An Analysis of the Impact of Public Debt on Economic Growth in Zambia (1990–2020)

Abstract

Research Aims: This study examines the relationship between Zambia’s national debt and its economic expansion. Specifically, it investigates how central government debt, foreign direct investment (FDI), total debt service, and gross capital formation influence real GDP per capita over the period 1990 to 2020.

Design/Methodology/Approach: An Autoregressive Distributed Lag (ARDL) model estimated using EViews statistical software was employed. Annual time series data spanning 1990–2020 were sourced from the World Development Indicators (WDI) database maintained by the World Bank. The model examines both short-run and long-run associations between the independent variables’ central government debt, FDI, total debt service, and gross capital formation and real GDP per capita.

Research Findings: In the short run, all four independent variables exert a statistically significant influence on real GDP per capita. A 1% increase in total debt service corresponds to a 0.33% rise in real GDP per capita; an increase in central government debt results in a slight decrease of 0.001%; FDI exhibits a positive impact with a 1% increase leading to a 0.02% increase; while gross capital formation has a negative effect, causing a 0.004% decline. In the long run, FDI and gross capital formation have a positive effect on economic growth, whereas total debt service and central government debt negatively impact growth—a 1% increase in central government debt corresponds to a 0.002% decrease in real GDP per capita.

Theoretical Contribution/Originality: This study contributes to the growing body of literature on sovereign debt and economic growth in Sub-Saharan Africa by applying an ARDL framework to three decades of Zambian data. The findings highlight the importance of cautious debt management and promotion of FDI for long-term economic development, providing policymakers with empirical evidence to inform sustainable fiscal strategies. The study provides original insights into the differential short-run and long-run effects of public debt components on economic performance in a heavily indebted developing country context.