Impact of macroeconomic indicators and regime change on debt stress in Zambia

Abstract

This paper quantifies the economic impact of regime changes and macroeconomic indicators on debt stress in Zambia using the Autoregressive Distributed Lag (ARDL) Bounds test. A 1% short run increase in gross domestic products (GDP) increases debt stress by 3.16% and in the subsequent year lowers it by 7.21%; in the long-run the 1% GDP increases lowers debt stress by 22%. In the long-run, a 1% rise in inflation and the lending rate negatively and positively impacted debt stress levels by -1.52% and 3.90%, respectively. Short-run shocks culminated regime change had short-run adverse impact on debt stress by 3.45% in one year and in the subsequent year by -10.35%, with the variables adjusting to long-run equilibrium at a speed of 71.5%. This is the first paper to quantify the empirical effect of macroeconomic indicators and change in Presidents on debt stress, especially in Africa were the problem of the debt trap is perpetuated. The results from the study implies that to deescalate the impact of debt stress on the economy, the electorate should vote in governments that will not fall short on growth driven macroeconomic policies, making it possible for economic sustainability to prevail; and paper seeks to promote good governance and good economic policies as a premise for sustained macroeconomic stability and development.