The Impact of government debt on economic growth in Zimbabwe; 1980 – 2024

Abstract

This study examines the impact of government debt on economic growth in Zimbabwe from 1980 to 2024, using the Autoregressive Distributed Lag (ARDL) approach. The results reveal that external debt has a significant negative effect on economic growth, supporting the debt overhang hypothesis, while domestic debt exhibits a positive but smaller impact. Debt service payments severely constrain growth, whereas foreign reserves, foreign direct investment, and gross fixed capital formation are key growth drivers. The study recommends debt restructuring, prudent borrowing, enhanced revenue mobilization, and investment in productive capacity to achieve sustainable economic growth and debt sustainability. The study's reliance on aggregate debt variables obscures critical nuances in debt composition and utilization, particularly in distinguishing between productive investments and unproductive expenditures within Zimbabwe's complex debt structure. Future research should investigate the non-linear threshold effects of government debt on economic growth in Zimbabwe to identify precise debt-to-GDP tipping points and the mediating role of institutional quality.