 144.7 446.3 Sector Lie 0 _ _ _ _ _ _ _ _ _ _ _ _ Central Bank Res 73. 9 NOLcb -113.3 Fleb -14.6 Scb 0 -52. 3 Cu 114.0 R?FLcb 9.2 ItM 153.4 _____________ ~~~~~ ~~~~~ ~ ~~ ~~RIM? 31.9 _ _ _ _ _ _ _ _ _ _ _ Banking Lcbbe -49.0 Qht 240.2 FLbs 2.0 Sbe 0 773- System Ki 378.1 RYLbe 17.3 NOLbe 184.8 Private Lcbp 0 Lbop 327.8 DOFp 0 Sp 2,327.5 2.542.5 Sector DFI 7.4 Lfp .485.5 LS ip 75.8 Kr. eL 0 _ ~~~~~~~~~EO 2 99 P External FAcb -16.4 FAbs 3.8 Sf -45.7 25.5 Sector RFAcb 76.2 RfAbe 7.6 National lb 504.0 lo 446.3 Ip 962.0 2,297.6 Accounts I__ _ _ _ _ _ _ _ _ _ _ Chstk 385.3 _ _ _ _ _ _ Total 6f2.1 446.3 -52.3 773.4 2,542.5 25.5 2,297.6 U se _ __ _ _ _ _ _ _ _ __ _ __ _ __ _ _ __ _ _ _ _ _ _ __ _ _ _ _ _ _ - 14 - Interest rates of a few central monetary and financial assets clear the respective markets during the relevant period. Most other interest rates of domestic interest-bearing assets are fixed to these pivotal rates. Interest rates on foreign assets and liabilities are determined exogenously. All assets are assumed to be held voluntarily at current interest rates. The asset market equilibrium conditions are reflected by the corresponding asset accumulation equations, relating asset stocks and flows, which are introduced next. Finarcial/Monetary Assets Accumulation Equations End-of-period domestic-currency financial or monetary assets (liabilities) increase over time by the simple accumulation equation: (BI.*) SLkj = Lkj + SLkj, l The change in the domestic-currency value of a foreign-currency denominated asset (or liability) involves foreign-currency accumulation and capital gains (or losses) components. The capital gains or losses are caused by changes in the nominal exchange rate. One capital gain or loss stems from the different timing of foreign currency accumulation in the budget constraints (valued at average- period exchange rates) as compared to the balance sheets (valued at end-of-period exchange rates). The second is due to the better-known annual (between end of periods) nominal exchange rate depreciation, which causes a gain (loss) on a foreign asset (liability) in proportion to the rate of devaluation. Hence end-of-period domestic-currency values of foreign-currency denominated assets (or liabilities) increase over time as follows: (B1.**) SLkj = E (SL,j - SLk, ) + RLkY + SLkl - where the first term on the left-hand side reflects the foreign-currency (or cash) asset accumulation expressed in domestic currency units and the second term is the capital gain (or loss) due to exchange rate devaluations. The latter is - 15 - the sum of a timing capital gain (or loss) stemming from the above-mentioned difference between end-of-period and period-average exchange rates affecting the foreign-currency asset flow and the devaluation capital gain (or loss) stemming from the end-of-period exchange rate devaluation affecting the initial foreign- currency asset stock: (B1.***) RI4, E(SL, _ SL;,. 1) tE + (E!1 SL, ) [ES'-E' Note that only the first right-hand term of equation (4.**), the cash-base change, is reflected by budget equations (A1.1) - (A1.12), while end-of period domestic-currency valued foreign-currency holdings SLkj on the left-hand side enter balance sheets. Appendix 1 presents the 26 asset accumulation equations. Physical Asset Accumulation Eguation Physical capital grows with net total domestic fixed-capital investment, which is equal to gross fixed investment (fi) less capital depreciation at an annual rate of 4.5%: (B2.1) K = (1-0.045)K-1 + fi Asset Markets Behavioral Structure The nominal interest rates on consolidated public sector domestic debt and on quasi-money are determined by the following portfolio equilibrium equations: (B3A.) S) = aO + al ^B + a2 log (y) SB (B3.2) log(-) = bo + b1 ioN + b2 log(y) SQM The values of the coefficients of these and subsequent behavioral equations are listed in table 2.3, which is based on the simulation results of our companion paper. Most other domestic interest rates are anchored to these two rates by a set of equations introduced in Appendix 1. - 16 - Goods Market Equilibrium Condition The goods market equilibrium condition is given by the constant-price income-expenditure equation which relates output to aggregate demand: (B4.1) y cp + Cb + fiP + fib + fio + chst + exp - imp Due to the fact that ours is a one-good model on the supply side and a two- goods model on the demand side, (B5.1) can be explicitly re-written as the market equilibrium condition for domestic goods: (B4.1') y = dom,p + impcp + domcb + impcb + dom1, + impip domib + imp!b + dom1o + imp10 + chst + exp - [imp, + impCb implb + implb + imp,0 + mint] where each aggregate demand component is decomposed into its domestic and imported parts. Assuming continuous market clearing, equation (B4.1') is an implicit equation for the GDP deflator. This national goods price relevant for supply decisions is related to the aggregate demand deflators by equations (B6.1) - (B6.19) introduced below. Goods Market Behavioral Structure Potential Output and Output SuRplv Potential output is -elated to lagged end-of-period physical capital by a constant and a variable reflecting capital productivity gains: (B5.1) yp = (0.5241 + pg) K-1 Output supply (relative to potential output) depends on the productivity- adjusted real product wage and the real price of intermediate imports (values of coefficients of behavioral equations are listed in table 2.3): - 17 - (BS.2) log(.Z) = co + cl Plog( p yp ~~~WI exp (O.OO8T71 + C2 (1-P)log( P Pmint Finally, producers' demand for intermediate imports (relative to potential output) is determined by output (relative to potential output) and relative prices: (BS.3) ypint = do + d1 ( . ) + d ( WI exp(O .0 T) ) + d Pi yp 4p p 3 p Private ConsumRtion Private consumption in equation (B5.4) combines Keynesian, permanent-income and Ricardian-cum-direct-crowding-out determinants. Expected permanent public saving (for the latter hypothesis) is assumed to be formed according to current public saving levels (the sum of current b and o saving). Private disposable income is derived from the private sector current account (equation A1.9), as reflected by equation (B7.3). Finally, permanent private disposable income is a fixed share of potential output, as reflected by equation (B5.5). (B5.4) P c eo + el DY + e2 DY (B5.5) DYPp DYp py88 ) p y The composition of aggregate private consumption is determined by relative prices of importea and domestic consumption components, as reflected for the domestic to aggregate consumption ratio by the following equation. Domestic private consumption is obtained residually in equation (B5.7). (B5.6) = fo + fi p CP PDowp (B5.7) impp =cp - domcp - 18 - TABLE 2.3 VALUES FOR COEFFICIENTS OF BEHAVIORAL EQUATIONS This table lists the values of behavioral equation coefficients introduced in the text. Most of these coefficients are taken directly from the best estimation results presented in our companion paper. However, some coefficients are altered to ensure, first, that historical 1988 base year values were preserved, and second, that the projection results reflected reasonable magnitudes. 1. Monetary Base/Domestic Public Debt Portfolio Equation Intorcs t Add ao -13.903 + 1.584 + (-3.034 - (-12.138)*(0.1330) (a, correction} + (1.286 - (0.000)*Log(4557) (a2 correction} a, -12.138 a2 0.000 2. Ml/QM Portfolio Equation Intercapt Add tS Trend bo -2.796 + (-0.027) + (-0.464) b, -4.453 bz 0.342 3. Output Supply Equation Intorc +t Add CO -0.104 + 0.007 C,*fl 0.692 * 0.924 -l*(1-0) 0.692 * 0.076 4. Demand for Intermediate Imports Equation Inte ty + (_O Add do0 0.12 + (-0.027) + ((-0.137 - (0))*(2.338/2.3353) {d3 correction} d, 0.365 d2 -0.155 d3 0.000 5. Private Consumption Equation Interco t Add eo 0.605 + (-0.042) e, 0.116 e2 0.673 6. Domestic Private Consumption Equation Interco t Add fo 0.848 + (-0.003) f, 0.052 - 19 - TABLE 2.3 (Cont.) 7. Total Fixed Private Investment Equation Snteryy Add go -0. 5 + 0.001 + (-0.1235 - (-0.020))*(3.672J2.335) {g2 correction} S1 -0.176 92 -0.020 83 00.248 gX, 0.416 g, 1.796 8. Domestic Fixed Private Investment Equation Intercept Add ho 0.331 + (-0.106) hi 0.118 9. Export Demand Equation Intercept Add Jo 0.394 + (-0.100) Ji -0.062 J2' 0.074 Explanatory Note: Intercept Original regression coefficient. Add 1988 regression residual. Correction Factors added to constant terms to compensate for changes in estimated regression coefficients introduced in the simulation model. In all nine equations the Add term was included to calibrate the 1988 projected values of the behavioral equations to actual 1988 base-year values. In equations 1, 2, and 7 coefficients were altered from dhe values estimated in the companion paper. Thus a corresponding Correction term was added to each to maintain the 1988 projection value equal to the historical values. - 20 - Private Fixed Investment Private fixed investment in equation (B5.8) combines neoclassical and liquidity-constraint determinants: the real user cost of capital (split into the investment-based real interest rate and the relative price of investment goods), the average product of capital (o. proxy for the marginal product), firm profits, and monetary base. Expected investment goods inflation in the real interest rate is assumed to follow regressive expectations in equation (B5.9): expected inflation for the next period is inversely related to the difference between current-period producer price inflation and capital goods price inflation. (B5. 8) i = go + g1 [iL + 0.045--i .+] + 92 ( p- ) + y * p 4.g3 (.LY ) + g4 ( Pm) + g5 SH) 1(1~~~~~~~~~- (B5.9) ip, +1 I. 5 ( PP1) 0 . 5 (.Pp PPiP1) '-1 pip,-I The composition of aggregate private fixed investment is determined by relative prices of imported and domestic fixed investment components, as reflected for the domestic to aggregate fixed investment ratio in the following equation. Domestic private fixed investment is obtained residually in equation (B5.11). (B5.10) =ho + h, PiP ff.l PD.Ifp (B5.11) impfip = fip - domfip Exaorts The foreign demand for Zimbabwe exports depends on the lagged export price relative to international prices of possible substitutes, and foreign income as - 21 - captured by OECD GDP:' (B5.12) exp = jo + jl (p, ) + j2 (ZY.) Y PAI Y Public Sector Behavior The following equationc define public sector aggregate demand components as fixed sharee of real GDP: (B5.13) domCb shdocb y (B5.14) domib Shdomib Y (B5.15) impib S-himpib Y (B5. 16) dom1o - ShdomO Y (B5. 17) imp1o =shiwpo Y Further adding-up equations for constant-price demands are in Appendix 1. Goods Prices In addition to the national goods market equilibrium condition, which determines the GDP deflator, price equations for all aggregate demand components have to be introduced. The current-price income-expenditure equation will be used to determine the deflator for the change in stocks: 'The low magnitude of the price coefficient (-0.06), implying a price elasticity of the foreign demand for Zimbabwean exports of 0.20, should be taken with care. It does not seem to moe consistent with price taking (instead of price setting) by Zimbabwean exporters. - 22 - (B6. 1) Pchat= [( Y- PC p - PCb cb - Pip fip sib fib Pio fio - Pew exp + P... imp] /chst A set of law-of-one-price equations for domestic prices of exports and iaports, exogenous projection rules for domestic goods prices and adding-up restrictions for aggregate deflators are introduced in Appendix 1. Auxiliary Linkages Finally, auxiliary equations which link asset stocks and income flows of the budget constraints with variables of the market clearing conditions are introduced at the end of Appendix 1. - 23 - 3. MODEL CLOSURE AND GENERAL EQUJILIBRIUM As mentioned in the preceding section, the third building block of any macroeconomic model requires selecting the set of endogenous variables, that is, the model's closure. This section discusses the closure options available for the Zimbabwe RMSM-XX model and the macroeconomic general equilibrium properties of the model. 3.1 Closure Options and Choices Closure, the selection of endogenous and exogenous variables, is driven in principle by the structure of the economy and the issues addressed by the macroeconomic mcdel. To facilitate discussion of closure options, let's summarize the macroeconomic model of the preceding section into four building blocks, identifying in square brackets the main variables which can be determined endogenously by each block. The four blocks are the budget constraints (BC), the current-price income expenditure condition (IE), the asset markets block (AM), and the goods markots block (GM): 1. BC [ Five current account and five capital account variables 2. IE L Output or I aggregate demand component or 1 price ] 3. AM t AS(ik,...) ] 4. GM [ y(pJ,...) , ad, , adp(pj,-..) , adf We will discuss closure choices for blocks 2-4 immediately, postponing the choice of budget constraint closure for afterwards. The assets-markets block determines either asset stock supplies (AS) or interest rates (ik). The goods market block' determines a certain combination of output (y), goods prices (pj), private sector aggregate demand components ' A more disaggregate model than our 1-sector disaggregation of the supply would determine as many price/quantity pairs as sectors are considered. - 24 - (ad.), and consolidated public sector aggregate demand components (ad.). A first decision of closure has to be made on the possible endogeneity of public-sector aggregate demand components and public sector liabilities. A positive macro.conomic closure treats these public sector variables as exogenous, and solves the model for all macroeconomic variables, such as output, prices and interest rates. The normative closure inverts the model: by fixing exogenous targets for interest rates, prices or output levels, it solves the model for public sector liability stocks (and flows) and public sector aggregate demand components or revenue items. Table 3.1 gives an example of positive and normative closure rules in the context of our model. Under the positive closure, the IE equation determines one private sector price or aggregate demand component, while under the normative closure the adjusting variable is a public-sector quantity, price or revenue item. The asset markets block determines either asset returns or stock supplies, depending on the closure. Finally, public aggregate demand components and revenue items are exogenous in the goods markets under the positive closure, implying that output and the price