An Assessment of the Impact of Debt Financing on Infrastructure Development in Zambia from 1990 to 2023

Abstract

The study empirically examined the impact of debt financing on infrastructure development in Zambia for the period of 1990 to 2023 using an Auto Regressive Distributed Lag Model (ARDL). In order to conduct the analysis, Infrastructure Development Index, Total Debt Servicing, Government Expenditure and Domestic Tax time series data were used. The ARDL Model was employed because the variables in the study had a mixed order of integration, and the ARDL bounds test was conducted to determine the long-run relationship among the variables of interest respectively. There was found to be one co-integrating equation, therefore establishing that there exists a long-run relationship. Consequently, the empirical findings of the study provide evidence that there exists a negative significant long-run relationship between debt financing and infrastructure development in Zambia, owing to the fact that a high level of public debt can have adverse effects on the macroeconomic stability, discouraging capital inflows, while favouring capital flight. The government expenditure and government domestic tax revenue were found to have a positive and significant effect on infrastructure development in Zambia, in the long-run. Therefore, policymakers should prioritise strengthening governance structures to ensure that infrastructure projects are executed efficiently and sustainably. Additionally, a robust tax system would provide the government with the financial resources needed for long term infrastructure projects. Keywords: Debt Financing, Infrastructure Development index, Total Debt Servicing, Government Expenditure, Domestic Taxes, Autoregressive Distributed Lag Model (ARDL).