Does public debt impact economic growth in Zambia? An ARDL -bounds testing approach

Abstract

This study examines the dynamic impact of aggregate public debt on economic growth in Zambia from 1970 to 2017. In the analysis, the study also estimated the relative impact of domestic public debt and foreign public debt on economic growth in Zambia. Using the autoregressive distributed lag (ARDL) bound testing methodology, the results show that aggregate public debt has a positive impact on economic growth in Zambia, both in the short run and in the long run. The empirical results further reveal that the relative impact of public debt on economic growth in Zambia is dependent on the type of debt under consideration and is time-invariant. Domestic public debt was seen to be negatively related to economic growth, while its foreign counterpart had a positive impact, both in the short run and in the long run. To ensure sustainable economic growth and sustainable public debt levels, the study recommends the country to, among other things, match financial resources with the country’s absorptive capacity; continuously and effectively manage its debt composition and structure to reduce currency and maturity risks; and to continue implementing structural and financial reforms that promote the efficient utilisation of public debt, such as, expanding the tradable sectors.