level are determined endogenously. A normative GM closure, however, involves targeting either inflation or growth exogenously, hence solving for one particular public sector revenue or expenditure item. The Zimbabwe RMSM-XX model applied in sections 4 and 5 below is based only on a positive closure, combined with alternative closures for the budget constraints as discussed below, in order to avoid a mushrooming of simulation alternatives below. However, the model could be easily inverted for a normative closure along the choices summarized in table 3.1. - 25 - TABLE 3.1 ALTERNATIVE CLOSURE RULES FOR INCOME-EXPENDITURE EQUATION (IE). ASSETS MARKETS BLOCKS (AM) AND GOODS MARKETS BLOCK (GM) POSITIVE CLOSURE NORMATIVE CLOSURE Exogenous Endogenous Exogenous Endogenous Variables Variables Variables Variables IE All other one adp or All other one ad, or one p, one p. AM Stock supplies Interest rates Interest rates Stocks supplies of public of public sector sector liabs. liabilities GM adg adp and y Other ad.; adp and one ad.; and p; other y or p p or y; prices other prices Notation: y is GDP. ad isl aggregate demand component. p is price level, and subindeces p and & denote the private and the consolidated public sector. - 26 - Under the positive closure the deflator for the change in stocks has been chosen as the endogenous variable for the IE equilibrium condition, as reflected by equation (B6.1) above.8 Asset markets determine interest rates i. and it for given stock supplies (including public sector liabilities) in equations (B3.1) and (B3.2). Finally, the goods market equilibrium condition (the combination of equations (B4.1) and (B5.2)) determines jointly real GDP and its deflator, for exogenously given public sector spending and tax levels. Let us turn now to the determination of closure for the 10 independent budget constraint equations (Ai.1) - (A1.10). We discuss separately current and capital accounts. For the current-account or above-the-line equations the natural candidates for endogenous variables are sector saving levels, In fact we choose these for the three non-financial sectors (Sb, S., Sp). However, central bank and banking sector saving are restricted to zero by equations (A2.1) - (A2.2). For the cb current account we take ResidCb, the central bank's gross margin transferred to the budgetary government, as the adjusting variable. In the case of the bs current account, we made the analogous choice of having Residb., the gross margin transferred to the private sector, as the adjusting variable. The closure options for the budget capital accounts involve decisions in three dimensions: how binding the foreign resource constraint is, which sector (private or public) bears external adjustment, and which is the source of the domestic financing of the budget deficit (monetary or non-monetary financing). Table 3.2 specifies eight alternative pairings of endogenous public and private sector budget constraints based on combinations of the above mentioned three dimensions. For instance, given that the foreign resource constraint is not eP t was chosen as the adjusting variable in order to avoid spill-over effects from changing relative prices into private sector behavioral equations, other than the immediate effect of the change of Ph., (or any other variable) on a private or public sector aggregate demand component when the foreign resource constraint is binding. - 27 - binding, if the private sector bears external adjustment and domestic financing of the CPSD, and if the latter is money-financed, then net foreign private debt and domestic monetary base issues are the main adjusting variables of the capital accounts. However, if a foreign resource constraint emerges due to an interruption of voluntary foreign lending flows, and if the public sector bears the foreign adjustment and in addition shifts to domestic debt financing, the main adjusting endogenous variables are public spending (public consumption or investment) and domestic public debt issues. Table 3.3 identifies the eight sets of 5 endogenous variables under the above mentioned closure rules in the Zimbabwe RMSM-XX model. To simplify comparison, we assume that the other public sector's and the banking sector's capital accounts determine continuously only one variable (LCbO and Lb,p, respectively), being unaffected by changes in closure rules. The central bank's adjusting variables are currency or net private sector loan flows, depending on the domestic CPSD financing assumption. One point illustrated by this table is that in the absence of a foreign resource constraint, actual domestic spending is equal to its notional level and foreign lending adjusts to desired domestic spending levels. In terms of balance of payments adjustment, the external sector current account drives the capital account. A foreign lending squeeze inverts this causality, implying that (at least) one domestic aggregate demand component -- and hence the external current account -- adjusts passively to the capital account of the balance of payments. For the foreign saving binding/public sector adjustment/domestic financing closure in line 2.1, the main adjusting variables are budgetary consumption or fixed investment (cb/fib) and the net issue of loans from the central bank to the private sector (LCbp). In most cases, the capital accounts closure rules for the Zimbabwe RMSM-XX combine a bindiing foreign saving eonstraint with either a public or private sector aggregate demand component as the adjusting variable, in addition to domestic debt financing of the CPSD. - 28 - TABLE 3.2 ENDOGENOUS VARIABLES UNDER ALTERNATIVE CLOSURE RULES FOR THE CAPITAL-ACCOUNT BUDGET CONSTRAINTS FOREIGN SAVING CONSTRAINT l. Not Binding 2. Binding Net Foreign Debt Aggregate Demand A. Public Sector Adjustment ebt Financing of CPSD Net Foreign Public Debt Public Spending and and Domestic Public Debt Domestic Public Debt Money Financing of CPSD Net Foreign Public Debt and Public Spending and Domestic Money Domestic Money B. Private Sector Adjustment ebt Financing of CPSD Net Foreign Private Debt and Private Spending and Domestic Public Debt Domestic Public Debt Money Financing of CPSD Net Foreign Private Debt and Private Spending and Domestic Money Domestic Money Note: CPSD is the Consolidated Total Public Sector Deficit. - 29 - TABLE 3.3 SETS OF ENDOGENOUS VARIABLES UNDER ALTERNATIVE CLOSURE RULES FOR THE CAITAL-ACCOUNT BUDGETCOTINTS IN THE ZIMBABWE RMSM-XX MODEL CLOSURE RULES ENDOGENOUS VARIABLES FOR SECTOR BUDGET CONSTRAINTS Foreign Sector CPSD Budgetary Other Public Central Banking Private Saving Adjust- Financing Government Sector Bank Syatem Sector Binding ment (b) (o) (cb) (b) (p) 1.1 No Public Debt LPb Lebo FAeb Lbap Lcbp 1.2 No Public Money Lpb Lcbo FACb Lbsp CU 1.3 No Private Debt Lcbb Lcb. Lcbp Lbsp Lfp 1.4 No Private Money Lbb Lebo Cu Lbsp Lfp 2.1 Yes Public Debt Cblfib Lcbo Lcbp Lbsp Lpb 2.2 Yes Public Money Cb/ fib Lebo CU Lbsp * Lpb 2.3 Yes Private Debt Lcbb Lebo Lcbp Lbsp Cbfi 'b 2.4 Yes Private Money LCbb Lebo Cu Lbsp Cb/ffb - 30 - 3.2 Zimbabwe RMSM-XX Closure and General Equilibrium As discussed above the basic choice for the Zimbabwe RMSM-XX closure used in most simulations in sections 4 and 5 below combines a positive closure for the income-expenditure, asset markets, and goods market blocks with a binding foreign saving constraint. In addition, either the public or private sector adjusts and domestic debt is used for financing the consolidated public sector deficit. Diagram 3.1 illustrates the general equilibrium of the Zimbabwe RMSM-XX under this closure, showing the main intersectoral linkages of macroeconomic variables by main blocks. Goods markets determine output, the price level, private aggregate demand components and relative prices. Private consumption is determined by public sector saving and private disposable income, which come from the budget constraints. Private fixed investment is affected by the commercial banks' loan rate (ibsp), which is anchored to the bond interest rate (iBB) determined in the asset markets. Public fixed investment, determined by the budgetary government capital account, contributes with private investment to output today (via aggregate demand) and tomorrow (by increasing the capital stock.) Output and aggregate demand levels determined by the goods market block affect in turn the private sector budget constraint and asset demands. Interest rates, determined by the asset markets, are influenced in addition by total consolidated public sector domestic debt (B), which comes from the public sector budget constrairts. Finally, interest rates feed back into the budget constraints. Figure 3.1 illustrates the joint determination of 4 of the main macroeconomic variables in our model: real GDP, the GDP price level, its rate of inflation, and the real interest rate. Panel I illustrates the joint determination of the first two variables in the goods markets and panel IV shows the determination of the real interest rate paid on public domestic debt, consistent with the nominal interest rate determined by the monetary base/domestic public debt portfolio composition, for a given rate of ex post DIAGRAM 3.1 CLOSURE 1*: ZIMBABWE RHSH-XX GENERAL EQUILIBRIUM UNDER POSITIVE CLOSURE AND BINDING FOREIGN SAVING/PUBLIC SECTOR ADJUSTMENT/DOMESTIC DEBT FINANCING MARKETS Assets Markets Goods Markets Otber Honev Marker Public Debt Market (y Real CDP) Other Goods Prices Interest kesp. rate) 1, (Debt rate) P (GOP Deflator Other Demanu; Rates + fip (Priv. Invst.) Components _ C (Priv. Conemp.) BudgetiCoverment Other Public Sector Central Bank Banking Sector Private Sector BUDGET ZURM§INTS Sk S. C.B. Margin hop (Loan Rate) DYp Current 1 1 ib - 0) i°b. IS Aecounts fib (S. Fixed lnvestm.) Lcbo (CB loans) Lcbp (Loans for P) Lb.P(Loans to p) Lpb(CB Loans) Capital L6ccounts B (Don. Public Debt) tAlternative 2.1 Dlagram 3.2. 1 - 32 - FIGURE 3.1 MACROECONOMIC GENERAL EQUILIBRIUM: NEUTRALITY OF A GENERALIZED NOMINAL SHOCK GDP Deflator (P) ys (EP*) yB (E0P') PO yd(EoP*) Inflation I i | Real GDP - I7CI ?o YO (y) o___ a____ _ rO ' ~~~~~AM " HoIBo GM H1 /B, Real Interest Rate (r) - 33 - inflation. Panel IV puts together the goods market (GM) and asset markets (AM) equilibrium conditions shown separately in I and III. Figure 3.1 illustrates a simple exercise of a generalized nominal shock. As a result of the model's homogeneity of degree I in all prices and nominal variables, an identical proportional increase in all exogenously nominal variables (exogenous prices, asset stocks, current-price inter-sector flows) increases endogenous nominal variables !y an identical amount, without affecting real variables. - 34 - 4. BASE SCENARIO SIMULATION RESULTS This section presents simulation results for the 1988-1995 base scenario which combines unchanged fiscal and monetary policies with a mild, transitory oil shock. A presentation of the underlying assumptions is followed by the dicussion of the simulation results.9 It is important to stress that the base scenario results and its underlying assumptions comprise a "reasonable" case of macroeconomic development in Zimbabwe and hence do not constitute at all a projection scenario. 4.1 Assumptions The 1988-1995 simulation scenario encompasses historical 1988, preliminary 1989, estimated 1990, and projected or simulated 1991-1995 data. The various sources for the historical, estimated and preliminary 1988-90 data are official publications (Reserve Bank of Zimbabwe, Ministry of Finance of Zimbabwe and IMF International Financial Statistics), recent World Bank and IMF documents, Zimbabwe Resident Mission estimations, and our own estimations. The sources for 1991-95 projections of exogenous varialles are the above mentioned World Bank and IMF papers and our own projections. A detailed presentation and discussion of the 1988-1995 data set of exogenous variables is presented in Appendix 3. A summary discussion of the main closure, external, policy, and behavioral assumptions underlying the projection of exogenous variables follows. ' The model was run on a 386 Zenith PC using Soritec (release 6.4.023). Because this release of Soritec is unable to use expanded memory, the number of equations used in the model is limited due to the 640K memory ceiling. A new 386 version of Soritec has been released which promises to allow larger models to be simulated. The model is comprised of approximately 173 equations (depending on the closure chosen), requiring about 50 minutes of computer time to reach convergence for the eight-year simulation period. - 35 - Closure Rule The base scenario assumes a closure which combines a binding foreign saving constraint, public sector adjustment, and debt financing of the consolidated public sector deficit. This corresponds to closure rule 2.1 in table 3.3, with budgetary fixed investment selected as the adjusting public sector aggregate demand variable. External Variables The third oil price shock is assumed to be a relatively mild oas. Nominal US$ oil prices are projected to increase from $16/b. in 1989 to $23/b. in 1990, to stay there in 1991 and 1992 and increase slightly afterwards, until reaching a level of $26.2/b. in 1995. Other import prices, as well as export prices, are projected to increase at 4.5% per year throughout the 1990-95 period. Foreign interest rates are projected to remain unchanged from their 1990 levels. Foreign demand, as reflected by OECD output growth, increases at 3% per year. Foreign financing, which is exogenous under the binding foreign resource closure, would increase slightly in 1991-95, allowing an emergence of slightly increasing current account deficits, up to 1.8% of GDP in 1995. Exchange Rate Policy After the 1989-90 real devaluations, a crawling peg policy is assumed for the nominal exchange rate during 1991-95, consistent with a "relative" PPP objective'" and a return to a target 10% annual inflation. Fiscal Policv Fiscal policy is assumed to allow a 3lightly increasing deficit of both the budgetary and other public sectors, implying a partial reversal of the 1987/88 fiscal adjustment, which brought the consolidated non-financial public sector '0"Relative" purchasing power parity relates rates of change of external and relevant domestic prices. - 36 - deficit down to 9% of GDP. As mentioned above, budgetary fixed investment is the aggregate demand variable which is adjusted in response to the foreign saving constraint. Deficit Financing and Monetary Policy The consolidated total public sector deficit (CPSD) continues to be financed mostly by domestic debt issues. Monetary policy is conducted with prudence, sustaining a return to a 10% annual inflation rate. Structural Adiustment and Productivity Gains No significant structural adjustment is foreseen in the bade scenario. In particular no trade reform is envisioned. However, significant annual productivity gains of 0.9-1.0 percentage points of GDP are assumed to take place throughout 1989-95. WaRes Real labor productivity-adjusted uages are projected to decline by 2.7Z in 1989, 1.8% in 1990 and 1% in 1991, being maintained thereafter. This real wage adjustment contributes to slightly higher employment, capacity utilization and output growth during 1989-1991. Private Sector Behavior Private sector behavior remains unchanged from the 1980s, as reflected by the unalterei coefficients of all behavioral equations throughout the simulation horizon. 