Macroeconomic resilience and the Debt-Investment Nexus in Zambia Empirical insights for sustainable growth
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Abstract
This study provides a thorough quantitative analysis of Zambia’s macroeconomic performance from 2010 to 2023. It focuses on the relationship between external debt, inflation, investment, and economic growth. The study uses time-series data mainly from the World Bank and advanced econometric techniques in Jamovi and RStudio to investigate the determinants of GDP growth and debt sustainability. Descriptive statistics reveal persistently high and volatile inflation averaging 10.51%, moderate yet unstable GDP growth averaging 4.49%, and significant external debt stress, evidenced by an average debt-to-GNI ratio of 69.77%. Correlation analysis indicates a strong negative relationship between external debt and GDP growth (r = -0.705, p = 0.005) and a negative correlation between foreign direct investment (FDI) and external debt (r = -0.539, p = 0.047). This suggests the crowding-out effect of debt on investment. Regression models further substantiate these relationships. External debt has a negative effect on GDP growth, which is statistically significant (coefficient = -0.0405, p = 0.032). This confirms the debt overhang hypothesis. Additionally, external debt significantly increases debt servicing obligations as a percentage of both GNI (coefficient = 0.05875, p = 0.003) and exports (coefficient = 0.1292, p = 0.015). This underscores Zambia’s vulnerability to debt burdens and trade shocks. However, foreign direct investment (FDI) alone does not mitigate debt servicing pressures. Moderation analysis reveals that the positive impact of FDI on growth diminishes as debt levels rise, resulting in a significant negative interaction effect (coefficient = -0.00936, p = 0.042). This finding underscores the conditional effectiveness of FDI in high-debt environments. The study identifies inflation, inefficient public investment, and high external debt as challenges that reinforce each other and undermine Zambia’s economic resilience and sustainable growth. Theoretical implications validate well-established economic concepts, such as debt overhang, crowding-out, and the conditional nature of foreign direct investment (FDI) benefits. Practical recommendations emphasize debt restructuring, inflation stabilization, public investment reform, export diversification, and institutional capacity building. Ultimately, this study provides policymakers with an evidence-based roadmap for overcoming Zambia’s macroeconomic vulnerabilities and promoting inclusive, long-term development.
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