Analysis of the Relationship Between Fiscal Deficits and Debt Accumulation in Zambia

Abstract

Zambia has experienced structural deficits for decades and these have been viewed as the main cause of debt accumulation. Despite heavy investment in infrastructure and other sectors, the country faces low revenue relative to rising cost of debt. Objective: to establish whether deficit financing is the cause of high debt in Zambia. Method: Using secondary data and an archival strategy, data was analyzed through a mixed research choice which required both qualitative and quantitative data to be presented together. This involved using descriptive and analytical approaches. Findings: It was found that Zambia cannot survive without borrowing and this is the main cause for debt accumulation. The reason is that investments do not adequately contribute towards covering debt servicing costs. The country’s reliance on copper exports is the main reason for continuous deficits as the country fails to diversify the economy in order to increase income streams. In addition, Zambia generates growth which is not sufficient to cover the debt servicing burden. Conclusions and Recommendations: The study concluded that Zambia needs to control it’s key resource, mining, to ensure that proceeds are maximized and invested into agriculture and in boosting the manufacturing sector. The country needs to focus on generating the fiscal surplus of 1.32 of GDP to make the debt ratio of 60 percent to be sustainable.