4.2 Results Table 4.1 summarizes the macroeconomic outcome as reflected by the set of key macroeconomic indicators for the Zimbabwe 1988-95 base scenario. Tables 4.2 and 4.3 present the matrices for budgetary and income-expenditure flows for 1988 - 37 - TABLE 4.1 KEY MACROECONOMIC INDICATORS TABLE ZIMBABWE BASE SCENARIO SIMULATION RESULTS, 1988-1995 1938 1989 1990 1991 1992 1993 1994 1995 REAL GRONTH RATES: GOP CH KGDP 0.066 0.049 0.027 0.032 0.035 0.038 0.039 0.040 Investment CH KFI 0.053 0.263 -0.091 0.068 0.060 0.047 0.049 0.051 Exports CH KEXP 0.018 0.045 0.028 0.031 0.034 0.036 0.037 0.038 GDP Per Capita CHNKGOPPOP 0.035 0.020 -0.001 0.005 0.008 0.011 0.013 0.015 Conf.umption per Capita CH_KCPPOP 0.017 0.014 -0.004 -0.002 0.006 0.013 0.014 0.016 ICOR: ICOR 1.78 2.35 5.10 3.88 3.63 3.46 3.37 3.29 AGGREGATE DEMAND COMPOSITION: (as share of GDP) Resource Baelnce RESBALGDP 0.037 0.014 -0.014 -0.011 -0.007 0.010 -0.012 -0.015 Exports EXPGDP 0.312 0.338 0.362 0.369 0.372 0.371 0.370 0.369 Imports IMPGOP 0.275 0.324 0.377 0.380 0.379 0.380 0.382 0.384 Total Consumption C TOTGDP 0.747 0.750 0.765 0.776 0.782 0.781 0.781 0.781 Private Consumption CFGDP 0.517 0.520 0.530 0.536 0.540 0.540 0.540 0.541 Public Consumption CGGDP 0.230 0.231 0.235 0.239 0.241 0.241 0.241 0.241 Gross Fixed Capital Investment FIGDP 0.180 0.226 0.208 0.220 0.227 0.229 0.231 0.233 Private Invest FIPGDP 0.090 0.126 0.105 0.114 0.121 0.123 0.125 0.127 Public Invest FIGGOP 0.089 0.100 0.104 0.105 0.106 0.106 0.106 0.106 Change in Stocks CHSTKGDP 0.036 0.010 0.041 0.016 -0.001 -0.000 0.000 0.001 Foreign Saving CAGDP -0.004 0.021 0.049 0.047 0.042 0.043 0.044 0.046 National Saving SNATGDP 0.220 0.215 0.199 0.188 0.183 0.185 0.187 0.188 Private Saving SPGOP 0.219 C '11 0.196 0.187 0.185 0.189 0.194 0.198 Public Saving SGGDP 0.001 0.003 0.004 0.001 -0.001 -0.004 -0.007 .0.010 Marginal National Saving MNSR NA 0.105 -0.718 -0.132 0.075 0.217 0.213 0.206 PUBLIC DEFICIT: (as share of GOP) Total Public DEf PUBGDP 0.088 0.097 0.100 0.105 0.108 0.110 0.113 0.116 Budgetary Gov't DEFB3GDP 0.059 0.068 0.070 0.074 0.076 0.078 0.081 0.083 Other Public DEf_OTHCDP 0.028 0.029 0.030 0.031 0.031 0.032 0.032 0.033 PRICES AND INTEREST RATES: Nominal Avg Exchange Rate EE 1.806 2.113 2.470 2.600 2.737 2.881 3.033 3.192 Real E-rate Index ('88u100) RER 100.OCO 91.697 74.681 74.772 75.520 75.601 75.665 75.697 Inflation INFL 0.119 0.127 0.139 0.080 0.090 0.101 0.101 0.101 Nom. Deposit Rate lowM 0.083 0.086 0.088 0.091 0.093 0.096 0.099 0.102 Real Loan Rate (ex-post) LOANRATE 0.010 0.002 -0.008 0.048 0.042 0.034 0.037 0.041 Nom. Public Debt Interest Rate IB8 0.133 0.132 0.132 0.136 0.139 0.142 0.146 0.149 MONEY AND DOMESTIC DEBT: (as share of GOP) Monetary Base STK MONGDP 0.077 0.077 0.078 0.080 0.081 0.081 0.081 0.081 Ml STKM1GDP 0.151 0.151 0.154 0.157 0.159 0.159 0.158 0.158 Quasi Money STK0QMGDP 0.175 0.175 0.179 0.182 0.184 0.184 0.184 0.184 Domestic Debt STK_BGDP 0.474 0.469 0.481 0.513 0.539 0.560 0.582 0.604 BALANCE OF PAYMENTS: (US S Million) Resource Batance D RESBAL 218.2 84.6 -83.9 -69.1 -49.1 -71.9 -99.1 -130.2 Wet Foreign Factor Income DNFY -198.0 -188.9 -197.5 -214.2 -222.7 -231.7 -240.8 -250.3 Transfers D TRANS 5.0 -18.3 -13.1 -13.8 -14.4 -14.9 -15.4 -16.4 Current Account D.CA 25.2 -122.6 -294.5 -297.1 -286.2 -318.4 -355.3 -396.9 Official Capita' Grants D CGRANT 59.1 53.9 82.0 87.0 92.0 95.5 99.0 102.5 LT Capital Inflows D KINFLOW -194.9 104.9 108.2 114.9 120.3 120.8 121.2 121.7 Total Other Items 0 OTHER 188.6 43.7 200.1 152.9 130.3 157.4 189.1 225.5 Net IMPF Credit DJIMFCREDI -85.0 -40.0 -23.0 -8.0 0.0 0.0 0.0 0.0 Change In Gross Reserves Cd_DFRES 7.0 47.5 -72.8 -49.7 -56.4 -55.2 -54.0 -52.8 INTERNATIONAL RESERVES AND DEBT: Stock of Gross Reserves (USS Mn) OFRES 295.2 244.7 316.0 365.5 421.7 476.6 530.3 582.7 Total External Debt (USS Mn) DFOEST TOT 2670.6 2728.0 2812.8 2928.4 3052.0 3175.4 3298.8 3422.2 Net Reserves (months irports) FRESIMP 1.8 1.4 1.7 1.9 2.0 2.1 2.1 2.2 Total External Debt/GDP Ratio DE8TGOP 0.487 0.493 0.484 0.476 0.463 0.443 0.424 0.404 - 38 - TABLE 4.2 SECTOR BUDGET CONSTRAINTS AND-INCOMEIEXPENDITURE EQUATION BY CURRENT AND CAPITAL ACCOUNTS, SOURCES AND USES OF FUNDS : ZIMBABWE, 1988 (As Percentage of 1988 GDP) 0523111? Budgeay Ohe ulc centrol BaiigPrivate External National Total ACCOUNT 0Ovm' Sector Bank system Sector Sec tor Accounts sources Budgetary Nob 1.13 Residcb 0.56 Td 16.87 COGb 0 Yfb 0 36.72 Governmeut Ti 9.16 OthI 9.00 -Subb, 0 Other Public Tfbo 4.41 COGo 0 DRS -0.22 4.19 Sector __ _ _ _ _ _ __ _ _ _ _ _ _ _Subo 0 _ _ _ _ _ Central Nbcb 0.37 Nocb 0.22 tNbacb -0.04 Npcb 0 NlAcb 0.17 0.72 Bank Banking Nbbe 0.47 Nobe 0.80 NRo. 0 Npbe 1.88 NiAbe 0.02 3.17 S,et ea__ _ _ _ _ _ _ _ __ _ _ _ _ _ _ private Thp 4.42 Top 0 NNOLcb .0.05 N"( 1.26 Tfp 0.08 Yfp 91.06 102.39 Sector Nbp 3.43 NoF 0.31 NI4OLBS 0.34 COOp 0 _______________ ~~~~~~~~ ~~~~Residb, 1.54 ________ External Nbf 1.81 Nof 0.38 NFLcb 0.04 NFLbs 0.07 Npf 0.35 .EXP 31 .25 -0.15 Sector; NIMP 0.17 NSpf 0.42 Imp 27.54 PR 0.32 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ NR ei 0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __n_i_ _ National Cb 23.02 Co 0 Scb 0 Sb. 0 Cp 51.69 Sf -0.43 96.30 Accounts Sb .1.21 So 1.36 _ _ _ _ _ _ _ _ _ _ _ _ _ _ Sp 21.87 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ______ Total 36.72 4.2 0.72 3.17 102.40 -0.16 96.29 uses CAPITAL * Bu,getary OtherPbi Central banking Private External National Total ACCOUNT Oovt Sector Bank spetem Sector Sect.r Accounts Sources Bdgetary ILcbb -0.30 Lbeb 1.73 Lpb 3.70 ROGb 1.'00 Sb -1.21 f.23 Government * Lfb 1.31 _ ___ Other Public Lbo 1.49 ILcba -0,29 Lbeo 0.58 Lpo 1.06 KOGO 0 So 1.36 4.20 Sector L fo 0 _____ Cenitral Bank Res 0.69 NOLob -1.06 FLcb -0.14 Scb 0 -0.49 Cu 1.07 RFLcb 0.09 IMP -1.44 ____________ _______________ ~~~~~ ~~~~~ ~~RIMP 0.30 _ _ _ _ _ _ _ Banking Lobbe -0.46 Q( 2.26 FLb. 0.02 Sb. 0 7.27 system "I 3.55 RLbsh 0.16 ___ ___ __ ___ _ ___ __ ___ _____ ___ __ ___ __ NOLbe 1.74 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Private Lcbp 0 Lbsp 3.08 lOOp 0 SP 21.87 * 23.89 Sector DFI 0.07 Lf;p -45 Knel 0 _____________ ____________ 10~~~~~~~~~~~~~~~~~~~~~~E 2 .72 _ _ _ _ _ _ _ _ _ _ _ External FAcb -0.15 FAba 0.04 Sf .0.43 0.24 Sector _______ _ _ _ _RFAc b 0.71 RPAbe 0.07 _ ______ ________ National lb 4.74 lo 4.19 9.04 21.60 Accounts __ __ ___ ___ __tk 3 63 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Total 6.23 4.19 .0.49 7.26 23.92 0.24 21.59 Uses - 39 - TABLE 4.3 SECTOR BUDGET CONSTRAINTS AND INCOME/EXPENDITURE EQUATION BY CURRENT AND CAPITAL ACCOUNTS. SOURCES AND USES OF FUNDS: ZIMBABWE. 1995 (As Percentaae of 1995 GDP) CUUIZIT Budgetary Other Public Central Banking Private External National Total ACCOUNT Gov Sector Bank System Sector Soctor Accounts Sources Budgetary Nob 1.32 Resldeb 0.49 Td 17.72 COGb 0 Yfb 0 38.61 coverrnent OthI 9.46 Ti 9.62 -Subb 0 Other Public Tho 4.64 COGo 0 DRS -0.23 4.41 Sector Subo 0 Central Nbcb 0.34 Noob 0.05 Nbsecb -0.09 Npcb -0.17 NPAcb 0.22 0.35 Bank Banking Nbbe 0.71 Nob. 0.90 NRac 0 Npbe 2.31 INAbe 0.02 3.94 Slst*:- Private Tbp 4.65 Top 0 NNOLcb -0.17 NM 1.64 Tfp -0.19 Tfp 90.61 104.16 Sector Nbp 4.84 Nap 0.45 NNOLBS 0.59 COTp 0 Residba 1.74 External Nbf 1.78 Nof 0.28 NFLcb 0.03 NFLbs 0.06 Npf 0.13 .Exp 36.85 4.62 Sector NIHF 0 NSpf 0.51 IMp 38.35 PR 0.33 NRnei 0 National Cb 24.08 Co 0 Scb 0 Sb 0 Cp 54.06 Sf 4.57 101.50 Accounts Sb - 2.4 2 So 1.42 Sp 19.79 Total 38.62 4.42 0.35 3.94 104.14 4.62 101.50 CAPITAL Bugetary Other Public Central Banking Private External National Tot*l ACCOUNT ovt Sector BanI System Sector Sector Accounts Sources Budgetar, Lebb 0.34 Lbeb 0.71 Lpb 6.76 SOGb 1.18 Sb -2.42 7.56 Covernment Lfb 0.99 Other Public Lbo 1.69 Lebo 0.26 Lbco 0.90 Lpo 0.45 KOGo 0 So 1.42 4.72 Sector Lfo 0 Central Bank Rot 0.39 NOLcb -0.20 FLeb 0.02 Scb 0 0.86 Cu 0.63 RPLcb 0.02 IMF 0 ____________ _____________ ______________ RIMRHF 0 Banking Lcbba .0.12 I 2.31 FLbe 0.04 Sb. 0 4.95 System .i 1.99 RFLbe 0.05 _____________ ~~~~~~NOLbo 0.68 Private Lcbp .0.47 Lbep 2.24 ROGp 0 Sp 19.79 24.76 Sector DFI 0.25 Lfp 0.10 LSp 0.29 Knsi 0 _____________ ____________ _____________ _____________ tO 2.56 _____________ _________~~~~~EO 2 .5 Extsrnal PAcb 0.55 FAbe 0.06 Sf 4.57 5.50 Sector RFAcb 0.29 RFAbe 0.03 Nationsl lb 5.88 lo 4 .72 Ip 12.71 23.36 Accounts _ Cbtk 0.05 Total 7.57 4.72 0.86 4.96 24.75 _ .50 23.36 Figure 4.1 Base Scenario: Output/Capital and Potential Output/Capital Ratios 0.6 _ _ Potential Output/Capital 0.55 0.5 0 45 /---g / O~~~~~~~~~utput/Capital 0.45 0.4 0.35 , I I -i 1979 1981 1983 1985 1987 1989 1991 1993 1995 - 41 - and 1995, respectively.'1 Appendix 4 presents the complete set of endogenous variables and budget constraints for the base scenario. After two exceptionally good years (1988-89), growth dips in 1990 in response to the "mild" oil shock, recovering afterwards to rates which converge to 4.0% in 1995. Higher growth in the latter years results both from the reversal of the oil shock and higher capital formation. 1990-95 average annual GDP growth of 3.7% is substantially higher than the historical average annual 2.4% achieved during 1982-88, as a result of assuming both declining real wages and productivity gains during the simulation period. Productivity gains also contribute to the strong trend in private investment during 1990-95, with year- to-year fluctuations due to changes in relative investment goods prices and real interest rates. Figure 4.1 illustrates the 1979-95 evolution of output/capital and potential output/capital ratios. Higher available foreign financing -- a partial relaxation of the external resource constraint -- allows the emergence of slowly increasing current account deficits, tv .lmost 5% in 1990, which decline somewhat thereafter. The deterioration in the current account is more than reflected by the decline in the resource surplus as a share of GDP, due to decreasing foreign interest payments. Per capita private consumption, after declining slightly in 1990 and 1991, grows at increasing rates afterwards, reaching a 1.6% growth rate in 1995. Private fixed investment takes the brunt of private sector adjustment to both the 1990 oil shock and the 1990 devaluation of the Zimbabwe dollar, as reflected in its negative response to increasing PLp caused primarily by higher import prices. With the oil price reversion in 1991-95, private investment recovers. After the significant corrective real devaluations of 1989-90 and the 1990 oil shock, the real exchange rate, defined as the ratio of the GDP deflator and the aggregate import deflator (which includes the price of oil) appreciates 11 These two matrices present 1988 and 1995 flows from the budget constraint tables of appendix 4, as percentage of each year's GDP. Matrices for intermediate simulation years 1989-94 can be easily constructed from the information provided in appendix 4. Figure 4.2 Base Scenario: Real Wage and Real Exchange Rate Indices (1980 1.0) 1.4 1.2- Real Exchange Rate 0.8 I I II 0.6 1979 1981 1983 1985 1987 1989 1991 1993 1995 - 43 - slightly during 1990-95, in tandem with the decline in the price of oil and the increasing current account deficits. Figure 4.2 depicts the evolution of the real wage and the real exchange rate during 1979-1995. The domestic counterpart of a more relaxed foreign saving constraint is a reduction in both private and public sector surpluses. The public deficit increases by 2.8 percentage points of GDP between 1988 and 1995, a result of falling public saving (-1.1x) and increasing public investment (1.7%). Similarly, private saving falls by 2.1 percentage points of GDP while private investment increases by 3.7 percentage points. Not surprisingly, the rapidly growing deficit is financed through foreign saving which increases to 4.6% of GDP by 1995, up from 0% in 1988. Despite stronger inflationary financing of public deficits during 1989 and 1990, when domestic (GDP deflator) inflation shot up to 12.7% and 13.9%, respectively, the total net domestic debt to output ratio still rose from 47.4% in 1988 to 48.1% in 1990. A return to 9-10% annual inflation rates in 1991-95 further raises the need for domestic debt financing, which pushes domestic debt to GDP ratios systematically up, reaching a 60.4% level in 1995. Consequently, the nominal rate on domestic debt rises from 13.2% in 1990 to 14.9% in 1995. The Ml and quasi money ratios to GDP are projected to be relatively stable over 1988- 95. Hence the increase in the deposit rate, determined by the ratio between the two latter variables, is only due to GDP growth, which affects positively the desired ratio of Ml and quasi money. The balance of payments reflects the higher capital inflows assumed by the base scenario, which allow the development of rapidly increasing current account deficits mentioned above, while IMF credits are repaid and gross reserves are accumulated. In fact, gross reserves in US$ are nearly doubled between 1988 and 1995, allowing an increase in net reserves from the equivalent of 1.8 months of imports in 1988 to 2.2 months of imports in 1995. Low current account deficits and moderate GDP growth are behind the significant decline in the total external debt to GDP ratio, from 48.8Z in 1988 - 44 - to 40.4% in 1995, which contributes to a decline in the burden of interest payments and a potential recovery in Zimbabwe's external creditworthiness. - 45 - 5. ADJUSTMENT UNDER ALTERNATIVE SCENARIOS This section discusses simulation results for two alternative scenarios to the base scenario presented above. The first cor.qiders the effects of a stronger oil shock in 1991 and the second shows the macroeconomic implications of a sustained fiscal adjustment effort. 