Understanding the Dynamics of the Fiscal Deficit and Economic Performance in Zimbabwe
Date
2021-11-15
Authors
Kavila, William
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
The Government of Zimbabwe's desire to meet the country's development
expenditure needs, following the attainment of independence in 1980, resulted
in high fiscal expenditures which were not supported by adequate fiscal
revenue inflows, and this resulted in high and persistent fiscal deficits, with a
negative impact on the growth of the economy. This paper uses a descriptive
approach to analyse developments in the Zimbabwean economy over the
period 1980‒2018, with emphasis on the relationship between fiscal deficits
and economic growth. The paper also provides a descriptive analysis of the impact of external shocks, structural breaks, and policy shifts on the Zimbabwean
economy and their influence on the relationship between fiscal deficits, inflation,
and economic growth. The analysis indicates that there could be a two-way
relationship between fiscal deficits and real GDP growth, with one possibly causing
the other. High fiscal deficits, largely financed through borrowing from the central
bank, resulted in high money supply growth, leading to high inflation and a negative
impact on economic growth. Conversely, low economic growth resulted in low fiscal
revenue inflows, against high government expenditure, leading to high fiscal deficits.
External shocks, such as droughts and the decline in international commodity
prices of Zimbabwe’s export products, negatively affected fiscal revenue inflows
and economic growth. Developments in the country's political economy also had
an influence on economic growth