The Impact of Public Debt on Economic Growth in Zimbabwe from 1980 – 2020

Author

Kapeta, Elizabeth. T

Title

The Impact of Public Debt on Economic Growth in Zimbabwe from 1980 – 2020

Abstract

The purpose of this study was to ascertain how Zimbabwe's government debt impacted
economic growth. The study was motivated by the government's reliance on borrowing money
from outside sources to address the debt problem and the notion that finding new sources of
outside funding is the primary objective in doing so. Therefore, even though the nation's debt
is large and has become unmanageable, there is evidence that more borrowing is necessary.
Zimbabwe's real growth rate has generally been declining, but the public debt of the nation is
increasing. This may suggest that Zimbabwe's real growth rate is being constrained by the
nation's mounting national debt. This study examines the impact of Zimbabwe's public debt on
economic growth between 1980 and 2020. The public debt stock is divided into domestic and
external debt in order to evaluate the impact of each debt type independently on economic
development. The data was placed through diagnostic analysis prior to estimation. Long-term
correlations were established between the variables real economic growth, domestic debt,
foreign debt, budget deficit, external debt payment, and investment. A short-run Error
Correction Model (ECM) must be used to represent the dynamics in short-run disequilibrium
toward the long-run equilibrium. The empirical results showed that foreign debt has both a
long-term and short-term negative effect on Zimbabwe's real growth rate. Zimbabwe clearly
has a "debt overhang" as a result of this. Long-term economic growth is positively impacted
by domestic debt. Although negative, the effect is insignificant in the near run. The research's
conclusions have a number of policy implications. Zimbabwe needs to strengthen its debt
management in order to keep the state debt within reasonable bounds. The country can gain
from debt-to-equity swaps by privatizing failed parastatals. As a result, they would become
aggressive and efficient. By increasing jobs and attracting more foreign direct investment, this
step may enhance Zimbabwe's actual growth rate

Date

2022

Publisher

BUSE

Keywords

Economic Growth

Public Debt

Supervisor

N/A