Shifidi, Achiles Nafimakekwe2019-01-292019-01-292018http://hdl.handle.net/11070/2435A thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science in EconomicsOne of macro-economic theories suggests that there exists a causal relationship running from budget deficit to current account deficit, and this concept is referred to as the Twin Deficit Hypothesis. Previous studies on the twin deficit hypothesis generated mixed findings. Some of the studies supports the hypothesis while others do not. This study is aimed at analysing the relationship between budget deficit and current account deficit in Namibia, while taking into account interest and exchange rates as intermediating variables in the transmission mechanism. The study used the quarterly time series data covering the period 1990 first-quarter to 2014 quarter-four. The study employs the following variables; budget balance, current account balance, exchange rate, and interest rate. The Unrestricted Vector auto Regression technique was employed to analyse the relationship. The result shows that budget deficit does influence current account deficit in Namibia. However, interest rate and exchange rate were insignificant in influencing both current account and budget balance. The results supports the Keynesian theory that there is a positive uni-directional relationship between budget deficit and current account deficit, and the direction of causality runs from budget deficit to current account deficit. It is therefore, recommended that the Government of the Republic of Namibian should maintain a favourable budget balance in order to improve current account balance.enBudget deficitThesis