ACC 308 ASSIGNMENT

NAME: ORIDO DANIEL OVIE

DEPT: ACCOUNTING AND FINANCE

MATRIC NO: 19020101046

TOPIC: PUBLIC SECTOR FINANCIAL REPORTING IN HYPERINFLATIONARY

ECONOMIES IN AFRICA: A COMPARATIVE ANALYSIS OF SUDAN AND ZIMBABWE
 INTRODUCTION

BACKGROUND OF THE STUDY

Financial reporting is how public entities account for their stewardship of that which is in
their care, like public money and other assets. It is done to provide a fair view of public finance
which is related to assessing the full cost of government operations. Financial reporting also
helps in decision-making and in increasing accountability, openness, transparency and improve
the performance of, and trust in, the public sector.

Hyperinflation is a term to describe rapid, excessive, and out-of-control general price

increases in an economy. While inflation is a measure of the pace of rising prices for goods and
services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month
i.e. an inflationary rate of 1,000% or more per year, according to most economists.
Hyperinflation has two main causes: an increase in the money supply and demand-pull inflation.
The former happens when a country's government begins printing money to pay for its spending.
As it increases the money supply, prices rise as in regular inflation.

The other cause, demand-pull inflation, occurs when a surge in demand outstrips supply, sending
prices higher. This can happen due to increased consumer spending due to a growing economy, a
sudden rise in exports, or more government spending.

To keep from paying more tomorrow, people begin hoarding. That stockpiling creates
shortages. It starts with durable goods, such as automobiles and washing machines. If
hyperinflation continues, people hoard perishable goods, like bread and milk. These daily
supplies become scarce, and the economy falls apart.

People lose their life savings as cash becomes worthless. For that reason, the elderly are the most
vulnerable to hyperinflation. Soon, banks and lenders go bankrupt since their loans lose value.
They run out of cash as people stop making deposits. 

Hyperinflation sends the value of the currency plummeting in foreign exchange markets. The
nation's importers go out of business as the cost of foreign goods skyrockets. Unemployment
rises as companies fold. Then government tax revenues fall and it has trouble providing basic
services. The government prints more money to pay its bills, worsening the hyperinflation.

There are two winners in hyperinflation. The first beneficiaries are those who took out
loans and find that higher prices make their debt worthless by comparison until it is virtually
wiped out. Exporters are also winners, because the falling value of the local currency makes
exports cheaper compared to foreign competitors. Additionally, exporters receive hard foreign
currency, which increases in value as the local currency falls. 

HYPERINFLATION IN AFRICA

 Sudan was expected to have the highest inflation rate in Africa in 2021, at 197.1 percent.
The country has been facing inflationary pressures, amid a sharp currency devaluation and a
monetization of the fiscal deficit. The second highest inflation rate in the continent was projected
to reach Zimbabwe, 99.3 percent. Although high, the level of prices in the country declined from
some 600 percent in 2020. Other countries close to these are: South Sudan, Angola, Libya,
Zambia, Nigeria, etc.

CONCEPTUAL REVIEW

THEORIES OF HYPERINFLATION: Quantity Theory of Money

Monetary economics is a branch of economics that studies different theories of money. One of
the primary research areas for this branch of economics is the quantity theory of money (QTM).
According to the quantity theory of money, the general price level of goods and services is
proportional to the money supply in an economy. While this theory was originally formulated by
Polish mathematician Nicolaus Copernicus in 1517, it was popularized later by economists
Milton Friedman and Anna Schwartz after the publication of their book, "A Monetary History of
the United States, 1867-1960," in 1963.

According to the quantity theory of money, if the amount of money in an economy doubles, all
else equal, price levels will also double. This means that the consumer will pay twice as much
for the same amount of goods and services. This increase in price levels will eventually result in
a rising inflation level; inflation is a measure of the rate of rising prices of goods and services in
an economy.

The same forces that influence the supply and demand of any commodity also influence the
supply and demand of money: an increase in the supply of money decreases the marginal value
of money–in other words, when the money supply increases, ceteris paribus, the buying capacity
of one unit of currency decreases. As a way of adjusting for this decrease in money's marginal
value, the prices of goods and services rises; this results in a higher inflation level.

HYPERINFLATION IN ZIMBABWE

Hyperinflation in Zimbabwe was a period of currency instability in Zimbabwe (using Cagan's

definition of hyperinflation) that began in February 2007. However, the economy has been
plagued with annual inflation of over 20 percent since the early 1990s. Once regarded as the
bread basket of Africa, Zimbabwe’s political mismanagement has destroyed its own economic
wellbeing. During the height of inflation from 2008 to 2009, it was difficult to measure
Zimbabwe's hyperinflation because the government of Zimbabwe stopped filing official inflation
statistics. However, Zimbabwe's peak month of inflation is estimated at 79.6 billion percent
month-on-month, 89.7 sextillion percent year-on-year in mid-November 2008. This caused
Zimbabwe to stop printing its currency in April 2009, with currencies from other countries being
used. In mid-2015, Zimbabwe announced plans to have completely switched to the United States
dollar by the end of that year.