5.1 Strong Oil Shock Scenario The strong oil shock scenario assumes a lingering continuation throughout 1991-92 of market uncertainties caused by the 1990-91 gulf crisis, implying that the nominal oil price is maintained at an average value of $33/b, which is $10/b higher than what the base scenario assumes. In 1993-95 the oil price declines steadily, reaching in 1995 the level assumed in the base scenario ($26.2/b). Two alternative closure rules are considered for this case. The first assumes no foreign resource constraint, with foreign loans to the private sector adjusting to meet the additional financing needs (if any), after domestic adjustment to the stronger oil shock. Under the second alternative (with binding foreign saving), foreign financing stays unchanged from the base scenario levels, with private fixed investment responding endogenously to meet the adjustment requirements (if any), after domestic adjustment to the price shock."2 An oil shock has two contractionary effects on output in the Zimbabwe RMSM-XX model. The first one is a price effect which acts on aggregate supply. The second is an income effect with an impact on aggregate demand."3 First, 12 The first closure corresponds to alternative 1.3 listed in table 3.3, while the second is consistent with closure 2.3 of table 3.3, with private fixed investment as the aggregate demand variable adjusting to the foreign saving constraint. Hence, the distinction between the latter case and the base scenario closure of section 4 is that now private, as opposed to public, investment adjusts to available foreign resources. "3 A third effect of an oil shock -- an expansionary substitution effect via aggregate demand -- could be at work if short-run demand for intermediate imports responded to relative prices. While this is the case of the estimated intermediate import demand presented in our companion paper, we set the cor- responding coefficient to zero in our simulation model (See line 4, table 2.3.). - 46 - higher intermediate goods prices raise production costs and hence depress aggregate supply, resulting in a depreciation. The second contractionary effect occurs when foreign financing is constrained. Since the price of change of stocks was chosen as the adjusting price deflator, rising intermediate import prices imply a higher Ph,* and higher expenditure on current-price inventory accumulation. Consequently, the flow-of-funds restriction of the private sector capital account forces the private sector's adjusting variable, private fixed investment, to decrease accordingly. Tab'le 5.1 summarizes Zimbabwe's macroeconomic indicators us.der the strong oil shock scenario, when the adverse shock can be accommodated through foreign financing due to a non-binding foreign resource constraint. The strong, although transitory, oil shock is slightly contractionary, as can be inferred from the decline in 1991 growth (and subsequent recovery), as compared to the base scenario growth rates in table 4.1. 1991 growth declines from 3.2% in the base scenario to 2.9% under the strong oil shock, with slightly stronger 1993-95 growth recovery under the oil shock scenario, when oil prices decline to reach base scenario levels in 1995. While some of the adjustment is borne by falling private investment -- a contractionary effect -- the existence of unlimited foreign financing mitigates the contraction. Hence, the large increase in the value of imports necessitates a massive foreign financing of the oil shock: long-term capital inflows increase in 1991 from $114.9 m. in the base scenario to $588.3 m under the strong oil shock case, reflecting the huge increase in loans from foreign to private sectors. The real exchange rate defined as the ratio of the GDP deflator and the total imports deflator depreciates substantially in 1991 -- by 14.6% -- recovering steadily afterwards to reach almost the base scenario level in 1995. Let's turn now to the simulation results of the strong oil shock under a binding foreign resource constraint (results in table 5.2). Due to the latter, official capital inflows and the current account are identical to the base scenario values throughout 1991-95. This implies that private fixed investment - 47 - TABLE 5.1 KEY MACROECONOMIC INOICATORS TABLE ZINPABIE STRONG OIL SHOCK SCENARIO hO FOREIGN SAVING CONSTRAINT SIMULATION RESULTS, 1988-1995 1988 1989 1990 1991 1992 1993 1994 1995 REAL GROWTH RATES: GOP CH KGDP 0.066 0.049 0.027 0.029 0.034 0.038 0.039 0.041 Investment CH%KFI 0.053 0.263 -0.091 0.052 0.056 0.054 0.054 0.056 Exports CH$KEXP 0.018 0.045 0.028 0.029 0.033 0.036 0.037 0.038 GDP PFr Capita CH KGDPPOP 0.035 0.020 -0.001 0.002 0.007 0.012 0.013 0.016 Consuaption per Capita CHNKCPPOP 0.017 0.014 -0.004 0.002 0.007 0.011 0.013 0.015 ICOR: ICOR 1.78 2.35 5.10 4.23 3.72 3.37 3.30 3.23 AGGREGATE DENAND CONMPSITION: (as share of GDP) Resource B3alnce RESUALCOP 0.037 0.014 -0.014 *0.085 -0.105 -0.075 -0.055 *0.037 EAports EXPGOP 0.312 0.338 0.362 0.363 0.363 0.365 0.365 0.366 Imports IMPGOP 0.275 0.324 0.377 0.447 0.469 0.440 0.421 0.403 Total Consurption C TOTGOP 0.747 0.7T0 0.765 0.765 0.768 0.771 0.774 0.777 Private Consumptlon CPGDP 0.517 0.520 0.530 0.530 0.532 0.534 0.536 0.538 PubLic ConsuRption CGGDP 0.230 0.231 0.235 0.235 0.236 0.237 0.238 0.239 Gross Fixed Capitat Investment FIGDP 0.180 0.226 0.208 0.213 0.218 0.223 0.227 0.231 Private Invest FIPGDP 0.090 0.126 0.105 0.109 0.114 0.119 0.122 0.126 Public Invest FIGCOP 0.089 0.100 0.104. 0.104 0.104 0.104 P.105 0.105 Change in Stocks CHSTKGOP 0.036 0.010 0.041 0.106 0.119 0.081 0.054 0.029 Foreign Saving CAGMP -0.004 0.021 0.049 0.120 0.140 0.109 0.087 0.068 National Saving SNATGOP 0.220 0.215 0.199 0.199 U.198 0.196 0.194 0.193 Private Saving SPGDP 0.219 0.211 0.196 0.198 0.198 0.19; 0.200 0.201 PubLic Saving SGGDP 0.001 0.003 0.004 0.001 -0.000 -0.003 -0.005 -0.008 Marginal National Saving MNSR MA 0.105 -0.718 -0.239 0.062 0.260 0.238 0.223 PUBLIC DEFICIT: (as share of GOP) Total Public DEF PUGOP 0.088 0.097 0.100 0.102 0.104 0.107 0.110 0.114 Budgetary Gov't DEF.WOGOP 0.059 0.068 0.070 0.072 0.073 0.076 0.078 0.081 Other Public OEF OTHCOP 0.028 0.029 0.030 0.030 0.031 0.031 0.032 0.032 PRICES AND INTEREST RATES: Nominal Avg Exchange Rate EE 1.806 2.113 2.470 2.600 2.737 2.881 3.033 3.192 Real E-rate Index (t88u100) RER 100.000 91.697 74.681 63.895 61.620 65.897 69.220 72.428 InfLation INFL 0.119 0.127 0.139 0.100 0.097 0.095 0.096 0.095 Nom. Deposit Rate law 0.083 0.086 0.088 0.091 0.093 0.096 0.099 0.102 Real Loan Rate (ex-post) LOANRATE 0.010 0.002 .0.008 0.030 0.035 0.040 0.042 0.045 Mom. Public Oebt Interest Rate 1BS 0.133 0.132 0.132 0.136 0.139 0.142 0.145 0.148 MONEY AND OOMESTIC DEBT: (as share of GDP) Monetary Base STK MNGOP 0.077 0.077 0.078 0.079 0.079 0.080 0.080 0.080 Hi STK.M1GOP 0.151 0.151 0.154 0.155 0.156 0.156 0.157 0.157 Quasi Money STK MGOP 0.175 0.175 0.179 0.180 0.181 0.181 0.182 0.183 Domestic Debt ST KBGDP 0.474 0.469 0.481 0.504 0.526 0.548 0.571 0.595 EALANCE OF PAYMENTS: (US S MiLLion) Resource Salance 0 RESSAL 218.2 84.6 -83.9 -542.5 *727.3 -562.2 -445.6 -324.6 Net foreign Factor Incom O NFY -19W.0 -188.9 -197.5 -214.2 -222.7 -231.7 -240.8 -250.3 Transfers D TANS 5.0 -18.3 -13.1 *13.8 -14.4 -14.9 -15.4 -16.4 Current Account O CA 25.2 -122.6 -294.5 -770.5 -964.4 -808.7 -701.9 -591.3 Official Capital Grants CKGRANT 59.1 S3.9 82.0 87.0 92.0 95.5 99.0 102.5 LT Capital Inflowe D KINFLOW -194.9 104.9 108.2 588.3 798.5 611.1 467.8 316.2 Total Other Items DOTNER 188.6 -43.7 200.1 152.9 130.3 157.4 189.1 225.5 Net IMF Credit D ONFCREDI -85.0 *40.0 -23.0 -8.0 0.0 0.0 0.0 0.0 Change In Gross Reserves CI DTRES 7.0 47.5 -72.8 -49.7 *56.4 -55.2 *54.0 -52.8 INTERNATIONAL RESERVES AND ODET: Stock of Gross Reserves (USS Mn) DFRES 295.2 244.7 316.0 365.5 421.7 476.6 530.3 582.7 Totel Externat Debt tUSS Mn) OFOEST TOT 2670.6 2728.0 2812.8 3401.8 4179.9 4737.2 5129.1 5355.4 Net Reserves (month" Isports) FRESIMN 1.8 1.4 1.7 1.6 1.6 1.8 1.9 2.0 Total External Debt/GDP Ratio DEETGOP 0.487 0.493 0.484 0.545 0.621 0.652 0.653 0.629 - 43 TABLE 5.2 KEY MACROECONOMIC INOICATORS TAULE ZIMPAIWE STRONG OIL SHOCK SCENARIO FORE M SAVING CONSTRAINT SIMULATION RESULTS, 1988-1995 1988 1989 1990 1991 1992 1993 1994 1995 REAL GRWTH RATES: GOP CH KGOP 0.066 0.049 0.027 0.001 0.007 0.024 0.030 0.036 Inv"tment CH KFt 0.053 0.263 *0.091 -0.343 -0.172 0.278 0.190 0.179 Exports CH KEXP 0.018 0.045 0.028 0.008 0.012 0.026 0.030 0.035 GDP Per Capita CH KGDPPOP 0.035 0.020 -0.001 -0.025 -0.019 -0.002 0.003 0.011 Conswution per Capita CH_.CPPOP 0.O0? 0.014 -0.004 -0.032 -0.019 0.003 0.008 0.015 ICOR: ICOR 1.78 2.35 5.10 82.50 11.53 2.75 2.80 2.66 AGGREGATE DEMAND COMPOSITION: (" share of GOP) Resource talance REStALGOP 0.037 0.014 .0.014 *0.012 -0.008 -0.010 *0.013 -0.016 Exports EXPGOP 0.312 0.338 0.362 0.380 0.384 0.377 0.370 0.364 Inports IMPGDP 0.275 0.324 0.377 0.391 0.392 0.387 0.383 0.380 Total Consumption C TOTGOP 0.747 0.750 0.765 0.792 0.798 0.784 0.772 0.763 Private Consumption CPGOP 0.517 0.520 0.530 0.547 0.552 0.543 0.536 0.530 Public Consumption CGGOP 0.230 0.231 0.235 0.245 0.246 0.241 0.237 0.233 Gross Fixed Capital Investment FIGOP 0.180 0.226 0.208 0.140 0.115 0.142 0.162 0.182 Private Invest FIPGOP 0.090 0.126 0.105 0.032 0.006 0.036 0.058 0.080 Pubtic Invest FIGGOP 0.089 0.100 0.104 0.108 0.109 0.106 0.104 0.103 Charne in Stocks CHSTKGOP 0.036 0.010 0.041 0.080 0.095 0.085 0.079 0.071 Foreign Saving CAGOP -0.004 0.021 0.049 0.050 0.046 0.046 0.047 0.048 National Saving qNATGDP 0.220 0.215 0.199 0.170 0.164 0.180 0.193 0.205 Private Saving SPGOP 0.219 0.211 0.196 0.161 0.147 0.159 0.167 0.174 Public Saving SGGOP 0.001 0.003 0.004 0.009 0.017 0.022 0.027 0.031 Marginal National Saving MNSR NA 0.105 -0.718 27.350 -0.821 0.863 0.655 0.554 PUBLIC DEFICIT: (as share of GOP) Total Public DEF PUBGDP 0.088 0.097 0.100 O.0 0.C092 0.084 0.078 0.072 Buogetary Gov't DEFBUDGDP 0.059 0.068 0.070 0.068 0.062 0.056 0.051 0.047 Other Public DEF_OTHCGDP 0.028 0.029 0.030 0.031 0.030 0.028 0.027 0.025 PRICES AND INTEREST RATES: Nominal Avg Exchange Rate EE 1.806 2.113 2.470 2.600 2.737 2.881 3.033 3.192 Real E-rate Index ('88:100) RER 100.000 91.697 74.681 60.701 57.596 64.014 69.150 74.139 Inflation INFL 0.119 0.127 0.139 0.057 0.092 0.124 0.120 0.117 Nom. Deposit Rate IWIN 0.083 0.086 0.088 0.088 0.089 0.091 0.093 0.096 Real Loan Rate (ex-post) LOANRATE 0.010 0.002 -0.008 0.070 0.036 0.005 0.007 0.007 Man. Public Debt interest Rate fBB 0.133 0.132 0.132 0.134 0.134 0.133 0.131 0.128 MONEY AND DOMESttC DEBT: (as share of GOP) Monetary Base STK MONGDP 0.077 0.077 0.078 0.084 0.087 0.087 0.086 0.085 Ml STKN11DP 0.151 0.151 0.154 0.165 0.172 0.170 0.169 0.167 Ouasi Money STK QMGDP 0.175 0.175 0.179 0.192 0.199 0.197 0.196 0.193 Damestic Debt STK_SGDP 0.474 0.469 0.481 0.528 0.546 0.534 0.517 0.495 BALANCE OF PAYMENTS: (US S Million) Resource Balance D RESSAL 218.2 84.6 -83.9 -69.1 -49.1 -71.9 -99.1 -130.2 Net Foreign Factor Incom D NFY -198.0 -188.9 -197.5 -214.2 -222.7 -231.7 -240.8 -250.3 tramfers D TRANS 5.0 -18.3 -13.1 -13.8 -14.4 -14.9 -15.4 -16.4 Current Account D CA 25.2 *122.6 -294.5 -297.1 -286.2 -318.4 -355.3 -396.9 Official Capital Grants D KGRANT 59.1 53.9 82.0 87.0 92.0 95.5 99.0 102.5 LT Capitat Inflows D KINFLOW -194.9 104.9 108.2 114.9 120.3 120.8 121.2 121.7 Total Other Items DOTHER 18a.6 -43.7 200.1 152.9 130.3 157.4 189.1 225.5 Net IMf Credit D IMFCREDIT -85.0 -40.0 -23.0 -8.0 0.0 0.0 0.0 0.0 Change In Gross Reserves CF_DFRES 7.0 47.5 -72.8 -49.7 -56.4 -55.2 -54.0 -52.8 INTERNATIONAL RESERVES ANO DEBT: Stock of Gross Reserves (USS Mn) OFRES 295.2 244.7 316.0 365.5 421.7 476.6 530.3 582.7 Total External Debt CUSS Mn) OFOESt TOT 2670.6 2728.0 2812.8 2928.4 3052.0 3175.4 3298.8 3422.2 Net Reserves (months imports) FRESIMP 1.8 1.4 1.7 1.9 2.1 2.2 2.3 2.3 Total External Debt/GOP Ratio DESTGDP 0.487 0.493 0.484 0.501 0.500 0.476 0.451 0.426 Figure 5.1 BASE AND STRONG OIL SHOCK SCENARIOS GDP Growth With and Without Foreign Saving Constraint 0.07 i --Base Scenario 0.06 +-4 Shock w/o For Const \- °Shock w/ For Const 0.06 L 0.04 0.03 - 0.02- 0.01 1988 1989 1990 1991 1992 1993 1994 1995 Figure 5.2 BASE AND STRONG OIL SHOCK SCENARIOS Real Exchange Rate Index (1988 = 100) With and Without Foreign Saving Constraint 100 3_ \ - Base Scenario 90 _Shock w/o For Const 90 - Shock w/ For Const 80 \, 80~~~~~~~~~~~~~~~~~~~~ 70- 60- 50 , I , , , 1988 1989 1990 1991 1992 1993 1994 1995 - 51 - must contribute to the domestic adjustment, substituting for the lack of foreign lending. While public investment remains relatively constant, private investment declines precipitously. In the base case scenario, private investment in 1991 was approximately 11.4X of GDP. Under the strong oil shock scenario with constrained foreign resources, private investment falls to only 3.2% of GDP in 1991 and even further in 1992. Consequently, the net effect is a deep recession with almost no real GDP growth in 1991 and only 0.7% growth in 1992. Furthermore, because of the reduction in investment, future growth is hampered and although oil prices decline at the end of the simulation horizon, GDP growth never returns to the base case levels. Figures 5.1 and 5.2 present the evolution of GDP growth and the real exchange rate for the three scenarios during 1988-95. 