Browsing by Author "Makhaba, Sixolile"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    The impact of debt financed expenditure on economic growth: case of South Africa
    (University of Fort Hare, 2025-06) Makhaba, Sixolile
    This study assesses the impact of debt-financed government expenditure on economic growth in South Africa over the period 1994 to 2022. Against a backdrop of growing public debt, subdued economic growth, and structural fiscal challenges, the research utilizes the Autoregressive Distributed Lag (ARDL) model to evaluate both the short-run and long-run dynamics between public debt and economic performance. The model is particularly suited for small samples and helps address potential endogeneity among variables. Quarterly time series data and dummy variables accounting for the Global Financial Crisis and the COVID-19 pandemic are employed to capture structural breaks and shocks. Empirical findings reveal that while debt-financed expenditure can stimulate short-term growth, its long-run effects are predominantly negative when debt surpasses sustainability thresholds. Specifically, the results indicate the presence of a nonlinear relationship, with positive growth effects observed only when the debt-to-GDP ratio remains below a certain threshold (~37%). Beyond this point, rising debt levels crowd out private investment, increase debt service burdens, and constrain fiscal space. Additionally, the study underscores the importance of governance and institutional quality in enhancing the effectiveness of debt-financed expenditure. The findings emphasize the critical need for South Africa to recalibrate its fiscal policy, improve debt management, and prioritize productive investments to ensure that public debt supports rather than impedes long-term economic growth.