Thesis (PhD)--Stellenbosch University, 2013. / Fiscal deficits, which are the end result of fiscal indiscipline and lack of fiscal space, have been the focus of fiscal and
macroeconomic adjustment in developed and developing countries. Developments in the euro zone between 2007 and 2011, have
reminded policy makers about the macro-economic dangers posed by government debt. The nasty experiences of Portugal, Italy, Greece and Spain forced policy makers in Europe to introduce
painful austerity measures. Up to this day, the eurozone debt crisis threatens the survival of the European Union. Although most African
countries were not directly affected by the contagion of the euro zone debt crisis, they too had their own structural problems of
unsustainable fiscal deficits and bad governance which caused macroeconomic imbalances. This study examines the macroeconomic effects of fiscal deficits and the contribution of bad
governance to macroeconomic instability in Zimbabwe. In chapter one the problem and methodology of the study are
introduced. The key questions are basically whether deficits are
harmful or neutral? Linked to this is of course, the political economy
of these deficits, especially the method of financing them and how
this affects the macro-economic equilibrium. In order to investigate
these issues, this study uses a qualitative and comparative
methodology which juxtaposes Zimbabwe’s experiences with those
of other developing countries, namely Ghana, Morocco, Zambia and
Botswana. These countries are chosen as they collectively depict
both cases of good fiscal management (Botswana and Morocco) on
the one hand, and bad fiscal management (Ghana and Zambia), on
the other. This methodology adequately captures political economy
issues which are not capable of being estimated without running the
risk of lack of validity and spurious inferences given the softness of data under hyperinflationary conditions that occurred in Zimbabwe
prior to 2009.
In chapter two the study examines various theoretical
propositions on the relationship between the fiscal deficit and
selected macroeconomic variables. The traditional theory postulates
that the fiscal deficit has a negative impact on macroeconomic
performance whereas the Ricardian Equivalence Theorem posits
that the impact of the deficit is neutral. Keynesians argue that
deficits arising from public expenditure on investment as opposed to
consumption actually crowd-in rather than crowd out private sector
investment. In theory, there is a close connection between a
monetized deficit and inflation. A positive theoretical relationship is
also found between the twin deficits (that is, the trade and fiscal
deficits). However, the relationship between the budget deficit,
interest rates and exchange rate is ambiguous.
In chapter three we find that the majority of empirical studies
support the view that budget deficits are generally inflationary when
they are financed by printing money. A causal link is also found
between the budget deficit and trade deficit. However, empirical
evidence on the relationship between the deficit, exchange rate and
interest rates is largely ambiguous.
The comparative politico-economic and fiscal experiences of
Ghana, Zambia, Morocco and Botswana in chapter four are used to
provide the trajectory for the Zimbabwean case study in chapter 5.
The review of the experiences of Ghana and Zambia showed that
fiscal indiscipline resulted in high fiscal deficits which led to the
deterioration of macroeconomic performance whereas in Morocco
and Botswana, fiscal discipline resulted in low fiscal deficits and
improved macro-economic performance. But central to the politico-economic performance of these countries, was the issue of bad
governance and how this worsened the impact of fiscal deficits.
In chapter five the experiences of Zimbabwe confirm the view
that fiscal deficits are harmful to the economy. Many years of fiscal
indiscipline and bad governance, led to macro-economic instability
that resulted in record hyperinflation levels in 2008.
Finally, the study concludes that, cumulative fiscal deficits in
Zimbabwe since 1980, precipitated macroeconomic instability and
fiscal unsustainability. Prolonged fiscal and quasi-fiscal deficits,
which were largely financed by printing money, triggered
hyperinflation and macroeconomic disequilibria. The lack of fiscal
probity and the profligacy of the state, corruption, macroeconomic
mismanagement and dirigistic policies, all rolled into one, caused
the unprecedented economic meltdown and eventual economic
collapse in Zimbabwe. The study finds that fiscal indiscipline in
Zimbabwe, other than causing macroeconomic instability, also
contributed to an unprecedented humanitarian crisis, never
witnessed in a country not waging a war. Going forward, the study
recommends a battery of policy measures in the area of
institutional, fiscal and macro-economic adjustment in order to
control and manage the deficit in Zimbabwe.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/80331 |
| Date | 03 1900 |
| Creators | Mashakada, Tapiwa Leonard Jaison |
| Contributors | Smit, B. W., Van der Berg, S., Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics. |
| Publisher | Stellenbosch : Stellenbosch University |
| Source Sets | South African National ETD Portal |
| Language | en_ZA |
| Detected Language | English |
| Type | Thesis |
| Format | 298 p. : ill. |
| Rights | Stellenbosch University |
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