Fiscal Deficit in Zimbabwe
TOPIC
AN INQUIRY INTO THE PERPETUAL FISCAL DEFICIT IN ZIMBABWE. IS TAXATION THE SOLUTION
1.1 Background
Zimbabwe, once a vibrant and diversified economy and hope for Africa's future, was on the verge of collapse had it not been for the introduction of the multi-currency system after the formation of the inclusive government. It has had a perpetual fiscal deficit post 1990 accompanied by high inflation, negative economic growth, high unemployment and a reduction in the standard of living as measured by the per capita income basis until the dollarization in February 2009. Dollarization has seen a steady growth in the economy including an improved fiscal deficit backed by improved tax remittances especially from corporates.
The government has run huge budget deficits (22% of GDP in 2000) and printed money to cover the gaps — with the predictable results of high inflation. Badly needed support from IMF was suspended because of the country’s failure to meet its budgetary goals and servicing of previous debts. Its 1998 – 2002 involvement in war in the DRC, drained hundreds of millions of dollars from the economy while the government’s land reform programme put further strain on the limited resources. The government increased its expenditure towards the agriculture sector so as to resuscitate it and foster economic growth. However, the persistence of the problem remained, forcing a solution in politics which saw an inclusive government being formed in September 2009. This fostered the removal of Zimbabwean dollars and a limited interference by the Reserve
Bank of Zimbabwe (RBZ). RBZ was blamed for printing excess money and causing inflation hence crumpling the whole economy.
Now we have had several monetary and fiscal reforms. One highlight was the introduction of the multi-currency system known in some sectors as dollarization. There was an immediate impact on inflation, GDP and the standard of living. This improved the supply of food and many companies
AN INQUIRY INTO THE PERPETUAL FISCAL DEFICIT IN ZIMBABWE. IS TAXATION THE SOLUTION
1.1 Background
Zimbabwe, once a vibrant and diversified economy and hope for Africa's future, was on the verge of collapse had it not been for the introduction of the multi-currency system after the formation of the inclusive government. It has had a perpetual fiscal deficit post 1990 accompanied by high inflation, negative economic growth, high unemployment and a reduction in the standard of living as measured by the per capita income basis until the dollarization in February 2009. Dollarization has seen a steady growth in the economy including an improved fiscal deficit backed by improved tax remittances especially from corporates.
The government has run huge budget deficits (22% of GDP in 2000) and printed money to cover the gaps — with the predictable results of high inflation. Badly needed support from IMF was suspended because of the country’s failure to meet its budgetary goals and servicing of previous debts. Its 1998 – 2002 involvement in war in the DRC, drained hundreds of millions of dollars from the economy while the government’s land reform programme put further strain on the limited resources. The government increased its expenditure towards the agriculture sector so as to resuscitate it and foster economic growth. However, the persistence of the problem remained, forcing a solution in politics which saw an inclusive government being formed in September 2009. This fostered the removal of Zimbabwean dollars and a limited interference by the Reserve
Bank of Zimbabwe (RBZ). RBZ was blamed for printing excess money and causing inflation hence crumpling the whole economy.
Now we have had several monetary and fiscal reforms. One highlight was the introduction of the multi-currency system known in some sectors as dollarization. There was an immediate impact on inflation, GDP and the standard of living. This improved the supply of food and many companies