5.2 Fiscal Adiustment Scenario Zimbabwe's authorities have announced their intention to engage in substantial fiscal stabilization over the following years, which is required for both macroeconomic stabilization and private sector expenditure recovery objectives. In accordance with this announcement, here we consider a fiscal policy adjustment involving both the budgetary government and the public enterprises (or the other public sector). Budgetary adjustment will rely in our simulation exclusively on a decline in government consumption, which will gradually decline from the 23-24% of GDP level in 1991-95 in the no-fiscal adjustment base scenario, to 23.5%, starting ir. 1991, falling to 22.7% of GDP in 1995 in the fiscal adjustment scenario. Public enterprise adjustment will involve an increase in their operating aurplus (DRS), a result of a fiscal reform promoting higher efficiency levels in public-owned firms. DRS is flat and close to zero in the base scenario; here we project a gradual increase over time, starting with a level of 0.4% of GDP in 1991 to reach a 2.7% of GDP in 1995. Higher operating surpluses can be achieved either by increasing production for a given level of factor use, or by cutting - 52 - wages or employment without affecting production levels, or, more realistically, by any combination of the two previous alternatives. Here we assume conservatively that all efficiency gains will rely on cutting employment or wages. This implies that CDP will not increase directly by this measure, and hence the higher operating surplus is simply displacing privete sector income. With regard to the foreign saving closure, we simulate only the case of a binding foreign resource constraint, as fiscal adjustment liberalizes domestic resources, which we don't want to be used in paying back foreign debt." Table 5.3 presents the macroeconomic outcome of the fiscal stabilization program. Short-run GDP growth is marginally below the base-case projection due to the contractionary effect of reduced fiscal spending. The real exchange rate remains almost unaltered and the balance of payments remains identical to the base scenario results in table 4.1, the latter due to the unchanged foreign resource constraint. The increase in budgetary saving has a positive effect on private consumption due to the direct crowding out effect of public sector eaving on private saving, reflected by the private consumption function. In addition the higher other public sector saving, resulting from increased DRS, has also the same direct positive effect on private consumption. However, the latter is partially offset by the effect of lower private disposable income, which falls with the higher public enterprise operating surplus. The combined result of the three effects on private consumption is positive; however, the decline in constant-price public (budgetary) consumption is less than compensated by higher constant-price private consumption." 12 As in the base scenario, the adjusting aggregate demand variable under the binding foreign saving constraint is budgetary fixed-capital investment, i.e. we have returned to closure rule 2.1 of teble 3.3. " This is a combined result of the coefficients of the private consumption function (see line 5 table 2.3), and the magnitude of the fiscal adjustment: public consumption galls by 1.4 percentage points of GDP by 1995 and DRS increases by 2.6 percentage points of GDP. However, current-price private consumption increases by more than constant-price consumption, due to the decline in the GDP deflator, in absolute terms, relative to the private consumption deflator. 53 - TABLE 5.3 KEY NACROECONOMIC INDICATORS TABLE FISCAL ADJUSTMENT SCENARIO FOREIGN SAVING CONSTRAINT SIMULATION RESULTS. 1988-1995 1988 1989 1990 1991 1992 193 1994 1995 REAL GROWTH RATES: GOP CHIKGCP 0.066 0.049 0.027 0.030 0.034 0.036 0.037 0.036 Investmnt CH KFI 0.053 0.263 *0.091 0.084 0.06S 0.055 0.051 0.052 Exports CN KEXP 0.018 0.045 0.028 0.030 0.033 0.035 0.035 0.035 GOP Per Capita CH KGOPPOP 0.035 0.020 -0.001 0.003 0.007 0.010 0.011 0.011 Cons4uption per Capita Ck_CPPOP 0.017 0.014 -0.004 0.004 0.010 0.018 0.018 0.019 ICOR: ICOl 1.78 2.35 5.10 4.11 3.79 3.69 3.67 3.79 AGGREGATE DEKAND COMPOSITION: (as share of GDP) Resource Balance RESUALGDP 0.03? 0.014 -0.014 .0.011 -0.0O7 -0.010 -0.013 -0.015 Exports EXPGOP 0.312 0.338 0.362 0.370 0.374 0.374 0.375 0.378 laports tIMPGDP 0.275 0.324 0.377 0.381 0.381 0.384 0.388 0.393 Total Consumption C TOTGOP 0.747 0 750 0.765 0.777 0.785 0.787 0.791 0.798 Private Consumption CFGDP 0.517 0.520 0.530 0.542 0.550 0.555 0.562 0.571 Public Consumption CGGDP 0.230 0.231 0.235 0.235 0.235 0.232 0.230 0.227 Gross Fixed Capital Investment FtGOP 0.180 0.226 0.208 0.224 0.233 0.238 0.243 0.248 Private Invest FIPGDP 0.090 0.126 0.105 0.116 0.124 0.130 0.136 0.146 PubLic Invest FIGGDP 0.089 0.100 0.104 0.108 0.109 0.109 0.106 0.102 Change In Stocks CHSTKGDP 0.036 0.010 0.041 0.011 -0.010 -0.015 -0.021 -0.031 Foreign Saving CAGDP *0.004 0.021 0.049 0.047 0.043 0.044 0.045 0.047 National Saving SNATGDP 0.220 0.215 0.199 0.187 0.180 0.179 0.176 0.171 Private Saving SPGDP 0.219 0.211 0.196 0.174 0.157 0.144 0.126 0.101 Public Saving SGGOP 0.001 0.003 0.004 0.013 0.023 0.0L5 0.050 0.070 Marginal National Savirg MNSR MA 0.105 -0.718 -0.190 0.008 0.134 0.091 0.013 PUBLIC DEFICIT: (as share of GDP) Totat Public DEF_PUBGOP 0.088 0.097 0.100 0.095 0.086 0.073 0.056 0.032 Budgetary Gov't DEFStGDCP 0.059 0.068 0.070 0.071 0.068 0.064 0.056 0.042 Other Public DEF_0THMGDP 0.028 0.029 0.030 0.024 0.018 0.010 0.000 *0.010 PRICES AND INTEREST RATES: Nominal Avg Exchange Rate EE 1.8D6 2.113 2.470 2.600 2.737 2.881 3.033 3.192 Real E-rate Index ('88s100) RER 100.000 91.697 74.681 74.598 75.129 74.904 74.563 73.971 !nflation INFL 0.119 0.127 0.139 0.078 0.087 0.097 0.095 0.092 Rom. Deposit Rate 1law1 0.03 0.086 0.088 0.091 0.093 0.096 0.099 0.101 Real Loan Rate (ex-post) LOANRATE c i10 0.002 *0.008 0.049 0.040 0.029 0.026 0.021 Nom. Public Debt Interest Rate lBS 0.133 0.132 0.132 0.134 0.134 0.132 0.127 0.117 MONEY AND DOMESTIC DEBT: (as share of GOP) Monetary Base STK MONGDP 0.077 0.077 0.078 0.080 0.082 0.082 0.082 0.083 ml STKIM1GCP 0.151 0.151 0.154 0.158 0.160 0.161 0.162 0.163 Quasi money STK_qNGDP 0.175 0.175 0.179 0.183 0.186 0.186 0.188 0.190 Domestic Debt STK_BGDP 0.474 0.469 0.481 0.504 0.510 0.499 0.471 0.424 BALANCE OF PAYMENTS: (US S Million) Resource Balance D RESBAL 218.2 84.6 -83.9 -69.1 *49.1 -71.9 -99.1 -130.2 Not Foreign Factor Income D NFY -198.0 -188.9 -197.5 *214.2 -222.7 -231.7 -240.8 *250.3 Tranfers D:TRANS 5.0 -18.3 -13.1 -13.8 -14.4 -14.9 *15.4 -16.4 Current Account 0 CA 25.2 -122.6 -294.5 *297.1 -286.2 -318.4 -355.3 -396.9 Official Capital Grants DOIKGRANT 59.1 53.9 82.0 87.0 92.0 95.5 99.0 102.5 LT Capital Inflows D KINFLOWi *194.9 104.9 108.2 114.9 120.3 120.8 121.2 121.7 Total Other Item D OTNER 1U8.6 -43.? 200.1 152.9 130.3 157.4 189.1 225.5 Net IMF Credit D IMFCREDIT -85.0 *40.0 -23.0 -8.0 0.0 0.0 0.0 0.0 Change in Gross Reserve* C_DFRES 7.0 47.5 -72.8 49.7 -56.4 -55.2 *54.0 -52.8 INTERNATIONAL RESERVES AND DEBT: Stock of Gross Reserves (USS Mn) OFRES 295.2 244.7 316.0 365.5 421.7 476.6 530.3 582.7 Total External Debt (USS IM) OFOEIT TOT 2670.6 2728.0 2812.8 2928.4 3052.0 3175.4 3298.8 3422.2 Net Reserves (months imports) FRESIMP 1.8 1.4 1.7 1.9 2.0 2.1 2.2 2.2 Total External Debt/GDP Ratio DESTGDP 0.487 0.493 0.484 0.478 0.466 0.449 0.433 0.418 - 54 - There are significant effects of fiscal stabilization on public domestic financing needs, public debt, and domestic interest rates. The decline in the deficit reduces strongly the need of domestic debt financing, allowing a massive decline in the ratio of consolidated domeetic public debt to GDP. In the short run, the public deficit declines from 9.5Z of GDP in 1991 to 8.6S in 1992 -- already lower than the base case deficits of around 10.5-10.8 percentage points of GDP. However, the debt/CDP ratio still continues to increase from 50.4: in 1991 to 512 of GDP in 1992. In 1993 however, the deficit falls to 7.32 and the debt/GDP ratio starts to fall accordingly, to 49.92. Hence the intensifying 1991-93 fiscal stabilization is enough to put Zimbabwe's debt on a sustainable path,'4 avoiding the gradual explosion of debt and interest rates of the base scenario. The magnitude of the deficit which comes out as sustainable in these simulations -- around 82 of GDP -- is precisely consistent with the calculations of sustainable deficits for Zimbabwe in Schmidt-Hebbel (1990). Although sustainability of domestic debt paths is already achieved by the 1993 stabilization, it is still far from enough for achieving an acceptable recovery of private sector spending -- for that reason we simulate a deeper stabilization continuing throughout 1994-95. This allows a reduction of the 1995 ratio of total domestic debt to GDP from 60.5Z under the base scenario to 42.42 as a result of fiscal stabilization -- a massive debt reduction which allows 1995 interest rates on public debt to decline from 14.92 in the base case to 11.72 in the fiscal adjustment scenario. Figure 5.3 reports the 1988-95 trajectories of domestic public debt/GDP ratios and the corresponding interest rates under both scenarios. The final effect of fiscal stabilization on public deficits exceeds the " Sustainability is defined according to the steady-state concept of maintaining constant the ratio between a given liability to GDP (domestic public debt in this case), for given trajectories of other liabilities (constant monetary base and declining external debt to GDP ratios for 1991-95, in our case). - 55 - initial budgetary expenditure-cutting and public enterprise revenue-enhancing measures, as the decline in domestic public debt stocks and its interest rates constitutes an additional boost to public sector saving. Hence the total effect on the consolidated public deficit is to reduce it by 1995 from 11.62 of GDP in the base case to 3.22 in the fiscal adjustment scenario. The budgetary government contributes. 4.1 percentage points of GDP and the other public sector adds 4.3 percentage points to this decline. In 1991, the budgetary goverrnment ends up with a more modest 4.22 deficit, while the other public sector is able to generate a surplus of 1.01 of GDP. One final word on investment and growth is in order. Our simulations show a slight decline in GDP growth over the 1991-95 projection horizon, reflecting the contractionary effects of lower public consumption. However, lower real interest rates spur private fixed-capital investment, raising the share of total gross fixed capital investment in 1995 from 23.32 of GDP in the base scenario to 24.82 under fiscal adjustment. This has positive implications for long-term growth prospects beyond 1995, not reflected by our medium-term simulation horizon. Figure 5.3 BASE AND FISCAL ADJUSTMENT SCENARIOS Debt/GDP and Debt Interest Rates Interest Debt/GDP Rate 70% - 15% 65%~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,, -- 65%- + ---- - ~~~~~~~14% 6 0 % --------- .+ ~--- ------------- ............... 13% 55% 12% 50% 45% ~~~~~~~~~~~~11% 40%- 10% 1988 1989 1990 1991 1992 1993 1994 1995 Base: Debt/GDP --+-- Base: Nom. Int. 9 Adjust: Debt/GDP ---> -- Adjust: Nom. Int. - 57 - 6. CONCLUSIONS This paper has developed and applied a macroeconomic general equilibrium model for Zimbabwe. Its use illustrates the strength and versatility of a general equilibrium framework which relies on the interaction of an estimated behavioral structure and budget constraints (or flow-of-funds equations) for a sensible sector disaggregation. Three scenarios were simulated with our model. The first or base scenario assumes an increasing relaxation of the foreign resource constraint and a mild and transitory oil shock, while domestic policies and structural features of the Zimbabwean economy remain unaltered. The implications for both stabilization objectives and growth prospects of this "business as usual" scenario are serious. Fiscal deficits are unaustainably high, implying increasing domestic debt and interest rates and depressed private expenditure levels. Even more serious, low fixed investment levels are the main cause of modest growth. Fiscal stabilization and structural reforms removing distortions in trade and financial markets are required to ensure macroeconomic stability and higher capital formation, which are prerequisites for achieving higher future growth and a decline in unemployment. The second scenario assumes a more intense and extended oil shock throughout 1991-92. Its effects on the oil-dependent Zimbabwean economy are significant: growth declines, inflation rises, the real exchange depreciates (by an amount depending on the availability of foreign finance required to accommodate part of the oil shock), and private investment suffers. The third scenario simulates a gradual but deep fiscal reform, relying on a combination of budgetary current expenditure cuts and an increase in the operating surplus of public enterprises. Reducing the consolidated public sector deficit over 1991-95 has major benefits for macroeconomic stability and long-term growth prospects in Zimbabwe. The domestic debt to GDP ratio starts to decline, allowing domestic real interest rates to fall, which reinforces the initial - 58 - fiscal adjustment and spurs private investment. Although the fiscal adjustment is slightly contractionary in the short-run, long-term GDP growth benefits from higher private capital formation. Future work on macroeconomic adjustment in Zimbabwe should address the effects of trade reform and other structural changes, which are major policy imperatives for achieving higher growth rates. This would require amendments and extensions of the macroeconomic model structure, discussed in more detail in Appendix 5. - 59 - REFERENCES Central Statistical Office of Zimbabwe: National Accounts, various issues. Elbadawi, I. and K. Schmidt-Hebbel (1991): "Macroeconomic Structure and Policy in Zimbabwe: An Analysis with an Empirical Macroeconomic Model (1985-88)", manuscript, The World Bank, Washington, D.C., February. Host-Madsen, P. (1979): Macroeconomic Accounts: An Overview. IMF, Washington, D.C. Khadr., A., L. McKay, K. Schmidt-Hebbel and J. Ventura (1989): "A RMSM-X Model for Zimbabwe", manuscript, The World Bank, Washington, D.C., November. International Monetary Fund: International Financial Statistics, various issues. Ministry of Finance of Zimbabwe: Financial Statements, various issues. Morande, F. and K. Schmidt-Hebbel (1991): "Macroeconomics of the Public Sector Deficit: The Case of Zimbabwe", PRE Workina Paper, forthcoming, The World Bank, Washington, D.C. Reserve Bank of Zimbabwe: Ouarterly Economic and Statistical Review, various issues. Schmidt-Hebbel, K. (1990): "Zimbabwe: The Need for Fiscal Adjustment", manuscript, The World Bank, Washington, D.C. Ventura, J. (1990): "RMSM-X: An Exposition", manuscript, The World Bank, Washington, D.C., November. Walton,M. (1988): PUBFIN2.WK1 (Lotus File), The World Bank, Washington, D.C. World Bank (1991): "The RMSM-X Notebook", manuscriRt, The World Bank, Washington, D.C., January. World Bank (1990a): World Debt Tables 1990-91: External Debt of Developing Countries, The World Bank, Washington, D.C. World Bank (1990b): "Zimbabwe Country Strategy Paper", manuscript, Washington, D.C., September. - 60 - APENIX1: ADDITIONAL EQUATIONS This appendix spells out further equations of the model discussed but not presented in Section 2. A. BUDGET CONSTRAINTS Interest Payments The equations for interest payments on domestic-currency assets and liabilities are the following: (3. 