Assessing the Dynamics of Fiscal Performance in Zimbabwe

Abstract – The study examines the dynamics of fiscal performance in the Zimbabwean economy. The study used annual time series data starting from the year 1990 up to 2020 to establish the economic factors contributing to budget deficits. During the period under review, Zimbabwe has experienced perpetual budget deficits except during the years 2009, 2010 and 2011 where budget surpluses were chronicled. The fiscal imbalance that has characterised the economic landscape of Zimbabwe have had negative pass-through effect on the broader economy at large. The variable budget deficit was used as the dependent variable whilst the explanatory variables used in the study are unemployment, gross domestic product, gross fixed capital formation, foreign debt, real interest rates, and the lagged value of the budget deficit. Using the full-bodied OLS regression methodology, the empirical results indicated that three variables which are unemployment, gross domestic product, and the legged value of the budget deficit are significant in explaining budget deficits in Zimbabwe. The variables unemployment and the legged value of the budget deficit were found to be positively related to budget deficits whilst the GDP variable was found to be inversely related to budget deficits. It is against this background that this research recommended the government reduce unemployment to increase final demand in the economy which boosts tax revenues thereby reducing budget deficits. The government is encouraged to balance its books and avoid the rolling over of budget deficits to the forthcoming year to avert perpetual deficits. The government also needs to increase gross investment levels in the country to boost GDP which will result in the reduction of the budget deficit via multiplier effects.

Keywords: revenue, gross domestic product, GDP, Zimbabwe

[Cite as: Nyabunze, A. (2022). Assessing the Dynamics of Fiscal Performance in Zimbabwe. Diverse Journal of Multidisciplinary Research, Vol. 3, Issue 8, Pages 1-15.]

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