Technical Paper: Public Debt And Economic Growth In Namibia: The Threshold Effect

By Bernie P. Zaaruka
2008

The purpose of this study was to shed light on the optimal debt level in Namibia. Governments undertake borrowing to address the gap between total resources available to an economy over a given period and expenditure that is needed to contribute to economic growth, if properly utilized. Using the framework of endogenous growth models which seeks to explain the non-linear effects of debt on growth, we showed that the optimal level of debt is about 38 percent of GDP. In other words, when total debt exceeds this level, its marginal impact on the performance of the Namibian economy becomes negative.