Re-visiting the External Debt-Economic Growth Question in Zimbabwe

External Debt-Economic Growth Question in Zimbabwe

  • Brian Tavonga Mazorodze Ph.D. Candidate
Keywords: Fiscal Policy, External Debt, Threshold, GDP per capita, Zimbabwe


This paper quantifies the threshold effect of external debt on economic growth in Zimbabwe between 1980 and 2016. Results from the Fully Modified Ordinary Least Squares (FMOLS) technique confirm that external debt (up to 57% of GDP) raises economic growth. Beyond the 57% of GDP threshold, external debt lowers growth. A separate analysis of variance shows that the mean GDP per capita is lower by 11% when external debt exceeds 57%. From the sample average, the 57% of GDP threshold suggests that debt stock above 4.7 billion USD can be detrimental to the country’s long-run growth prospects. Currently, Zimbabwe’s external debt is standing at over 11 billion USD which is way above the estimated threshold level. Therefore, the policy implication arising from this paper is that the country’s Finance Minister needs to pursue debt-reduction strategies given that the country’s stock of external debt is already sitting in the growth-reducing territory.


Download data is not yet available.


Adam, C.S. and Bevan, D.L., 2005. Fiscal deficits and growth in developing countries. Journal of Public Economics, 89(4), pp.571-597.
Aizenman, J., Kletzer, K. and Pinto, B., 2007. Economic growth with constraints on tax revenues and public debt: implications for fiscal policy and cross-country differences (No. w12750). National Bureau of Economic Research.
Atique, R. and Malik, K., 2012. Impact of domestic and external debt on the economic growth of Pakistan. World Applied Sciences Journal, 20(1), pp.120-129.
Borensztein, E., 1990. Debt overhang, credit rationing and investment. Journal of Development Economics, 32(2), pp.315-335.
Cohen, D., 1993. Growth and external debt (No. 778). CEPR Discussion Papers.
Cohen, D., 1993. Low Investment and Large LDC Debt in the 1980's. The American Economic Review, pp.437-449.
Cohen, D., 1997. Growth and external debt: A new perspective on the African and Latin American tragedies (No. 1753). London: Centre for Economic Policy Research.
Cordella, T., Ricci, L.A. and Ruiz-Arranz, M., 2010. Debt overhang or debt irrelevance?. IMF Staff Papers, 57(1), pp.1-24.
Chowdhury, K., 1994. A structural analysis of external debt and economic growth: some evidence from selected countries in Asia and the Pacific. Applied Economics, 26(12), pp.1121-1131.
Checherita-Westphal, C. and Rother, P., 2012. The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European economic review, 56(7), pp.1392-1405.
Clements, B., Bhattarcharya, R. and Nguyen, T.Q. (2003). “External Debt, Public Investment and Growth in Low Income Countries”. IMF Working Paper No. 03/249
Diamond, P.A., 1965. National debt in a neoclassical growth model. The American Economic Review, 55(5), pp.1126-1150.
Herndon, T., Ash, M. and Pollin, R., 2014. Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge journal of economics, 38(2), pp.257-279.
Ijirshar, V.U., Joseph, F. and Godoo, M., 2016. The Relationship Between External Debt and Economic Growth in Nigeria. International Journal of Economics & Management Sciences, 6(1), pp.1-5.
IMF.,2017. Staff Report for the 2017 Article IV Consultation – Debt Sustainability Analysis.
Kharusi, S.A. and Ada, M.S., 2018. External Debt and Economic Growth: The Case of Emerging Economy. Journal of Economic Integration, 33(1), pp.1141-1157.
Krugman, P., 1988. Financing vs. forgiving a debt overhang. Journal of development Economics, 29(3), pp.253-268.
Malik, S., Hayat, M.K. and Hayat, M.U., 2010. External debt and economic growth: Empirical evidence from Pakistan. International Research Journal of Finance and Economics, 44(44), pp.1450-2887.
Matandare, M.A. and Tito, J., 2018., Public Debt and Economic Growth Nexus in Zimbabwe. Journal of Economics and Sustainable Development, Vol.9, No.2.
Munzara, A.T., 2015., Impact of Foreign Debt on Economic Growth in Zimbabwe. Journal of Economics and Finance, Vol.6, Issue 5., pp 87-91.
Muranganwa, P., 2012. An assessment of the impact of external debt on economic growth in Zimbabwe [1985-2009] (Doctoral dissertation, BUSE).
Ndubuisi, P., 2017. Analysis of the Impact of External Debt on Economic Growth in an Emerging Economy: Evidence from Nigeria. African Research Review, 11(4), pp.156-173.
Nyarota, S., Kavila, W., Mupunga, N. and Ngundu, T., 2015. An empirical assessment of binding constraints to Zimbabwe’s growth dynamics. Reserve Bank of Zimbabwe.
Pattillo, C.A., Poirson, H. and Ricci, L.A., 2002. External debt and growth (No. 2002-2069). International Monetary Fund.
Poirson, M.H., Ricci, M.L.A. and Pattillo, M.C.A., 2004. What are the channels through which external debt affects growth?(No. 4-15). International Monetary Fund.
Reinhart, C.M. and Rogoff, K.S., 2010. Growth in a Time of Debt. American Economic Review, 100(2), pp.573-78.
Sachs, J.D., 1989. Conditionality, debt relief, and the developing country debt crisis. In Developing Country Debt and Economic Performance, Volume 1: The International Financial System (pp. 255-296). University of Chicago Press.
Saint-Paul, G., 1992. Fiscal policy in an endogenous growth model. The Quarterly Journal of Economics, 107(4), pp.1243-1259.
Saungweme, T. and Mufandaedza, S., 2013. An empirical analysis of the effects of external debt on poverty in Zimbabwe: 1980–2011. International Journal of Economics and Research, 4(6), pp.20-27.
Schclarek, A., 2004. Debt and economic growth in developing and industrial countries. Lund University Department of Economics Working Paper, 2005, p.34.
Senadza, B & Fiagbe,A.K & Quartey, P., 2017. "The Effect of External Debt on Economic Growth in Sub-Saharan Africa," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 11(1), pages 61-69, December.
Shabbir, S., 2013. Does external debt affect economic growth: Evidence from developing countries (No. 63). State Bank of Pakistan, Research Department.
Shkolnyk, I. and Koilo, V., 2018. The Relationship Between External Debt and Economic Growth: Empirical Evidence from Ukraine and Other Emerging Economies. Innovations, 15(1), pp.387-400.
Spilioti, S. and Vamvoukas, G., 2015. The impact of government debt on economic growth: An empirical investigation of the Greek market. The Journal of Economic Asymmetries, 12(1), pp.34-40.
Smyth, D.J. and Hsing, Y., 1995. In search of an optimal debt ratio for economic growth. Contemporary Economic Policy, 13(4), pp.51-59.
Warner, A.M., 1992. Did the debt crisis cause the investment crisis?. The quarterly journal of economics, 107(4), pp.1161-1186.
Were, M., 2001. The impact of external debt on economic growth in Kenya: An empirical assessment (No. 2001/116). WIDER Discussion Papers//World Institute for Development Economics (UNU-WIDER).
Woo, J. and Kumar, M.S., 2015. Public debt and growth. Economica, 82(328), pp.705-739.
How to Cite
Mazorodze, B. T. (2020). Re-visiting the External Debt-Economic Growth Question in Zimbabwe. Journal of Economics and Behavioral Studies, 12(2(J), 1-8.
Research Paper