By June 2019, the Zimbabwean government announced the reintroduction of the RTGS dollar,
now to be known simply as the "Zimbabwe dollar", and that all foreign currency was no longer
legal tender. By mid-July 2019 inflation had increased to 175%, sparking concerns that the
country was entering a new period of hyperinflation. In March 2020, with inflation above 500%
annually, a new taskforce was created to assess currency issues. By July 2020 annual inflation
was estimated to be at 737%.

Over the course of the five-year span of hyperinflation, the inflation rate fluctuated greatly. At
one point, the US Ambassador to Zimbabwe predicted that it would reach 1.5 million percent. In
June 2008 the annual rate of price growth was 11.2 million percent. The worst of the inflation
occurred in 2008, leading to the abandonment of the currency. The peak month of hyperinflation
occurred in mid-November 2008 with a rate estimated at 79,600,000,000% per month, with the
year-over-year inflation rate reaching an astounding 89.7 sextillion percent.[1] This resulted in
US$1 becoming equivalent to Z$2,621,984,228.
ZIMBABWE GOVERNMENT EXPENDITURE

Data available from 2005. USD in billion

NET DEBT

Data above available from 2005. USD in billion

GOVERNMENT REVENUE

Data available from 2005. USD in billion

HYPERINFLATION IN SUDAN

MacMahon (2007) argued that a simple way to define inflation is “an increase in the price you
pay for goods” but that only tells part of the story. It could also be seen as a “decline in the
purchasing power of your money”. But there is more to inflation than that. There is “Price
Inflation” and “Monetary Inflation”. Technically, Price inflation is when prices get higher or it
takes more money to buy the same item. Monetary Inflation is an increase in the money supply
which generally results in price inflation. This acts as a “hidden tax” on the consumers in that
country. Monetary inflation is commonly referred to as the government Researchjournali’s
Journal of Economics Vol. 2 | No. 3 March | 2014 ISSN 2347-8233 3 www.researchjournali.com
“printing money” although the actual process is a bit more complex than just cranking up the
printing presses the effects are essentially the same. As the money supply increases the currency
loses its purchasing power and the price of goods and services increases. This process usually
takes 18 months to 2 years so the government is able to spend the newly minted dollars at the old
value before consumers realize that they have been cheated into accepting something that will
purchase less than they originally thought it would.
Barro (2013) in his paper titled Inflation and Economic Growth, concluded that the estimated
effects of inflation on growth and investment are significantly negative when some plausible
instruments are used in the statistical procedures. Thus, there is some reason to believe that the
relations reflect causation from higher long-term inflation to reduced growth and investment. It
should be stressed that the clear evidence for adverse effects of inflation comes from the
experiences of high inflation. The magnitudes of effects are also not that large; for example, an
increase in the average inflation rate by10 percentage points per year is estimated to lower the
growth rate of real per capita GDP (on impact) by 0.2-0.3 percentage points per year. 3. Data
Analysis/ Findings This section reviews data analysis, methodology and findings as well. So the
following tables show the inflation rates, Gross Domestic Product (GDP) in addition to consumer
price index (CPI) during the period under consideration
Due to tables 4.1 we observed the following: the inflation rates in Sudan is differing from year to
year and from two digit to three digit during the period from 1990-2010 and this is definitely
affect the economic performance (measured by GDP). Thus the following diagram illustrates the
inflation rates in Sudan during the period of the study:

From above diagram we observe that the highest inflation rates in Sudan were reported between
1995- 2000 and the lowest rates were reported between 2000- 2005 and 2005- 2010. The reason
behind this variance in the inflation rates depends on economic and political stability as well as
interring of oil revenues in economic after 1999.

SUDAN’S EXTERNAL DEBT

Sudan External Debt reached 51.2 USD bn in Dec 2019, compared with 49.4 USD bn in the
previous year. Sudan External Debt: USD mn data is updated yearly, available from Dec 2001 to
Dec 2019. The data reached an all-time high of 51.2 USD bn in Dec 2019 and a record low of
20.9 USD bn in Dec 2001.

GOVERNMENT EXPENDITURE

Data from 2002. (SDG) Sudanese Pounds in billion

GOVERNMENT REVENUE

Data from 2002. (SDG) Sudanese Pounds in billion

CONCLUSION

The two entities i.e. Sudan and Zimbabwe being compared

Hyperinflation is ended by drastic remedies, such as imposing the shock therapy of slashing
government expenditures or altering the currency basis. One form this may take is dollarization,
the use of a foreign currency (not necessarily the U.S. dollar) as a national unit of currency.
REFERENCES:

Liu, Kenrick L., "Hyperinflation in Zimbabwe: case study and analysis of money velocity"
(2010). Honors Theses. 1175.

Dr. Badreldin Mohamed Ahmed Abdulrahman Assistant Professor, Department of Economics,

University of Zalingei, Sudanhttp://www.researchjournali.com/

https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

Sudan Data. https://www.ceicdata.com/en/country/sudan

Zimbabwe Data. https://www.ceicdata.com/en/country/zimbabwe