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Once considered Africa’s breadbasket for its productive agricultural sector, Zimbabwe is now the 22nd poorest nation in the world, according to International Monetary Fund data. Millions of its citizens have emigrated in search of work after a cycle of crises stoked an inflation rate that peaked in 2008 at 79.6 billion percent.

The country’s economy is again on a precipice. With the budget deficit ballooning to 10% of gross domestic product, U.S. dollars—Zimbabwe’s effective currency—are in such scarce circulation that people have begun sleeping outside banks.

“Macroeconomic stability is threatened by high government spending, the foreign-exchange regime is untenable, and the pace of reform inadequate,” said  Gene Leon,  the IMF’s Zimbabwe mission chief.

The country’s stubborn state of economic emergency marks a spectacular decline from when Robert Mugabe took its helm in 1980, ending white-minority rule after years of armed struggle amid widespread jubilation. His first 15 years in power were broadly reformist, characterized by consensus building and large investments in education and infrastructure. In those years the economy continued to expand.

By the mid-1990s, when many other African nations were grappling with famine and conflict, Zimbabwe was the second-most industrialized nation in sub-Saharan Africa and one of its only net grain exporters, according to the Food and Agriculture Organization, a United Nations body. A growing manufacturing base and an increasingly healthy and better-educated population showcased the country’s economic ascent.

But in the late 1990s, Mr. Mugabe launched a set of new policies to nationalize and redistribute land—ostensibly to correct colonial-era inequalities that benefited white farmers—and to greatly increase state-funded payouts to his political constituency. The approach triggered a collapse in the country’s economic output. By the early 2000s, production of tobacco, the country’s top export, had begun to plummet in the wake of the land reforms, and it still hasn’t fully recovered.

As the ramifications of the land redistribution and gross government overspending worked through the economy, child mortality skyrocketed and life expectancy plummeted amid an HIV/AIDS pandemic. Millions became poorer. The land program also tore through bank balance sheets as land held as collateral for loans was rendered largely worthless.

“The biggest of the government’s faults is that they took the land off the market. That market value used to support loans and businesses,” said John Robertson, a Harare-based economist.

That will be no easy matter to reverse, but taming the country’s leviathan state apparatus may well prove even harder, Mr. Robertson suggests.

Citing official labor-force data, he says some one million people were in full-time employment in the 1990s, 10% in government jobs. Today, only 800,000 are fully employed in the formal economy, and 300,000 of them work for the state. Separately, another 200,000 people are war veterans and others receiving state pensions.

Government wages and salaries consumed nearly 70% of state revenues last year, the IMF said, a share about three times the average on the continent. That could make cutting public spending a tall order for Mr. Mugabe’s successor.

An IMF bailout could be one option for Zimbabwe, but it can only be requested once the government clears arrears totalling some $9 billion with the World Bank, the African Development Bank and the European Investment Bank. Any such arrangement would also require Zimbabwe to agree to a raft of painful policy reforms and negotiate debt restructuring with its lenders.

“There’s not a government on earth that can claim it has more power than the market,” Mr. Robertson said. “We need to fix what we did wrong.”