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Macroeconomics of public sector deficits : the case of Zimbabwe

Author

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  • Morande, Felipe
  • Schmidt-Hebbel, Klaus

Abstract

Zimbabwe has the uncommon combination of a high public deficit, a balanced current account, low inflation, and low levels of investment and growth. Despite a surplus in the current account, the nonfinancial public sector has run deficits exceeding 10 percent of GDP since 1981. Inflation is low but interest rates are rising because of partial financial liberalization and rising domestic public debt stocks. Heavy public spending crowded out private consumption and investment in the 1980s. The private saving rate is a staggering 20 percent of GDP, which finances all of Zimbabwe's investment. The fiscal adjustment begun in 1987 helped stabilize the public debt and improved recovery of investment. But more fiscal adjustment is needed to improve macroeconomic and financial stability and growth prospects. Public deficits must be reduced to ensure a sustainable path for public debt. High deficits are crowding out both private consumption and private investment. The public sector must be adjusted and foreign trade must be reformed to improve capital formation - a prerequisite for improving growth prospects in Zimbabwe.

Suggested Citation

  • Morande, Felipe & Schmidt-Hebbel, Klaus, 1991. "Macroeconomics of public sector deficits : the case of Zimbabwe," Policy Research Working Paper Series 688, The World Bank.
    • Handle: RePEc:wbk:wbrwps:688
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    Citations

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    Cited by:

    1. Rattso, Jorn & Torvik, Ragnar, 1998. "Economic openness, trade restrictions and external shocks: modelling short run effects in Sub-Saharan Africa," Economic Modelling, Elsevier, vol. 15(2), pages 257-286, April.
    2. Sadik-Zada, Elkhan Richard & Gatto, Andrea, 2019. "Determinants of the Public Debt and the Role of the Natural Resources: a Cross-Country Analysis," ETA: Economic Theory and Applications 285026, Fondazione Eni Enrico Mattei (FEEM).
    3. Elbadawi, Ibrahim & Schmidt-Hebbel, Klaus, 1991. "Macroeconomic adjustment to oil shocks and fiscal reform : simulations for Zimbabwe, 1988-1995," Policy Research Working Paper Series 772, The World Bank.
    4. Vavouras, Ioannis S., 1999. "Public Sector Deficits: Their Economic and Policy Determinants in the Case of Greece," Journal of Policy Modeling, Elsevier, vol. 21(1), pages 89-100, January.
    5. Busato, Francesco & Varlese, Monica & Ulloa Severino, Claudia, 2022. "Public debt heterogeneity at country level: an empirical analysis," MPRA Paper 113812, University Library of Munich, Germany.
    6. Davies, Rob & Rattso, Jorn & Torvik, Ragnar, 1998. "Short-Run Consequences of Trade Liberalization: A Computable General Equilibrium Model of Zimbabwe," Journal of Policy Modeling, Elsevier, vol. 20(3), pages 305-333, June.

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