1) Nob = ioSLbo. -1 (A3. 2) Nbcb icbb SLcbb, -I (A3.3) Nbbv = ib8b SLbab,. (A3.4) Nbp = pb SLpb, - (A3. 5) No=b ib,o SLcho -1 (A3.6) Nob ibsa SLbo. -1. (A3.7) N0p 2 ipo SLpo, A3. 8 ) Nbjeb = iCbbgr SLcbbe,. - (A3.9) Npb -cbp SLcbp. -1 (A3.10) NRes = iRes SRes-1 (A3. 11) NNOLcb = 1iLcb SNOLcb, -1 (A3.12) Npbe = 'bsp SLbsp, -1 (A3. 13) NOM = i OSQM.. (A3. 14) NNOLbv = limb. SNOLbg.- The equations for interest puyments in domestic currency units of foreign- currency assets and liabilities are the following: - 61 - (A3.15) Nbf = ifb E!1 SLfb.- (A3.16) Nof= ifo E!j SLfO,- (A3.17) NFAcb = iFAcb Ell SFACb,1 (A3.18) NFLCb = 1F,cb Ell SFLcb, (A3.19) NIMF = iv E- SIM-', (A3.20) NFAb,, = FAb Ell SFA-o,-. (A3.21) NFLbs = iFLbS E 1 SFLb,,-l (A3.22) Nfp = i p E!' SLfp.1 (A3.23) NSpf = izf EJ'1 SLSf;p... (A3.24) NKnei = i,me E!j SKnei- Asset Accumulation Equations End-of-period domestic-currency assets and l'abilities increase over time by the following simple accumulation equations: (B1. 1) Lb= SLbo - SLbo._ (Bl.2) Lbsb = SLbsb - SLbsb,l (B1. 3) LbUo = SLbso - SLbso, -I (B1. 4) Lbsp = SLbsp - SLb,p. -1 (B1. 5) Lc=b SLcbb - SLbb, -I (B1.6) Lchb- SLcbb SLcbs.- (B1. 7) Lebo = SLcbo - SLcbo, -1 (B1. 8) LCbp = SLcbp -SL - 62 - (Bl.9) Lpb SLpb -SLpb*-l (Bl.10) L,o SLPO -SLpo,-l (Bl.11) NOLbM - SNOLbI - SNOLba..l (Bl.12) NOLab = SNOLCb - SNOLCb,-I (B1.13) Res * SRes - SRES- (51.14) Cu SCu - SCU. (B1.15) Ml - SMi - SM-l (B1.16) QM * SQM - SOQM End-of-period domestic currency values of foreign-currency denominated assets and liabilities increase by the following equations: (Bl.17) SLfb s SLtb, * + Lt + Rfb (Bl.18) SLtO SLfO..1 + Lfo + RLto (Bl.19) SFLQJ * SFLeb, -l + FL0b + RFLdb (Bl.20) SFLb. = SFLb, 1 + FLbs + RFLbS (Bl.21) SLfp = SLfp, - + Lfp + RLfp (B1.22) SLSfp = SLSp -1 + LSfp + RLStp (Bl.23) SKnei = SKnei-L + Knei + RKnei (B1.24) SIMF = SIMF..1 + IMF + RIMF (B1.25) SFAc - SFAcb, 1 + FAcb + RFAcb (B1.26) SFAb, p SFAh,-, + FAbI + RFAb, - 63 - where the capital gains (or losses) due to exchange rate devaluations are defined ant (B1.27) RL,b E (SL;b - SL;b,1) E I + (E-1 SL;b,) t-] EO (B1. 28) RL,0 = E (SLro - SLro ) .. EC ] E!1 Sfwl (B1. 29) RFLcb =E (SFLCqb - SFLCb, -1) [ E + (E.!, SFLcb, -1) E-', (B1.20) RFLb = E(SFL;b - SFLb. -l) E -E- + (E-E (- (E! SFL;Cb.1) l (B1. 31) RL,p = E(SL,p - SLfp, 1) I E3E + (E, SL;p, SL) I [ fp ~~~~E E-ą!,1 (B. 32) RLS = E(SLS,p - SLSp,.) EE] + E!1 SLS;p,_l) I - tp ~~~~~E E! (Bl.33) RKnei E(SKnei - SKnei*j.) [E E] + (E! SKnei.) [EE E (Bl. 34) RIMF = E (SIMF - SIMFz1) [ 3EE + (E,. SIMF*) [ E ], E E6 (B1. 35) RFACb = E (SFACb - SFAbE ) [EE] + (E!1 SFAcb,l) [E-1 (B1. 36) RFAbs = E(SFAb, - SFA;s. -1) 1EE I + (E!1 SFA;9,p,1) E-] - 64 - B. MARKET EQUILIBRIUW CONDITIONS AND BEHAVIORAL STRUCTURE Assets Markets Behavioral Structural Interest rates i., iW and ib.p constitute the anchors for all remaining interest rates, linked to any one of the former by their actual 1988 relation: (B3.3) icbb (Ucbb,81/A,,88)i = (0.1286/0.1330)iB (B3.4) 'bob = ("bob,e8/188B)' = (0.1286/0.1330)iB (B3.5) ipb = (jpb,9/11,88)is , ' (0.1286/0.1330)1B (B3.6) ibo (bo988/1B,88) 'B = (0.1003/0.1330)iB (B3.7) ' CbO (=CbO,881 B,88) 'D = (0.1286/0. 1330)iB (B3.8) 'boo = (ibsO,88/1B,8) iB = (0.1286/0.1330)ig (B3.9) ipo = (ipoj,88iB,88)iB = (0.1286/0.1330)1B (B3.10) icbp (icbp9sSIbgp,88ibbp = (0.13/0.13)ibsp (B3.11) 'wLcb = vLcb 8/,Q.im )dia = (0.1000/0.0825)1O (B3.12) iWLbs = NOLbs,88/imedio = (0.1000/0.0825)io Aggregate Demand Components Further equations for aggregates of aggregate demand components are the following: (B5. 18) cb = domcb + 1MPCb (B5.19) C Cb + Cp (BS.20) fib = domfib + lmpfib (B5.21) fio = domfi0 + impEio (BS.22) ff = fb + fio + fip (B5.23) impC = 1mpRb + Impop - 65 - (B5.24) impfi = impfib + impfEl + impfip (B5.25) imp = impc + impfi + mint (B5.26) domc c C - impc (B5.27) domfil = fi - impfi Goods Prices Law-of-one-price equations are introduced for the following export and import prices: (B6.2) Pexp - E PAxp (B6.3) Pzcp= E Pp (1 + ta.rp) (BS. 4) Pzp'cb E PLwb (1 + taxm,,b) (6. 5) P ip = E P;,1p (1 + tazw1p) (B6. 6) PZIpib = EPZmb (1 + tarwpii) (B6.7) ZrfpIe = E P;pi, (1 + tazwi0) (6. 8) P,Inlt = E P;Int (1 + tamifnt) Domestic goods prices are determined by the following projection rules: (B6. 9) PDomcb P Domcb,-1 (1 + grPoDmcb) (B6. 10) PDomip = oomip, (1 + *rpD> 0.1000 ifp 0.0500 iFLbs 0.0700 ilOLeb 0.1000 iLSfp 0.1000 ifp 0.0500 .NOLbt. 0.1000 iifl*, 0.1000 itLS P 0.1000 iX8, 0.0100 in1 0.0700 Note: Most interest rates are linked to i, except two (iNoLcb and iNoLbS), which are linked to i.. Both i,, aM3 i., are determined endcgenously by the asset market behavioral equations. The relationship between the specific interest rates is simply the ratio of the 1988 values. For example, ibep.t - (ib*p,38/iSS6id*iBsIt. - 81 - APPENDIX 3: BASE SCENARIO: 1988-95 PROJECTION OF EXOGENOUS VARIABLES There are two groups of exogenous variables projected outside the model. The first group are those variables associated with the behavioral section of the model. The second consists of variables related to the flow-of-funds budget constraints. Following is a brief discussion of the way in which they were projected for the Base Case Scenario. The actual figures are listed in the following tables A3.1 and A3.2. Behavioral Section Most nominal stock variables are projected to increase with real GDP and GDP price deflator growth which were determined via a preliminary run of the behavioral model. Variables projected this way include SH, SB, SMI, SQM, and sp5? Real wages, WI, are projected to initially decline and then increase at the end of the simulation period. From 1989 to 1991 nominal wage increases are projected to lag price increases by approximately 3, 2, and 1 percentage points respectively. In 1992 the nominal wage increase just matches inflation, and thereafter increases fastet than inflation responding to trend productivity growth of apprcximately 0.82 per year. The nominal average, exchange rate uses historical values for 1988 through 1990, after which it is projected following a purchasing power parity rule. Real exog .ous variables are projected to increase with real GDP growth. These include chstk and pro. The growth of most exogenous domestic prices is held constant at 102 annually while exogenous foreign price growth is set to 4.52 per year. Domestic prices projected this way include P. PD.bw PGcCP' PofLb9 P>fj09 and Pf P. Foreign prices projected in this manner include Pt.pq Pl peb' Pl.ptfbt Plapftot Pl pftp$ and P1,pp. PNL.t is the exception to this rule since the base case oil shock is introduced through this variable, which is projected to increase by 34S in 1990, 102 in 1991 and 1992, and 4.5% in 1993-95. All tariffs are held to 52 across the - 82 - entire simulation period. Budget Constraint Section Many exogenous variables are projected to increase with nominal GDP growth. These include stocks such as: SCu, SDD, SPA, SLb., SLb.,b SLb.b, SLb1, SLebb, SLebb,, SLf, SLb, SL,, SLp, SL,p, SM1, SNO4.,, SNOLCb, SNOL., SQM, SRes. In addition other variables projected this way include TbO, TbS, Tfp, Td, T1, DRS, Yfp and OthR. The projection for many other variables is calculated from projections in the World Bank standard attachments. Dollar denominated foreign stocks were calculated using flows. These variables include SFAb.,, SFAb, SFLI., SFLkb, SIMF, SKnei, SLfb, SLf., SLfp, and SLSfp. If a sectoral breakdown was not available, we assumed that the composition of the available aggregate flow value remained unchanged from the 1988 breakdown. Values are converted to local Zimbabwe $ values with the average period exchange rate. Other variables taken from World Bank standard tables include: KOGb, KOG0, KOGp, ProfRemit, and DFI. Some variables are held constant at their 1988 levels such as exogenous foreign interest rates, SMI and SQM multipliers, and the reserve ratio. Finally, two variables, EO and Residb. were taken from values resulting from previous calibration runs of the model. TABLE A3.1 ZIMBABWE BASE SCENARIO 1988 - 1995 PROJECTION OF EXOGENOUS VARIABLES (Behaviorat Model) Price Growth: 1.12 1.13 1.16 1.1 1.1 1.1 1.1 1.1 Real Growth: 1.065 1.05 1.027 1.035 1.037 1.037 . 1.0386 1.04 -H Historical -- TIME 1987 1988 1989 1990 1991 1992 1993 1994 1995 ASSUIPTIONS CT -7 *8 *9 -10 -11 -12 -13 -14 *15 tNFLFIP* 0 0.1866 0.1981 0.1 0.1 0.1 0.1 0.1 0.1 Forward tooking expectations K CHGSTK 260 277.3 291.16 314.00 331.35 343.61 356.32 370.08 384.88 5X in 89 K PRO 1330.237 1512.300 1587.92 1630.79 1687.87 .r50.32 1815.08 18US.14 1960.55 5X in 89 YFN 4084.296 4255.836 4383.51 4515.02 4650.47 4760.98 '933.68 5081.69 5234.14 3.0X wnAul growth STK N 669.1 843.4 1000.69 1192.15 1357.26 1548.23 1766.06 2017.65 2308.20 (1.13)*(1.049) growth in 1989 STK * 4146 5050 5991.83 7138.18 8126.82 9270.26 10574.59 12081.04 13820.71 (1.16)*C1. 35) in 1990 STK N1 1224.6 1602.700 1901.dc 2265.42 2579.18 2942.07 3356.02 3834.12 4386.23 (1.1)-CDP growth after STK GM 1619.6 1859.8 2206.65 2628.83 2992.92 3414.03 3894.38 4449.17 5089.85 SPG 323.9326 580.6734 688.97 820.78 934.46 1065.94 1215.92 1389.14 1589.17 WI 2.298253 2.571139 2.826149 3.218727 3.508412 3.859253 4.278121 4.7424S1 5.257178 (7T8.9.../l.l)*CP)-tU- l ) EE MIST 1.661599 1.805699 2.1130 2.4700 2.6000 2.7368 2.8809 3.0325 3.1921 5.26 growth tP'/P *] GRP 00CMB 0.071065 0.126184 0.13 0.16 0.10 0.10 0.10 0.10 0.10 10X growth in domestic prices GRPDCmCP 0.101909 0.086653 0.13 0.16 0.10 0.10 0.10 0.10 0.10 GRP DoNFIB 0.039047 0.344401 0.13 0.16 0.10 0.10. 0.10 0.10 0.10 CRP OGFIO 0.039047 0.344401 0.13 0.16 0.10 0.10 0.10 0.10 0.10 GRP OGFIP -0.31013 -0.17143 0.13 0.16 0.10 0.10 0.10 0.10 0.10 Fp TmPCP 1.1065 1.3450 1.4055 1.4687 1.5348 1.6039 1.6761 1.7515 1.8303 4.5X growth FP INPCS 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0 0000 a FP:IMPFIB 1.3539 1.5508 1.6206 1.6935 1.7697 1.8493 1.9326 2.0195 2.1104 N FPPINMPFO 1.3539 1.5508 1.6206 1.6935 1.7697 1.8493 1.9326 2.0195 2.1104 FP IMPFIP 1.3539 1.5508 1.6206 1.6935 1.7697 1.8493 1.9326 2.0195 2.1104 a FP INPINT 1.0941 1.2331 1.2886 1.7260 1.7454 1.7650 1.8445 1.9273 2.0142 IncLudes oit price shock (190 P:1.3394) FP EXPPI 1.2482 1.3448 1.4053 1.4686 1.5347 1.6037 1.6759 1.7513 1.830 PF 1.2341 1.3323 1.3922 1.4549 1.520. 1.5888 1.6603 1.7350 1.8130 n tF_IMPCB 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 5X Tariff rate TF INPCG 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 o.o5 n TF IMPFIG 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 TFQPCP 0 0.05 0.0S 0.05 0.05 0.05 0.05 0.05 0.05 TF IMPFIU 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 TF IMPFIO 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 TF INPFIP 0 0.05 0.05 0.05 0.0 0.05 0.05 0.05 0.05 n TF IMPINT 0 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 a D6588 1 1 0 0 0 0 0 0 0 08890 1 1 1 1 0 0 0 0 0 ALPHA 0 0 0.012 0.021 0.03 0.039 0.048 0.057 0.066 Productivity increases TABLE A3.2 ZIMBABIE BASE SCENARIO 1988-1995 PROJECTION OF EXOGENOUS VARIABLES (Budget Constraint Section) TI4E 1987 1988 1989 1990 1991 1992 1993 1994 1995 ASSLU4PTIONS & SOURCES Yearly Price Growth: 1.12 1.13 1.16 1.1 1.1 1.1 1.1 1.1 leal CDP Growth: 1.065 1.05 1.027 1.035 1.037 1.037 1.0386 1.04 Period Avg EE: 1.8057 2.1130 2.4700 2.6000 2.7369 2.8W8 3.0326 3.1922 5.26% growth EP'/P-^] COGb 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 COGo 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 COXp 0.0 0.0 0.0 0.0 0.0 0.0 0 0 0.0 DFl .50.7000 7.4000 10.4 20.3 38.7 55.6 59.9 64.4 69.2 USS (CSP) * EE (ours) DRS -23.1000 -27.4 -32.7 *37.2 -42.4 -48.4 -5'.3 -63.2 ORS grows with infLation"real growt 0DSFAbe 26.1000 28.2000 23.6875 30.6035 35.325 40.683 45.927 51.057 56.073 CSP (Line 1.2.) weighted by '88 sto D SFAcb 276.2000 267.1000 224.1125 289.9965 334.Y?5 386.017 435.973 484.843 532.627 CSP (liM 1.2.) weighted by 8as sto D SFLbs 61 .3000 62.4000 65.6 68.8 72 75.2 78.4 81.6 84.8 5s8 Sto:k Shr of S100 flow. D SFLcb 37.1000 29.0000 30.5 32 33.5 35 36.5 38 39.5 '88 Stock Shr uf $100 flow. DSINF 156.0000 71.0000 31 8 0 0 0 0 0 Sto:k plus flows D0SKnei 0.0000 0.0000 0 0 0 0 0 0 0CSP Knei a 0 D SLfb 1605.4000 1682.4000 1768.6 1854.8 1941 2027.2 2113.4 2199.6 2285.8 '88 Stcck Shr of 1OO flow. D-SLfo 340.7000 340.7000 340.7 340.7 340.7 340.7 340.7 340.7 340.7 Lfo * C by assumpt. (see -H-) DSLfp 446.5000 177.5000 186.6 195.7 204.8 213.9 223 232.1 241.2 '88 Stock Shr ot S100 flow. 0 53LSfp 266.0000 308.0000 333 358 383 408 433 458 483 '88 Stock plus flows Eeop 1.6631 1.9429 2.2763 2.5342 2.6676 2.8080 2.9!58 3.1113 3.2751 Eeop increases via PPP starting '91 EO 289.8106 -105.977 467.2228 363.677 328.2293 430.6884 557.0591 710.4052 from SIMX13 simluation. iFAbs 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.0.40 Constant: nominal vaLues iFAcb 0.040 0.040 0.040 0.040 0.040 0.040 0.040 0.040 Constant ifb 0.072 0.072 0.072 0.072 0.072 0.072 0.072 0.072 Constant iFLbs 0.070 0.070 0.070 0.07n 0.070 0.070 0.070 0.070 Constant iFLcb 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070 Constant ifo 0.072 0.072 0.072 0.072 0.072 0.072 o.o02 0.072 Constant Ifp 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050 Constant fIMF 0.070 0.070 0.070 0.070 0.070 0.070 0.070 0.070 Constant IKnei 0.100 0.100 0.100 0.100 0.100 0.100 0.100 0.100 Constant iLSfp 0.100 0.100 0.100 0.100 0.100 0.100 0.100 0.100 Constant Mies 0.0 0 .0 0.0 0.0 0.0 0.0 0.0 0.0 Constant KOGb 106.7000 113.9 202.5 226.2 251.8 275.1 300.2 327.2 CSP line F.I. NUSS)EE ag. KOGo 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 KOOp 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 uIttI 3. 