The Nexus Between Fiscal Deficit and Inflation in Mozambique: ARDL Model Approach

This study investigates the relationship between fiscal deficits and inflation in Mozambique from January 2017 to December 2023 using an Autoregressive Distributed Lag (ARDL) model. Monthly data on inflation, money supply, and interest rates were collected from official sources, while annual fiscal deficit and public debt figures were converted into monthly values. The Phillips-Perron (PP) test was applied to assess stationarity, the ARDL bounds test examined long-run relationships, and the Error Correction Model (ECM) captured short-run dynamics. The results confirm a significant long-run relationship between fiscal deficits and inflation, with a 1% increase in the fiscal deficit leading to a 0.0089% rise in inflation. Money supply strongly influences inflation, while public debt exhibits a negative long-run relationship. These findings highlight the importance of coordinated fiscal and monetary policies to ensure macroeconomic stability in Mozambique.