Understanding the dynamics of the budget deficit and economic performance in Zimbabwe
Date
2021-08-04
Authors
Kavila, William
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
This study analyzes the relationship between fiscal deficits and the economic
performance of Zimbabwe for the period 1980–2018. A descriptive approach is used to
analyze developments in the Zimbabwean economy over the study period. The study
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 performance. 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
impacted on fiscal revenue inflows and economic performance. Developments in
the country’s political economy also had an influence on its economic performance.