article · WSEAS Transactions on Information Science and Applications archive
Examining the relationship between government borrowing and monetary conditions provides vital insights for economic management across Southern Africa. Focusing on Botswana, Namibia, South Africa, Zambia, and Zimbabwe from 2010 to 2025, the research analyses how a composite index of money supply, interest rates, and exchange rates interacts with public debt levels. Using Granger causality tests and vector autoregressive modelling, the analysis identifies a bidirectional short-run relationship between this composite financial index and public debt accumulation. Fluctuations in monetary conditions directly influence government debt accumulation, whilst changes in public debt simultaneously feed back to alter domestic monetary and financial environments. Robustness checks confirm these dynamic feedback loops remain stable. Consequently, effective debt management and economic stability require close coordination between fiscal authorities and central banks to mitigate macroeconomic volatility across the region.
National debt and financial conditions do not operate in isolation. When government borrowing expands, it shifts interest rates, money supply, and currency values, which in turn feed back into higher debt burdens. Recognising these interconnected short-run feedback effects helps policymakers design coordinated fiscal and monetary interventions, safeguarding national economic stability and reducing financial volatility across developing economies.
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his study investigates the short-run causal relationship between public debt (PD) and the interactions of money supply, interest rates, and exchange rate—captured through the composite Money Supply–Interest Rate–Exchange Rate (MIE) index—in five Southern African countries: Botswana, Namibia, South Africa, Zambia, and Zimbabwe, using annual panel data from 2010 to 2025. An understanding of the dynamic feedback effects of the interaction of macroeconomic variables on the dynamics of debt is important. The study employs Granger Causality tests and Vector Autoregressive (VAR) modeling techniques to capture both directional relationships and dynamic feedback effects. The results reveal a bidirectional causal relationship between the MIE index and public debt, suggesting that changes in money supply, interest rates, and exchange rates have a significant effect on debt accumulation, while changes in public debt also affect monetary and financial conditions in the short run. Robustness checks using lagged VAR specifications confirm the stability of the findings. The results of the study have vital policy implications for fiscal and monetary policy coordination for manageable debt sustainability, reduced macroeconomic volatility, and improved economic stability.
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DOI: 10.37394/23209.2026.23.48
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