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How does expenditure switching and expenditure changing policies by Zimbabwe contribute to monetary policy instability?

By Clemence Mupfunya The article outlies the macroeconomic effects of an open economy with expenditure changing and switching policies that can stabilise the Zimbabwean economy. Due to the continuous economic instability faced by ordinary Zimbabweans, it is vital for the government of Zimbabwe to try and stabilise the economy by implementing expenditure switching and changing policies. Expenditure switching policies are measures that shift expenditure between the domestic and external sectors, typically by increasing exports and decreasing import of goods and services. Exchange rate adjustment is often combined with monetary and fiscal tightening as part of a comprehensive adjustment programme featuring both expenditure-changing and expenditure-switching measures. Zimbabwe has plunged into a grave crisis over the past few decades as a result of fiscal profligacy, an erosion of competitiveness, and bad governance that have undermined investor confidence and curtailed access to international financing. These difficulties have also generated increasingly negative externalities on neighboring countries, which the Zimbabwean authorities need to be mindful of. Efforts to stabilise and reform Zimbabwe’s economy under the programme supported by the 1999 stand-by arrangement were quickly eclipsed by new unsustainable spending initiative that crowded out the private sector.

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