Defining fiscal space
Fiscal space is defined by the balance between government revenue (i.e. tax), denoted by T and government expenditure, denoted by G, through time. For instance, if G < T, then there is a fiscal surplus, but if G > T, then there is a fiscal deficit. A sustained or perpetual deficit through time results in build-up of annual deficits, leading to an unsustainable high debt. With a high level of debt, the government cannot borrow on the international market, and its ability to finance future deficits, i.e. the fiscal space is limited.
Zimbabwe currently endures very limited fiscal space since debt distress is undermining the capacity of the country to service its debt obligations. Accumulation of external payment arrears since 2000 (including interest charges) has resulted in public and publicly guaranteed debt reaching 51% of GDP and was projected to reach US$7.2 billion by December 2014 (Chinamasa, 2014).
Fiscal space is constraining agricultural growth
I have just been thinking about Africa lately. Our continent is currently at a crossroads, we can either make it or break it. It is becoming apparent to the world that the future of food production and agribusiness is strongly linked to Africa. The continent still has potential to expand area under production and to intensify production through new technologies. The developed countries are well aware of this and seem to be ready to do business with Africa. But where is the deadlock? Why is the puzzle not fitting together?
In addition to the resources advantages of good land, climate and minerals, Africa has another advantage - a burgeoning and most youthful population. While the developed world has to deal with an ageing population, Africa is carrying a 'ticking time bomb' or a demographic dividend for the continent - the youth. If these young men and women do not get jobs or fail to become true value-creating entrepreneurs, the whole continent could just explode! But if they…