THE IMPACT OF DEBT SERVICE ON ECONOMIC GROWTH IN A SMALL ISLAND DEVELOPING STATE: A CASE STUDY OF ZANZIBAR

Abstract

This study examines the relationship between Zanzibar’s debt service and economic growth (GDP per capita) from 1987 to 2022. Employing a Vector Error Correction Mechanism (VECM) with time series data, we analyze the long-run impact of debt service on growth. While our results show a positive correlation, it’s not statistically significant. This suggests that effective debt management, fostering investor confidence and stability, can potentially stimulate growth. The study emphasizes the importance of balanced debt strategies and informed policymaking for Zanzibar’s sustainable development. It highlights the complexities of debt-growth dynamics, underlining the need for fiscal discipline and prudent debt management for long-term prosperity. This research offers valuable insights for policymakers navigating debt and economic policy in island economies.

Keywords

• debt service
• economic growth
• sids