Government debt, government debt service and economic growth nexus in Zambia: a multivariate analysis

This paper explores the causal relationships between public debt and economic growth, and between public debt service and economic growth in Zambia for the period from 1970 to 2017. Unlike previous studies on this subject that relied on bivariate frameworks, this paper includes fiscal balance and savings as intermittent variables to minimise the problem of omission-of-variable bias. Using a dynamic multivariate autoregressive-distributed lag (ARDL)-bounds testing approach, the results indicate that there is unidirectional Granger-causality from economic growth to public debt in Zambia, irrespective of whether the analysis is done in the short run or in the long run. The study results, however, fail to find any causality between public debt service and economic growth in Zambia. These study findings support the hypothesis that the pace of economic growth matters in defining the level of public sector indebtedness. The study, therefore, recommends that the Zambian government should channel borrowed funds towards the expansion and diversification of the country’s economy. This will promote its long-term economic growth, broaden its revenue base, and enhance its ability to repay its financial obligations when they fall due.

Abstract licence: CC BY

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