The impact of public debt service on economic growth:Empirical evidence from Zambia

Abstract

This study contributes to the existing public debt service-economic growth nexus by examining the impact of public debt service on economic growth in Zambia using time-series method, covering the period from 1970 to 2017. The study employs the autoregressive distributed lag (ARDL) bounds analysis technique, which permits the simultaneous estimation of the long- and short-run model parameters. Overall, the empirical results reveal that the impact of government debt service on economic growth, in Zambia, is time-variant. Whereas the neutrality of public debt service on economic growth is confirmed in the long run, in the short run the relationship is negative. To achieve macroeconomic stability and realise sustainable economic growth rates, the paper recommends that the Zambian government, among other things, undertake active fiscal consolidation to ensure that debt repayments do not cause excessive budget overruns and are not financed from new debt; and continuously improve public debt management strategies and policies to smoothen the government debt redemption profile.