Zimbabwe's brief history of budget deficits and economic crises

Budget deficits have become perennial in Zimbabwe and l was prompted to check through in history, and it has been the pattern since the 1980s. Budget deficits are the chief cause of Zimbabwe’s ongoing financial crisis which consist of cash short shortages and liquidity crises. The quotation from Peter Robinson in 1999 testifies that budget deficits has been a permanent feature of the fiscal policy ever since 1980. “Zimbabwe is currently in an unprecedented economic crisis. Some recent factors have contributed to this crisis, but the origins lie in the accumulation of debt due to large deficits, which have been an endemic feature of the national budget for the last 20 years. Generally domestic borrowing, particularly in recent years treasury bills, has financed deficits. Thus while foreign debt service has risen due to currency depreciation, the main focus at present is on the rapid pass through of increased interest rates (needed to curb in inflation) back to the budget in the form of higher interest charges and thus high budget deficit. With the financing of the budget deficit being the underlying cause of high inflation, there is a vicious circle. This is particularly acute after the collapse of the currency which has unleashed very high inflation and hence the need for high interest rates, but in the budget this will markedly increase the interest rate burden, thwarting attempts to restore balance and remove the inflationary pressures in the economy” Peter Robinson, (1999)

In 2017 the World Bank is reporting the same issues which were the core of the problems that lead to the depression and hyper-inflation post 2000. Fiscal imbalances lie at the core of Zimbabwe’s ongoing financial crisis, the central government’s fiscal cash deficit was reported to have moved to 10% of GDP in 2016, up from 2.3% the previous year (World Bank 2017). Zimbabwe inherited a controlled economy in 1980 by 1989 large deficits had occurred in the balance of payments in addition to the huge budget deficits (African Development bank). The government in the 1980s increased civil service employment and spending on social services which led to high taxes and a serious budget deficit which was financed by public borrowing. The reason for Economic Structural Adjustment Programme (ESAP) was budget deficits, and also the chief reason for its failure was the inability of government to reduce budget deficits. The budget deficits of post 2000 led to hyper-inflation as the government kept on printing money to finance the deficits which led to hyper-inflation. The World Bank also further states that country’s public sector spending is high compared to other countries of similar income and size.  Public spending is estimated at 50 percent of Zimbabwe’s GDP. The budget deficits are too much and are preventing growth unless the government is able to control the budget deficits the economy will keep contracting. The recent policies to establish a new university at a cost of US $1 billion testifies of some of the government spending which leads to deficits. It seems going forward the government will keep financing deficits with bond notes, a much similar strategy of post 2000 of financing budget deficits through printing money. The only reasonable economic growth rates were realized during the time of the inclusive government where a balanced budget approach was adopted.