Effect of Public Debt on Welfare of Small and Medium Enterprises (SMEs). A Case Study of Kafue district

In recent years, public debt has become a significant concern for both policymakers and economists globally, particularly as it has been observed to influence the welfare of Small and Medium Enterprises (SME). Public debt can provide financial support to boost growth, infrastructure development, and performance of Small and Medium Enterprises. however, excessive borrowing or poor debt management can lead to inflationary pressures, high tax burdens, and reduced public investment. This study examined the influence of public debt on the welfare of Small and Medium Enterprises (SMEs) in Kafue District, with a specific focus on three specific objectives. The first being, SMEs spending on production. The impact on investment capacity of SMEs and lastly, credit accessibility of SMEs in Kafue. A conceptual framework effectively illustrated the relationship between public debt (independent variable) and the welfare of Small and Medium Enterprises (dependent variable). A cross-sectional research design was employed, and quantitative data were collected from a sample of 50 SMEs selected through stratified random sampling. Primary data were gathered using a structured questionnaire and analyzed using SPSS, employing descriptive statistics, Chi-square tests, ANOVA, and regression analysis. Among others, the results revealed that SMEs in Kafue face increasing production costs, particularly in relation to utility expenses. Descriptive results revealed that electricity (36%) and water supply (32%) were the most essential utilities for business operations. A notable 32% of respondents reported that utility bills had shifted from affordable to barely affordable, largely attributed to high taxes (40%) and the inflation (30%). The regression model assessing determinants of SME profitability was statistically significant (R² = 0.607, p < 0.001), indicating that 60.7% of variations in profitability were explained by investment levels, utility spending, and credit access. All predictors were significant, with utility bills (β2 = 0.687, p < 0.001), investment rate (β2 = 0.261, p = 0.009), and credit allocation (β3 = 0.368, p < 0.001) contributing positively to profitability. The study also reveals that SMEs are highly responsive to the economic factors such as; high taxes, high interest rates, and the nature of requirements for guarantors dissuade SMEs from accessing credit. Thus, the study concludes that public debt management is key to welfare and financial sustainability for SMEs.