The Impact of Public Debt Growth and Public Investment on Economic Growth in Tanzania: Time Series Analysis (1993 – 2024)

Abstract

This study aims to investigate the impact of public debt growth and public investment on economic growth in Tanzania from 1993 to 2024, using yearly data. The study employs the Vector Error Correction Model (VECM) to determine the short- and long-run dynamics among the variables. The results indicate that public debt has mixed effects on economic growth. In the short run, it has a negative effect, but in the long run, it can be positive. This means that if public debt is used wisely, especially for projects that bring future benefits, it can help the economy grow. Public investment, on the other hand, has a positive and significant effect on long-run economic growth. The study found that public investment and interest rates granger-cause economic growth, and that public debt influences public investment. These findings suggest that managing debt responsibly and making sure investments are used effectively are important for Tanzania’s economy. The study suggests that the government should improve fiscal control, ensure borrowed funds are used productively, and build a better system to enable investment to work effectively.