Government expenditure and economic growth in Zimbabwe

The International Monetary Fund’s (IMF) 2017 Article IV Consultation report on Zimbabwe’s economic update claims that unchecked government expenditure could be a hindrance to long term economic growth. Therefore, particularly on public wages, effort is required to cut general consumption in favour of investment expenditure. Testing this claim requires separating the effects of government general consumption and government investment expenditure on economic growth. Applying the ARDL, DOLS, FMOLS and CCR techniques for the period of 1979 – 2017, this paper finds a significantly positive causal effect between both expenditure components on long term economic growth in Zimbabwe. Investment expenditure has a larger effect (0.1 – 0.8%) in comparison to consumption expenditure (0.02% – 0.03%). Based on the evidence, this paper argues that the IMF’s advice of expenditure cuts to raise growth in Zimbabwe could be empirically misleading as such advice is not supported by the data analysed.