1844 3.1844 3.1844 3.1844 3.1844 3.1844 3.1844 3.1844 constant aIttQ 3.6952 3.6952 3.6952 3.69.2 3.6952 3.6952 3.69s2 3.6952 constant OthR 958.5000 1137.3 1354.8 1542.5 1759.5 2007.1 2293.0 2623.2 (Inflation)*(Real growth) pop 0.031 0.03 0.029 0.028 0.027 0.C27 0.026 0.026 0.025 Annusl growth, ProfRemit 33.6000 39.9 47.5 54.1 61.7 70.4 80.4 92.0 e rr 0.0903 0.0903 0.0903 0.0903 0.0903 0.0903 0.0903 0.0903 constant sCu 389.3 503.3 597.2 711.4 809.9 923.9 1053.9 1204.0 1377.4 (Inflation)"(Real growth) So0 835.3 1099.4 1304.4 1554.0 1769.2 2018.2 2302.1 2630.1 3008.8 s SFAI S'.7 573.9 680.9 811.2 923.6 1053.5 1201.7 1372.9 1570.6 " SHROomFIb 0.026Z67 0.026 0.031 0.031 0.031 0.031 0.031 0.031 0.031 Proportion of total ShROoFlo 0.011148 0.011 0.011 0.011 0.011 0.011 0.011 0.011 0.011 SmR[TmpFib 0.002194 0.002 0.002 0.002 0.002 0.002 0.002 0.002 0.002 SHRImpFlo 0.018258 0.018 0.018 0.018 0.018 0.018 0.018 0.018 0.018 " SHRDOmCB 0.2828 0.2828 0.2828 0.2828 0.2828 0.2828 0.2828 0.2828 0.2828 " SLbo 1199.7 1357.8 1611.0 1919.3 2185.1 2492.5 2843.2 3248.2 3716.0 (Inflation)"(Real growth) SLbsb 388.7 572.9 679.7 809.8 922.0 1051.7 1199.6 1370.5 1567.9 " SLbso 659.3 721.4 855.9 1019.7 1160.9 1324.3 1510.6 1725.8 1974.3 I SLcbb 306.9 274.3 326.1 388.4 442.2 504.4 575.4 657.4 752.1 I SLcbbs -50.0000 -99.0000 -117.5 -139.9 -159.3 -181.7 -207.3 -236.8 -270.9 t SLfW 423.0 315.4 374.2 445.8 507.6 579.0 660.4 754.5 863.2 " SLmb 695.6 847.7 1005.8 1198.2 1364.2 1556.1 1775.1 2027.9 2320.0 " SLO 842.8 873.9 1036.9 1235.3 1406.3 1604.2 1829.9 2090.6 2391.7 " SLOp 1540.9 1868.7 2217.2 2641.4 3007.2 3430.4 3913.0 4470.5 5114.2 " SLpo 252.6 365.0 433.1 515.9 587.4 670.0 764.3 873.2 998.9 $"I 1224.6 1602.7 1901.6 2265.4 2579.2 2942.1 3356.0 3834.1 4386.2 SllOLb 364.2 549.0 651.4 776.0 883.5 1007.8 1149.6 1313.4 1502.5 SlOLcb -49.4 -162.7 -193.0 -230.0 -261.8 -2".9. -340.7 -389.2 -445.3 " SNOL 314.8 386.3 458.3 546.0 621.7 709.1 808.9 924.1 1057.2 * SoN 1619.6000 1859.8000 2206.7 2628.8 2992.9 3414.0 3894.4 4449.2 5089.9 SRES 238.7000 312.6000 370.9 441.9 503.1 573.8 654.6 747.8 855.5 SLAb 0.0 0.0 0.0 0.0 O.C 0.0 0.0 0.0 W1oo 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 tbo 469.8000 557.4 664.1 756.0 862.4 983.8 1123.9 1285.7 (Inflation)(Reel growth) Tbp 470.9000 558.7 665.6 757.8 864.4 986.1 1126.5 1288.7 " Td 1795.9000 2130.8 2538.5 2890.1 3296.7 3760.6 4296.3 4915.0 " Tfp 9.0000 -38.67 -32.36 -35.88 -39.41 -42.93 -46.70 *52.35 line E.(S)'EE (ours) TI 974.8000 1156.6 1377.9 1568.7 1789.4 2041.2 2332.0 2667.8 (Inftation)C(Reat growth) Top 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Vfb 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TUp 0.0000 9690.2600 11497.49 13697.19 15594.26 17788.37 20291.19 23181.87 26520.06 (Inflation)"(Real growth) - 85 - APPENDIX 4s BASE SCENARIO: 1988-95 SIMULATION RESULTS FOR ENDOGENOUS VARIABLES AND COMPLETE BUDGET CONSTRAINTS The following tables A4.1 and A4.2 present the complete set of 1988-95 simulation values for all endogenous variables and sector budget constraints for the base scenario. - 86 - Table A4.1 ZIM5UBWE BASE SCENARIO SIMULATION RESULTS, 1988 - 1995 ALL ENOOGENOUS VARIABLES AVG 1988 1989 1990 1991 1992 1993 1994 1995 GROWTH 3ass33 33s3s3 .-3333 33333 333333 3a333 Ba3s" 3333 3s3 CG 2450.05 2904.41 3460.81 3927.38 4471.72 5104.30 5833.89 6675.86 15.401 CHY 0.0656 0.0491 0.0272 0.0314 0.0351 0.0377 0.0390 0.0403 -6.721 DYPP 8395.20 9761.59 11554.89 12878.14 14526.20 16586.96 18963.35 21703.82 14.53% EXP 3325.81 4250.43 5336.73 6054.07 688S.48 7846.35 8950.35 10219.48 17.391 GDP 10644.09 12584.12 14722.14 16410.06 18521.85 21167.61 24217.51 2772.31 14.66X IBB 0.13 0.13 0.13 0.14 0.14 0.14 0.15 0.15 1.63X IMP 2931.82 4071.72 5543.84 6233.69 7019.90 8053.42 9250.75 10635.01 20.21X low 0.08 0.09 0.09 0.09 0.09 0.10 0.10 0.10 3.09s KK 9879.42 10098.59 10247.77 10431.26 10645.05 10881.48 11142.48 11429.91 2.101 K Cs 1288.82 1352.07 1338.86 1432.82 1483.10 1539.00 1599.07 1663.51 3.711 K CG 1288.82 1352.07 1388.86 1432.82 1483.10 1539.00 1599.07 1663.51 3.71% K CP 2257.30 2354.96 2411.13 2471.84 2554.40 2654.21 2761.28 2875.65 3.52x K DONCS 1288.82 1352.07 1388.86 1432.82 1483.10 1539.00 1599.07 1663.51 3.711 K DOMCG 1288.82 1352.07 1388.86 1432.82 1483.10 1539.00 1599.07 1663.51 3.71X K DOMCP 2030.04 2128.36 2186.64 2241.70 2316.58 2407.09 2504.20 2607.91 3.641 K DOMFI 245.95 309.25 295.82 311.69 327.35 341.63 357.12 373.86 6.16% r DONFIS 119.71 149.49 153.56 158.42 163.98 170.16 176.80 183.92 6.331 K DOMFIG 170.51 202.79 208.31 214.90 222.44 230.82 239.83 249.50 5.59s K DOMKI0 50.81 53.30 54.75 56.48 58.46 60.67 63.04 65.58 3.711 K DOMFIP 75.44 106.47 87.51 96.79 104.92 110.80 117.29 124.37 7.40X K EXP 1369.58 1431.38 1471.24 1517.25 1568.74 1625.14 1685.28 1749.31 3.561 K Fl 525.68 663.74 603.62 644.64 683.20 715.46 750.67 788.84 !:.97x K FIG 263.72 300.57 308.75 318.52 329.70 342.12 355.48 369.80 4.951 K FIO 134.01 140.59 144.42 148.99 154.22 160.03 166.27 172.97 3.711 K FIP 261.96 363.17 294.87 326.12 353.50 373.33 395.19 419.04 6.941 K GDP 4557.36 4781.00 4911.12 5066.55 5244.35 5442.02 5654.46 5882.28 3.711 K IMP 1161.32 1312.31 1277.73 1331.35 1388.70 1448.11 1511.95 1579.91 4.501 K IMPC 227.26 226.60 224.49 230.14 237.83 247.12 257.09 267.74 2.371 k:.IMPC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 k:MPCP 227.26 226.60 224.49 230.14 237.83 247.12 257.09 267.74 2.371 KIMPFI 279.73 354.48 307.80 332.95 355.84 373.83 393.55 414.98 5.80s K-IMPFIS 10.00 10.49 10.77 11.12 11.51 11.94 12.41 12.91 3.711 K IMPFIC 93.21 97.78 100.46 103.62 107.26 111.30 115.64 120.30 3.71X K:IMPFIC 83.21 87.29 89.67 92.51 95.75 99.36 103.24 107.40 3.71X k:IMPFIP 186.52 256.70 207.36 229.33 248.59 262.53 277.90 294.67 6.75s K IM?INT 654.33 731.23 745.44 768.26 795.03 827.16 861.31 897.20 4.611 Kys 4557.36 4781.00 4911.12 5066.55 5244.35 5442.02 5654.44 5882.28 3.7^1 KYSC 5133.77 5296.84 5505.23 5678.78 5874.34 6090.54 6323.75 6575.72 3.601 P- 2.34 2.63 3.00 3.24 3.53 3.89 4.28 4.71 10.55X P C8 1.90 2.15 2.49 2.74 3.02 3.32 3.65 4.01 11.261 P CG 1.90 2.15 2.49 2.74 3.02 3.32 3.65 4.01 11.26X P CHSTK 1.39 0.41 1.91 0 78 -Q.00 *0.02 0.02 0.04 -40.26X P CP 2.4:. 2.78 3.24 3.56 3.92 4.31 4.74 5.21 11.471 P bOmCB 1.90 2.15 2.49 2.74 3.02 3.32 3.65 4.01 11.26% p DOMCC 1.90 2.15 2.49 2.74 3.02 3.32 3.65 4.01 11.26% P OomCP 2.42 2.74 3.18 3.50 3.85 4.23 4.65 5.12 11.26% P DOMFIB 3.97 4.48 5.20 5.72 6.29 6.92 7.61 8.37 11.26% pOOMFIG 3.97 4.48 5.20 5.72 6.29 6.92 7 61 8.37 11.26% F DONFIO 3.97 4.48 5.20 5.72 6.29 6.92 7.61 8.37 11.261 POOMFIP 5.48 6.19 7.18 7.90 8.6V 9.56 10.52 11.57 11.26% P EXPPI 2.43 2.97 3.63 3.99 4.39 4.83 5.31 5.84 13.36% P FIB 3.89 4.42 5.15 5.66 6.23 6.85 7.53 8.29 11.42% PFIG 3.60 4.19 4.94 5.43 5.97 6.57 7.23 7.95 11.971 PFIO 3.33 3.93 4.70 5.17 5.68 6.25 6.88 7.57 12.441 P FlP 3.67 4.36 5.22 5.74 6.32 6.95 7.64 8.41 12.561 PINPcU 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 PwIMpcp 2.55 3.12 3.81 4.19 4.61 5.07 5.58 6.13 13.361 PINPfIS 2.94 3.60 4.39 4.83 5.31 5.85 6.43 7.07 13.36% PWIPFIC 2.94 3.60 4.39 4.83 5.31 5.85 6.43 7.07 13.36X P.INPFIO 2.94 3.60 4.39 4.83 5.31 5.85 6.43 7.07 13.361 P IMPFIP 2.94 3.60 4.39 4.83 5.31 5.85 6.43 7.07 13.36% :IMPINT 2.34 2.86 4.48 4.77 5.07 5.58 6.14 6.75 16.361 P.ImPPI 2.52 3.10 4.34 4.68 5.06 5.56 6.12 6.73 15.041 -87- Tablt A4.1 ZIMBABWE BASE SCENARIO SIMULATION RESULTS, 1988 - 1995 ALL ENDOGENOUS VARIABLES AVG 1988 1989 1990 1991 19m 1993 1994 1995 GROWTH Nassau 333333 3333m3 333888 3.333. 333333 ..33 sun*" _88 .3 CU 114.00 93.87 114.25 98.53 113.96 129.99 150.14 173.38 6.17K OYP 7321.16 8601.04 9990.65 11105.71 12551.48 14435.21 16619.86 19148.91 14.72K EE 1.81 2.11 2.47 2.60 2.74 2.88 3.03 3.19 8.48K cABS 3.79 -9.53 17.08 12.28 14.66 15.11 15.56 16.01 22.85s FACS -16.43 -90.83 162.73 116.95 139.70 143.92 148.20 152.53 FLUS 1.99 6.76 7.90 8.32 8.76 9.22 9.70 10.21 26.36K FLCB -14.63 3.17 3.70 3.90 4.11 4.32 4.55 4.79 IBO 0.10 0.10 0.10 0.10 0.10 0.11 0.11 0.11 1.63X leSs 0.13 0.13 0.13 0.13 0.13 0.14 0.14 0.14 1.63K 1sso 0.13 0.13 0.13 0.13 0.13 1.14 0.14 0.14 1.63K IBSP 0.13 0.13 0.13 0.13 0.14 0.14 0.14 0.15 1.63K ICBB 0.13 0.13 0.13 0.13 0.13 0.14 0.14 0.14 1.63K ICBBS 0.09 0.09 0.09 0.09 0.09 0.10 0.10 o.1o 1.63X IC8O 0.13 0.13 0.13 0.13 0.13 0.14 0.14 0.14 1.63K ICBP 0.13 0.13 0.13 0.13 0.14 0.14 0.14 0.15 1.63X IMF -153.48 -84.52 -56.81 -20.80 0.00 0.00 0.00 0.00 -100.00% INFLATE 0.12 0.13 0.14 0.08 0.09 0.10 0.10 0.10 -2.35s INOLDS 0.10 0.10 0.11 0.11 0.11 0.12 0.12 0.12 3.09o INOLCI 0.10 0.10 0.11 0.11 0.11 0.12 0.12 0.12 3.09X IP6 0.13 0.13 0.13 0.13 0.13 0.14 0.14 0.14 1.63% IPO 0.13 0.13 0.13 0.13 0.13 0.14 0.14 0.14 1.63K KNEI 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 K FIB 129.71 159.98 164.33 169.53 173.48 182.10 1e9.20 196.83 6.14X LIo 158.10 253.23 308.22 265.82 307.44 350.70 405.04 467.75 16.76K LBSB 184.20 106.85 130.05 112.16 129.72 147.97 170.90 197.36 0.99K LOSO 62.10 134.54 163.76 141.23 163.34 186.32 21s.20 248.51 21.91% LBSP 327.74 364.27 409.73 353.73 407.03 464.42 536.54 619.78 9.53K LCBB -32.10 51.25 62.38 53.80 62.22 70.98 81.98 94.67 LCBBS -49.00 -18.46 -22.47 -19.38 .22.42 -25.57 -29.53 -34.10 -5.05o LCBO -31.17 -92.92 -118.81 25.17 28.24 44.24 56.52 73.04 LCBP 0.50 140.40 -33.19 -101.52 -100.50 -114.71 -122.05 -131.46 LFS 139.04 182.14 212.91 224.12 23s.92 248.34 261.41 275.16 10.24X LFO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 LFP -485.73 19.23 22.48 23.66 24.91 26.22 27.60 29.05 LPB 393.49 653.31 732.17 862.98 1037.9? 1265.86 1542.18 1875.59 24.99K LPO 112.40 68.07 82.86 71.46 82.64 94.27 108.88 125.74 1.61K LSFP 75.84 52.82 61.75 65.00 68.42 72.02 75.81 79.80 0.73n M1 378.11 298.91 363.82 313.76 362.89 413.95 478.10 552.12 5.56K NIBS 49.98 72.94 86.94 106.35 123.96 144.79 168.96 197.31 21.67K NBCB 39.47 34.99 41.70 51.01 59.46 69.45 81.04 94.64 13.31K NBF 192.24 235.35 289.86 338.43 372.80 409.85 449.76 492.75 14.39s NIP 365.55 412.05 497.44 606.95 737.44 898.02 1096.95 1343.26 20.43K NBSCS -4.50 *8.82 -10.51 -12.86 -14.99 -17.51 -20.43 -23.86 26.91K NFABS 1.74 2.19 2.16 3.10 3.77 4.57 5.43 6.35 20.36K NFACS 18.37 20.76 20.41 29.40 35.74 43.36 51.55 60.34 18.51X NFL8S 7.14 8.49 10.45 12.20 13.44 14.78 16.22 17.77 13.92K NFLCB 4.32 3.94 4.86 5.68 6.26 6.88 7.55 8.28 9.74K NIMF 18.16 9.66 4.94 1.42 0.00 0.00 0.00 0.00 -100.00K NKNEI 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NNOLBS 36.45 57.40 69.73 85.32 99.98 117.52 138.16 162.68 23.82x NNOLCB -4.94 -17.01 -20.67 -25.29 -29.63 -34.83 -40.95 -48.21 38.45K mm 120.32 134.84 160.70 196.58 229.14 267.65 312.32 364.72 17.17K MOBS 84.78 91.85 109.47 133.91 156.09 182.32 212.76 248.45 16.60K OC 23.60 19.40 7.60 -7.80 -4.60 -0.82 5.39 13.64 -7.53x VOF 40.80 47.66 55.84 62.16 65.4 68.88 72.51 76,32 9.36K mOLs 184.80 102.39 124.62 107.48 124.31 141.80 163.77 189.12 0.33K oLCB -113.30 -30.34 -36.93 -31.8S -36.84 -42.02 -48.s3 -56.05 -9.57x OP 32.48 46.47 S5.39 67.75 78.9s 92.25 107.65 125.71 21.33K NPDS 200.31 240.51 288.68 350.83 407.26 473.67 SSO.68 640.96 18.08K NPCS 0.00 0.06 18.22 14.30 0.84 -13.12 -29.76 *48.18 MPF 37.13 17.24 21.24 24.80 27.32 30.03 32.96 36.11 -0.40K No" 133.73 160.41 194.88 238.46 279.43 328.46 386.13 454.66 19.10K NRES 0.00 0.00 0.00 0.00 0.00 0.00 C.00 0.00 NSPF U.24 59.84 75.80 90.72 102.17 114.57 127.98 142.50 18.19K Oa 24G.19 346.85 422.18 364.09 421.10 480.35 554.79 640.68 15.05% - 38 - Table A4.1 ZIMBABWE BASE SCENARIO SIMULATION RESULTS, 1988 - 1995 ALL ENDOGENOUS VARIABLES AVG 1988 1989 1990 1991 1992 1993 1994 1995 GROWTH 333333 33333= 3as333 s33333 33ass3 2s3a3s 23s333 ==Zu33 383833 RES 73.96 58.31 70.98 61.21 70.79 80.76 93.27 107.71 5.52X RESIDOS 164.00 190.03 222.70 271.06 313.22 362.11 417.74 481.82 16.64% RESIOCB 59.40 69.79 88.27 92.24 99.83 109.30 121.18 136.52 12.622 RFABS 7.58 8.00 6.11 4.30 5.21 6.25 7.37 8.57 1.752 RFACB 75.96 75.74 57.88 40.74 49.47 59.34 69.96 81.35 0.982 RFLBS 17.29 19.86 15.91 9.16 10.08 11.07 12.14 13.29 -3.69X RFLCB 9.26 9.23 7.40 4.26 4.69 5.15 5.65 6.19 -5.592 RIMF 31.95 15.47 5.94 0.50 0.00 0.00 0.00 0.00 -100.002 RKNEI 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 RLFB 459.35 535.38 428.93 246.95 271.74 298.46 327.24 358.22 -3.492 RLFO 95.24 105.57 81.56 44.29 46.62 49.08 51.66 54.38 -7.692 RLFP 87.91 56.49 45.26 26.06 28.67 31.49 34.53 37.80 -11.362 RLSFP 80.12 99.52 81.32 48.23 54.19 60.64 67.62 75.17 -0.91X SB -129.07 -146.56 -186.23 -253.85 -317.58 -410.41 -526.21 -671.07 26.562 SOS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SCB 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SFABS 54.78 53.24 76.44 93.01 112.89 134.25 157.18 181.75 18.692 SFACB 518.83 503.74 724.36 882.04 1071.20 1274.47 1492.62 1726.50 18.742 SFLS 121.17 147.79 171.61 189.09 207.93 228.22 250.06 273.56 12.342 SFLCB 56.33 68.73 79.84 88.00 96.79 106.27 116.47 127.45 12.372 SF CAP -45.48 259.0S 727.40 772.49 783.42 917.42 1077.49 1266.86 SF CHECK -45.48 259.05 727.40 772.49 783.42 917.42 1077.49 1266.86 SFCUR -45.48 259.05 727.40 772.49 783.42 917.42 1077.49 1266.86 SH 815.96 968.14 1153.37 1313.11 1497.86 1708.61 1952.02 2233.11 15.472 SIMF 137.86 68.81 17.95 -2.36 -2.36 -2.36 -2.36 -2.36 SKNEI 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 SLBSP 1868.64 2232.91 2642.63 2996.56 3403.39 3867.81 4404.35 5024.13 15.182 SLCBO 152.33 59.41 -59.39 -34.23 -5.98 38.25 94.78 167.82 1.392 SLCBP 0.50 140.90 107.72 6.20 -94.30 -209.01 -331.05 -462.52 SLFB 3268.29 3985.81 4627.66 5098.73 5606.39 6653.19 6741.83 7375.22 12.332 SLFO 661.94 767.51 849.07 893.36 939.99 989.06 1040.72 1095.10 7.462 tIFP 344.75 420.46 488.19 537.91 591.49 649.20 711.32 778.17 12.332 SLPB 3236.19 3889.50 4621.67 5484.65 6522.62 7788.48 9330.66 11206.24 19.422 SLSFP 598.36 750.70 893.78 1007.01 1129.62 1262.28 1405.72 1560.70 14.682 SMi 1602.71 1901.61 2265.43 2579.19 2942.08 3356.04 3834.14 4386.25 15.472 s0 144.72 189.79 242.42 266.25 294.96 325.11 358.02 393.68 15.372 SP 2328.23 2660.70 2880.11 3075.99 3418.81 4002.83 4688.28 5488.21 13.032 SPG 580.55 706.88 827.06 869.31 945.85 1028.51 1114.19 1200.13 10.93x SaM 1859.79 2206.65 2628.82 2992.91 3414.02 3894.37 4449.16 5089.84 15.472 SRES 312.66 370.98 441.95 503.16 573.96 654.71 747.98 855.69 15.472 STK B 5049.99 5897.16 7075.77 8410.44 9978.08 11851.91 14088.99 16761.45 18.692 STK H 843.47 1000.77 1192.24 1357.37 1548.35 1766.20 2017.81 2308.38 15.472 STK MI 1602.71 1901.61 2265.43 2579.19 2942.08 3356.04 3834.14 4386.25 15.472 STK GM 1859.79 2206.65 2628.82 2992.91 3414.02 3894.37 4449.16 5089.84 15.472 YFP 9692.39 11454.93 13376.91 14878.52 16774.82 19174.77 21940.77 25124.72 14.582 - 89 - Table A4.2 ZIMBABWE BASE SCENARIO SIMULATION RESULTS, 1988-1995 BUDGET CONSTRAINTS AVG TIME 1988 1989 1990 1991 1992 1993 1994 1995 GROWTH s=_9or Z..... ....... =.. ....s. onN ....Su... . -ssex... sums sasan BDGET CURRENT SB -129.1 -146.6 -186.? -25.5.8 -317.6 *410.4 -526.2 -671.1 26.56% TD 1795.9 2130.8 2538.5 2890.1 3296.7 3760.6 4296.3 4915.0 15.47% TI 974.8 1156.6 1377.9 1568.7 1789.4 2041.2 2332.0 2667.8 15.47% OTHR 958.5 1137.3 1354.8 1542.5 1759.5 2007.1 2293.0 2623.2 15.47% RESIDCB 59.4 69.8 88.3 92.2 99.8 109.3 121.2 136.5 12.62% YFB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 COGS 0.0 0.0 0. 