The Effect of Public Debt on Economic Growth in Zambia (1990-2023)

This study uses annual time-series data to investigate how public debt affects economic growth in Zambia. Even while public debt levels are rising, there is still conflicting empirical data regarding its effects on growth, especially in developing nations. The study uses a Vector Error Correction Model (VECM) to close this gap by differentiating between the long-term and short-term dynamics of the link between public debt and economic growth. The findings verify that public debt, inflation, interest rates, economic growth, and other macroeconomic variables have a long-term cointegrating relationship. Public debt is found to have a negative but statistically inconsequential long-term impact on economic growth, indicating that debt buildup by itself does not always limit growth. However, short-term growth performance is adversely affected by macroeconomic volatility and debt servicing constraints. After short-term shocks, the error correction term is statistically significant and negative, suggesting a steady adjustment process toward long-run equilibrium. The results suggest that the quality of debt utilization and the efficacy of complementary macroeconomic measures, rather than the total amount of public debt, are Zambia's growth challenges. Therefore, leveraging public borrowing to achieve sustainable economic growth requires strengthening debt management, increasing investment efficiency, and maintaining macroeconomic stability.