The Dynamics of Public Debt in Zambia: A Critical Review

This paper critically discusses the dynamics of public debt, both domestic and foreign, in Zambia and how it has influenced the economy’s growth process over the period from 1964 to 2015. The structural and institutional reforms as well as the legal and public finance administrative frameworks that shaped the level, structure, and composition of public debt stock in Zambia over the review period were highlighted in the paper. Two distinct episodes of public debt were identified. The first phase is from 1980 to 2004, in which public debt surpassed gross domestic product. The second phase is from 2005 to 2015, in which public debt-GDP ratio was on a declining path following the implementation of public debt relief initiatives and a boom in economic activities. Although Zambia’s government debt is currently sustainable according to International Monetary Fund/World Bank indicative thresholds, the country, like many other lower middle-income countries, is still experiencing some debt management challenges emanating from weak debt institutional frameworks. The study, therefore, recommends that the government: (1) limits both domestic and foreign borrowing to reduce high interest payments on debt in future; (2) aligns its infrastructure expenditures with domestic revenues to ensure budget sustainability; (3) implements and adheres to cash budgeting system to control fiscal deficits; and (4) expands its domestic revenue base by diversifying the economy and promoting massive industrialisation.