Macroeconomic consequences of fiscal deficits in developing countries : a comparative study of Zimbabwe and selected African countries (1980-2008)

[摘要] Fiscal deficits, which are the end result of fiscal indiscipline and lack of fiscal space, have been the focus of fiscal andmacroeconomic adjustment in developed and developing countries. Developments in the euro zone between 2007 and 2011, havereminded 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 introducepainful austerity measures. Up to this day, the eurozone debt crisis threatens the survival of the European Union. Although most Africancountries were not directly affected by the contagion of the euro zone debt crisis, they too had their own structural problems ofunsustainable fiscal deficits and bad governance which caused macroeconomic imbalances. This study examines the macroeconomic effects of fiscal deficits and the contribution of badgovernance to macroeconomic instability in Zimbabwe. In chapter one the problem and methodology of the study areintroduced. The key questions are basically whether deficits areharmful or neutral? Linked to this is of course, the political economyof these deficits, especially the method of financing them and howthis affects the macro-economic equilibrium. In order to investigatethese issues, this study uses a qualitative and comparativemethodology which juxtaposes Zimbabwe's experiences with thoseof other developing countries, namely Ghana, Morocco, Zambia andBotswana. These countries are chosen as they collectively depictboth cases of good fiscal management (Botswana and Morocco) onthe one hand, and bad fiscal management (Ghana and Zambia), onthe other. This methodology adequately captures political economyissues which are not capable of being estimated without running therisk of lack of validity and spurious inferences given the softness of data under hyperinflationary conditions that occurred in Zimbabweprior to 2009.In chapter two the study examines various theoreticalpropositions on the relationship between the fiscal deficit andselected macroeconomic variables. The traditional theory postulatesthat the fiscal deficit has a negative impact on macroeconomicperformance whereas the Ricardian Equivalence Theorem positsthat the impact of the deficit is neutral. Keynesians argue thatdeficits arising from public expenditure on investment as opposed toconsumption actually crowd-in rather than crowd out private sectorinvestment. In theory, there is a close connection between amonetized deficit and inflation. A positive theoretical relationship isalso found between the twin deficits (that is, the trade and fiscaldeficits). However, the relationship between the budget deficit,interest rates and exchange rate is ambiguous.In chapter three we find that the majority of empirical studiessupport the view that budget deficits are generally inflationary whenthey are financed by printing money. A causal link is also foundbetween the budget deficit and trade deficit. However, empiricalevidence on the relationship between the deficit, exchange rate andinterest rates is largely ambiguous.The comparative politico-economic and fiscal experiences ofGhana, Zambia, Morocco and Botswana in chapter four are used toprovide the trajectory for the Zimbabwean case study in chapter 5.The review of the experiences of Ghana and Zambia showed thatfiscal indiscipline resulted in high fiscal deficits which led to thedeterioration of macroeconomic performance whereas in Moroccoand Botswana, fiscal discipline resulted in low fiscal deficits andimproved macro-economic performance. But central to the politico-economic performance of these countries, was the issue of badgovernance and how this worsened the impact of fiscal deficits.In chapter five the experiences of Zimbabwe confirm the viewthat fiscal deficits are harmful to the economy. Many years of fiscalindiscipline and bad governance, led to macro-economic instabilitythat resulted in record hyperinflation levels in 2008.Finally, the study concludes that, cumulative fiscal deficits inZimbabwe since 1980, precipitated macroeconomic instability andfiscal unsustainability. Prolonged fiscal and quasi-fiscal deficits,which were largely financed by printing money, triggeredhyperinflation and macroeconomic disequilibria. The lack of fiscalprobity and the profligacy of the state, corruption, macroeconomicmismanagement and dirigistic policies, all rolled into one, causedthe unprecedented economic meltdown and eventual economiccollapse in Zimbabwe. The study finds that fiscal indiscipline inZimbabwe, other than causing macroeconomic instability, alsocontributed to an unprecedented humanitarian crisis, neverwitnessed in a country not waging a war. Going forward, the studyrecommends a battery of policy measures in the area ofinstitutional, fiscal and macro-economic adjustment in order tocontrol and manage the deficit in Zimbabwe.

[发布机构] Stellenbosch University