0.0 0.0 0.0 0.0 o.n NOB 120.3 134.8 160.7 *"S.6 229.1 267.6 312.3 364.7 17.17% CB 2450.1 2904.4 3460.8 .927.4 4471.7 5104.3 5833.9 6675.S 15.40% TSO 469.8 557.4 664.1 756.0 862.4 963.8 1123.9 1285.7 15.47X SUBs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TaP 470.9 558.7 665.6 757.8 864.4 986.1 1126.5 1288.7 15.47% N8CB 39.5 35.0 41.7 51.0 59.5 69.5 81.0 94.6 13.31% NBBS 50.0 72.9 86.9 106.3 124.0 144.8 169.0 197.3 21.67% NBP 365.6 412.0 497.4 606.9 737.4 898.0 1096.9 1343.3 20.43% NBF 192.2 235.3 289.9 338.4 372.8 409.8 449.8 492.7 14.39% BUDGET CAPITAL SB -129.1 -146.6 *186.2 -253.8 -317.6 -410.4 -526.2 -671.1 26.56% FIB 504.2 707.7 845.6 959.6 1092.6 1247.2 1425.4 1631.2 18.26% LBO 158.1 253.2 308.2 265.8 307.4 350.7 405.0 467.7 16.76% KOGB 106.7 113.9 202.5 226.2 251.8 275.1 300.2 327.2 17.36% LCBB -32.1 51.3 62.4 53.8 62.2 71.0 82.0 94.7 LBSB 184.2 106.8 130.0 112.2 129.7 148.0 170.9 197.4 0.99% LF8 139.0 182.1 212.9 224.1 235.9 248.3 261.4 275.2 10.24% LPG 393.5 653.3 732.2 863.0 1038.0 1265.9 1542.2 1875.6 24.99% OTHER CURRENT SO 144.7 189.8 242.4 266.2 295.0 325.1 358.0 393.7 15.37% ORS -23.1 -27.4 -32.7 -37.2 -42.4 -48.4 -55.3 -63.2 15.47% TBO 469.8 557.4 664.1 756.0 862.4 983.8 1123.9 1285.7 15.47% COGO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 SUsO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NOB 120.3 134.8 160.7 196.6 229.1 267.6 312.3 364.7 17.17% NOCs 23.6 19.4 7.6 *7.8 -4.6 -0.8 5.4 13.6 -7.53% NOSS 84.8 91.9 109.5 133.9 156.1 182.3 212.8 248.4 16.60% NOP 32.5 46.5 55.4 67.8 79.0 92.2 107.6 125.7 21.33X NOF 40.8 47.7 55.8 62.2 65.4 68.9 72.5 76.3 9.36% TOP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 OTHER CAPITAL SO 144.7 189.8 242.4 266.2 295.0 325.1 358.0 393.7 15.37% FIO 446.1 552.7 678.4 769.9 876.6 1000.6 1143.7 1308.7 16.62% KOGO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LBO 158.1 253.2 308.2 265.8 307.4 350.7 405.0 467.7 16.76% LCBO -31.2 -92.9 -118.8 25.2 28.2 44.2 56.5 73.0 LBSO 62.1 134.5 163.8 141.2 163.3 186.3 215.2 248.5 21.91% LFO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LPU iiz.4 wU . 82.9 71.5 82.6 94.3 108.9 125.7 1.61% - 90 - Tabt A4.2 ZIMBASWE BASE SCENARIO SIMULATION RESULTS, 1988-1995 BUDGET CONSTRAINTS AVG TIME 1988 1989 1990 1991 1992 1993 1994 1995 GROWTH museum =.uZU U"UUU Monaca "No NOSS. Susumu ;UU - :xU== CENTRAL BANK CURRENT SCB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 RESIDCB 59.4 69.8 88.3 92.2 99.8 109.3 121.2 136.5 12.62K NBCB 39.5 35.0 41.7 51.0 59.5 69.5 81.0 94.6 13.31X NoCB 23.6 19.4 7.6 -7.8 -4.6 -0.8 5.4 13.6 -7.53X NBSCB -4.5 -8.8 -10.5 -12.9 -15.0 -17.5 -20.4 -23.9 26.91t NPCB 0.0 0.1 18.2 14.3 0.8 -13.1 -29.8 -48.2 NFACS 18.4 20.8 20.4 29.4 35.7 43.4 51.5 60.3 18.51K NRES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NFLCB 4.3 3.9 4.9 5.7 6.3 6.9 7.6 8.3 9.74X NIMF 18.2 9.7 4.9 1.4 0.0 0.0 0.0 0.0 -100.00X NNOLCB -4.9 -17.0 -20.7 -25.3 -29.6 -34.8 -40.9 -48.2 38.45X CENTRAL BANK CAPITAL SCS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LCBB -32.1 51.3 62.4 53.8 62.2 71.0 82.0 94.7 LCBO -31.2 -92.9 -118.8 25.2 28.2 44.2 56.5 73.0 LCBBS -49.0 -18.5 -22.5 -.9.4 -22.4 -25.6 -29.5 -34.1 -5.05X LCBP 0.5 140.4 *33.2 -101.5 *100.5 -114.7 -122.0 -131.5 fACB -16.4 -90.8 162.7 116.9 139.7 143.9 148.2 152.5 RFACB 76.0 75.7 57.9 40.7 49.5 59.3 70.0 81.3 0.98K RES 74.0 58.3 71.0 61.2 70.8 80.8 93.3 107.7 5.52X CU 114.0 93.9 114.2 98.5 114.0 130.0 150.1 173.4 6.17K FLCB -14.6 3.2 3.7 3.9 4.1 4.3 4.5 4.8 IMF -153.5 -84.5 -56.8 -20.8 0.0 0.0 0.0 0.0 -100.00X NOLCB -113.3 *30.3 -36.9 -31.9 -36.8 -42.0 -48.5 -56.0 -9.57K RFLCB 9.3 9.2 7.4 4.3 4.7 5.2 5.7 6.2 -5.59K RIMF 31.9 15.5 5.9 0.5 0.0 0.0 0.0 0.0 -100.00K BANKING CURRENT SBS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NPBS 200.3 240.5 288.7 350.8 407.3 473.7 550.7 641.0 18.08K MS:S 50.0 72.9 86.9 106.3 124.0 "t.8 169.0 197.3 21.67X NOBS 84.8 91.9 109.5 133.9 156.1 : 3 212.8 248.4 16.60K NRES 0.0 0.0 0.0 0.0 0.0 V.0 0.0 0.0 NFABS 1.7 2.2 2.2 3.1 3.8 4.6 5.4 6.4 20.36K NON 133.7 160.4 194.9 238.5 279.4 328.5 386.1 454.7 19.10K NSSCB -4.5 -8.8 -10.5 -12.9 *15.0 -17.5 -20.4 -23.9 26.91K NFLBS 7.1 8.5 10.5 12.2 13.4 14.8 16.2 17.8 13.92K NNOLBS 36.4 57.4 69.7 85.3 100.0 117.5 138.2 162.7 23.82K RESIDBS 164.0 190.0 222.7 271.1 313.2 362.1 417.7 481.8 16.64K BANKING CAPITAL S8S 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LBS8 184.2 106.8 130.0 112.2 129.7 148.0 170.9 197.4 0.99K LSO 62.1 134.5 163.8 141.2 163.3 186.3 215.2 248.5 21.91K LBSP 327.7 364.3 409.7 353.7 407.0 464.4 536.5 619.8 9.53K RES 74.0 58.3 71.0 61.2 70.8 80.8 93.3 107.7 5.52X FASS 3.8 *9.5 17.1 12.3 14.7 15.1 15.6 16.0 22.85X RFABS 7.6 8.0 6.1 4.3 5.2 6.3 7.4 8.6 1.75K ON 240.2 346.9 422.2 364.1 421.1 480.4 554.8 640.7 15.05% M1 378.1 298.9 363.8 313.8 362.9 414.0 478.1 552.1 5.56K CU 114.0 93.9 114.2 98.5 114.0 130.0 150.1 173.4 6.17K LCBBS -49.0 -18.5 -22.5 -19.4 -22.4 -25.6 -29.5 -34.1 -5.05K FLBS 2.0 6.8 7.9 8.3 8.8 9.2 9.7 10.2 26.36X HOLBS 184.8 102.4 124.6 107.5 124.3 141.8 163.8 189.1 0.33X RFLBS 17.3 19.9 15.9 9.2 10.1 11.1 12.1 13.3 *3.69X - 91 - Tablt A4.2 ZINSAUWE BASE SCENARIO SIMULATION RESULTS, 1988-1995 BUDGET CONSTRAINTS AVG TIME 1988 1989 1990 1991 1992 1993 1994 1995 GROUTH axouus =uuass mumugs Romans =Runs= *mUUas saunas UUUUU PRIVATE CURRENT SP 2328.2 2660.V 280.1 3076.0 3418.8 4002.8 41.3 5488.2 13.03K YFP 9692.4 11454.9 13376.9 14878.5 16774.8 19174.8 21940.8 25124.7 14.58X TSP 470.9 558.7 665.6 757 8 86.4 966.1 1126.5 1288.7 15.47X TOP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TFP 9.0 -38.7 -32.4 -35.9 39.4 -42.9 -46.7 -52.4 COGP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 RESIOS 164.0 190.0 222.7 271.1 313.2 362.1 417.7 481.8 16.64X NlP 365.6 412.0 497.4 606.9 737.4 896.0 1096.9 1343.3 20.43X NOP 32.5 46.5 55.4 67.8 79.0 92.2 107.6 125.7 21.33X NON 133.7 160.4 194.0 238.5 279.4 328.5 386.1 454.7 19.10K NNOLCB -4.9 -17.0 -20.7 -25.3 -29.6 -34.8 -40.9 -48.2 38.45X NNOLBS 36.4 57.4 69.7 85.3 100.0 117.5 138.2 162.7 23.82X CP 5501.7 6538.0 7804.8 8801.4 10004.9 11435.4 13086.5 14991.3 15.40X TO 1795.9 2130.8 2538.5 2890.1 3296.7 3760.6 4296.3 4915.0 15.47X OTHR 958.5 1137.3 1354.8 1542.5 1759.5 2007.1 2293.0 2623.2 15.47X PROFREMIT 33.6 39.9 47.5 54.1 61.7 70.4 80.4 92.0 15.47X NPCB 0.0 0.1 18.2 14.3 0.8 -13.1 -29.8 -48.2 NPBS 200.3 240.5 288.7 350.5 407.3 473.7 550.7 641.0 18.08X NPF 37.1 17.2 21.2 24.8 27.3 30.0 33.0 36.1 -0.40K NSPF 44.2 59.8 75.8 90.7 102.2 114.6 128.0 142.5 18.19K NKNEI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PRIVATE CAPITAL SP 2328.2 2660.7 2880.1 3076.0 3418.8 4002.8 4688.3 5488.2 13.03M FIP 961.8 1582.3 1539.4 1872.8 2233.1 2594.2 3020.7 3523.3 20.38X CHANGESTK 386.3 120.3 600.3 258.6 -22.7 -7.0 7.8 14.6 -37.40K LPB 393.5 653.3 732.2 863.0 1038.0 1265.9 1542.2 1875.6 24.99X LPO 112.4 68.1 82.9 71.5 82.6 94.3 108.9 125.7 1.61X 11 378. 298.9 363.8 313.8 362.9 414.0 478.1 552.1 5.564 am 240. 346.9 422.2 364.1 421.1 480.4 554.8 640.7 15.05K NOLCB -113..~ -30.3 -36.9 -31.9 -36.8 -42.0 -48.5 *56.0 -9.57X NOLBS 184.8 102.4 124.6 107.5 124.3 141.8 163.8 189.1 0.33X L_rP 0.5 140.4 -33.2 -101.5 -100.5 -114.7 -122.0 -131.5 LBSP 327.7 364.3 409.7 353.7 407.0 464.4 536.5 619.8 9.53K LFP -485.7 19.2 22.5 23.7 24.9 26.2 27.6 29.0 LSFP 75.8 52.8 61.8 65.0 68.4 72.0 75.8 79.8 0.73K EO 289.8 -106.0 467.2 363.7 328.2 430.7 557.1 710.4 13.67K DFI 7.4 10.4 20.3 38.7 55.6 5Q.9 64.4 69.2 37.63X KOGP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 KNEI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -92- Table A4.2 ZIMBABWE BASE SCENARIO SIMULATION RESUILTS, 1988-1995 BUDGET CONSTRAINTS AVG TIME 1988 1989 1990 1991 1992 1993 1994 1995 GROWTH Y-a-33 3s3333 33nm33 3333-- 33333n 333333 33333 33333 FOREIGN CURRENT SF CUR -45.5 259.1 727.4 772.5 753.4 917.4 1077.5 1266.9 NSF 192.2 235.3 289.9 338.4 372.8 409.8 449.8 492.7 14.391 NOF 40.8 47.7 55.8 62.2 65.4 68.9 72.5 76.3 9.36X NPF 37.1 17.2 21.2 24.8 27.3 30.0 33.0 36.1 -0.40X NSPF 44.2 59.8 75.8 90.7 102.2 114.6 128.0 142.5 18.19X NKNEI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 r.0 NFLCB 4.3 3.9 4.9 5.7 6.3 6.9 7.6 8.3 9.74X NFLBS 7.1 8.5 10.5 12.2 13.4 14.8 16.2 17.8 13.921 NIMF 18.2 9.7 4.9. 1.4 0.0 0.0 0.0 0.0 -100.00O PROFREMIT 33.6 39.9 47.S 54.1 61.7 70.4 80.4 92.0 15.47X IMP 2931.8 4071.7 5543.8 6233.7 7019.9 8053.4 9250.7 10635.0 20.21X EXP 3325.8 4250.4 5336.7 6054.1 6885.5 7846.4 8950.4 10219.5 17.39X COGS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 COGO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 COGP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TFP 9.0 -38.7 -32.4 -35.9 -39.4 -42.9 -46.7 -52.4 NFACB 18.4 20.8 20.4 29.4 35.7 43.4 51.5 60.3 18.51X NFABS 1.7 2.2 2.2 3.1 3.8 4.6 5.4 6.4 20.36X FOREiGN CAPITAL SF CAP -45.5 259.1 727.4 772.5 783.4 917.4 1077.5 1266.9 LFB 139.0 182.1 212.9 224.1 235.9 248.3 261.4 275.2 10.24X LFO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 LFP *485.7 19.2 22.5 23.7 24.9 26.2 27.6 29.0 LSFP 75.8 52.8 61.8 65.0 68.4 72.0 75.8 79.8 0.73n KOGS 106.7 113.9 202.5 226.2 251.8 275.1 300.2 327.2 17.36X KOGO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 KOGP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 DFI 7.4 10.4 20.3 38.7 55.6 59.9 64.4 69.2 37.63X KNEI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 FLCB -14.6 3.2 3.7 3.9 4.1 4.3 4.5 4.8 1MF -153.5 -84.5 -36.8 -20.8 0.0 0.0 0.0 0.0 -100.00X FLBS 2.0 6.8 7.9 8.3 8.8 9.2 9.7 10.2 26.36X EO 289.8 -106.0 467.2 363.7 328.2 430.7 557.1 710.4 13.671 RFLCB 9.3 9.2 7.4 4.3 4.7 5.2 5.' 6.2 -5.59X RIMF 31.9 15.5 5.9 0.5 0.0 0.0 0.0 0.0 -100.00X RFLBS 17.3 19.9 15.9 9.2 10.1 11.1 12.1 13.3 -3.69X FACB -16.4 -90.8 162.7 116.9 139.7 143.9 148.2 152.5 FASS 3.8 -9.5 17.1 12.3 14.7 15.1 15.6 16.0 22.851 RFACS 76.0 75.7 57.9 40.7 49.5 59.3 70.0 81.3 0.981 RFABS 7.6 8.0 6.1 4.3 5.2 6.3 7.4 8.6 1.75% FOREIGN CHECK SF CHECK -45.5 259.1 727.4 772.5 783.4 917.4 1077.5 1266.9 FIB 504.2 707.7 845.6 959.6 1092.6 1247.2 1425.4 1631.2 18.26X FIO 446.1 552.7 678.4 769.9 876.6 1000.6 1143.7 1308.7 16.621 FIP 961.8 15C2.3 1539.4 1872.8 2233.1 2594.2 3020.7 3523.3 20.381 CHANGESTK 386.3 120.3 600.3 258.6 -Z2.7 -7.0 7.8 14.6 -37.40X SB -129.1 -146.6 -186.2 -253.8 -317.6 -410.4 -526.2 -671.1 26.561 SO 144.7 189.8 242.4 266.2 295.0 325.1 358.0 393.7 15.37X SCB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 SOS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 SP 2328.2 2660.7 2880.1 3076.0 3418.8 4002.8 4688.3 5488.2 13.03X - 93 - APPENDIX 5: SUGGESTED MODEL AMENDMENTS AND EXTENSIONS This appendix briefly discusses future changes and additions to the present model. Modeling the effects of a trade reform using RMSM-XX as it now stands is problematic. One suggestion is to introduce a negative tariff equivalent to the effects of the reform -- an estimation that will require a detailed study of the current trade regime. Another area open to future additions is the manner in which expectations are formed. Ideally a perfect-foresight specification with forward-looking expectations should be incorporated due to the importance of this feature for investment and portfolio decisions. The choice of adjusting variables, both in the IE block of equations and in the budget constraints, reflects an a priori decision about which variable is most interesting and therefore should be modeled. Howiver, there is still a certain element of arbitrariness in this selection due to the fundamental characteristic of these types of models where only one variable is directly influenced by an exogenous shock. For example, we chose PFh,h as the adjusting price deflator (see footnote 7) because it is a "terminal" deflator which does not have large effects on aggregate demand in the behavioral equations. This means that the income effect of an oil shock is transmitted through this variable and spill-over effects are limited to the corresponding adjusting variable, which for instance is private fixed investment under the oil shock scenario with a binding foreign resource constraint. However, in reality the effects of a shock do not fall strictly on one variable. One solution would be to distribute a shock among all the variables but the actual manner in which to do this is also a subjective decision. Many exogenous variables were projected entirely outside the model due to software limitations. (See Appendix A3.1 and A3.2. fL a complete discussion of the projection rules.) In future extensions, many of these variables should be - 94 - projected within the model using simple growth rule. thereby making thim *ndogenouse However, this requires that current software barriers be addressed. PRE Working Paper Series Contact X wAuthor for pager WPS758 Is There Excess Co-Movement of Thoodosios B. Palaskas August 1991 D. Gus,afson Primary Commodity Prices? A Panos N. Varangis 33714 Co-Integration Test WPS759 The Profamilia Family Planning Jesus Amadeo August 1991 0. Nadora Program, Columbia: An Economic Dov Chernichovsky 31091 Perspective Gabriel Ojeda WPS760 How Conflicting Definitions of Alexander J. Yeats September 1991 J. Jacobson 'Manufactures" Distort Output and 33710 Trade Statistics WPS761 Uncertainty and the Discrepancy Gerhard Pohl September 1991 P. Lee between Rate-of-Return Estimates Dubravko Mihaliek 81950 at Project Appraisal and Project Completion WPS762 Debt, Debt Relief, and Growth: Daniel Cohen September 1991 S. King-Watson A Bargaining Approach Thierry Verdier 31047 WPS763 A Valuation Formula for LDC Debt Daniel Cohen Septembcr 1991 S. King-Watson 31047 WPS764 African Financing Needs in the 1990s Jorge Culagovski Victor Gabor Maria Cristina Germany Charles P. Hurnphreys WPS765 Withholding Taxes and International Harry Huizinga September 1991 S. King-Watson Bank Credit Terms 31047 WPS766 Economic Crisis, Structural Francois Diop September 1991 0. Nadora Adjustment, and Health in Africa Kenneth Hill 31091 Ismail Sirageldin WPS767 Framework for Macroeconomic Colin A. Bruce September 1991 M. Lynch Analysis (Applied to Kenya) David Ndii 34046 WPS768 Going to Market: Privatization in Manuel Hinds September 1991 L. R. Hovsepian Central and Eastern Europe Gerhard Pohl 37297 WPS769 Entry-Exit, Learning, and Lili Liu September 1991 D. Ballantyne Productivity Change Evidence from 37947 Chile WPS770 Privatization in Eastern and Central Farid Dhanji September 1991 CECSE Europe: Objectives, Constraints, Branko Milanovic 37188 and Models of Divestiture PRE Working Paper Series Contact Title Aat& for par WPS771 Macroeconomic Structure and Ibrahim A. Elbadawi September 1991 S. Jonnakuty Policy in Zimbabwe: Analysis and Klaus Schmidt-Hebbel 39074 Empirical Model (1965-88) WPS772 Macroeconomic Adjustment to Oil Ibrahim A. Elbadawi September 1991 S. Jonnakuty Shocks and Fiscal Reform: Klaus Schmidt-Hebbel 39074 Simulations for Zimbabwe, 1988-95