Understanding the Dynamics of the Fiscal Deficit and Economic Performance in Zimbabwe
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Date
2022-04
Authors
William, Kavila
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
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
Description
Keywords
fiscal deficit; economic growth; inflation, Zimbabwe