International Journal of Research and Innovation in Social Science (IJRISS) |Volume VI, Issue XI, November 2022|ISSN 2454-6186
Modelling and Forecasting Foreign Debt Using ARIMA Model: The Zambian Case from 2022 to 2035
Julius Zulu1*, Gardner Mwansa2
1The University of Zambia, Department of Mathematics and Statistics, Lusaka, Zambia
2Walter Sisulu University, Department of Information Technology, East London, South Africa
*Corresponding Author
Abstract: The study sought to model and forecast Zambian Government foreign debt from 2022 to 2035 using Autoregressive Integrated Moving Average Model. The secondary data of time series during the period of 1973 to 2021 on Zambia’s foreign debt are used as the basis of forecasting for the next 15 years by using ARIMA (Autogressive Integrated Moving Average) Model. The ARIMA (1, 1, 2) model was used due to its accuracy, mathematical soundness, and flexibility, thanks to the inclusion of AR and MA terms over a regression analysis. The results showed that ARIMA (1, 1, 2) is an adequate model which best fits foreign debt time series datadue to the smaller deviations in the mean absolute percentage error and mean square error and its errors are smaller than Moving Average (MA), Generalized Autoregressive Conditional Heteroskedasticity Model (GARCH), Simple Exponential Smoothing (SES), Error, Trend and seasonal model (ETS), Double Exponential Smoothing (DES), Seasonal Autoregressive Integrated Moving Average (SARIMA), Vector Autoregressive Model (VAR), Vector Error Correction Model (VECM), Threshold Autoregressive model (TAR), Triple Exponential Smoothing (TES), hybrid ARIMA, and Artificial Neural Network Model (ANN). The results show that the value of the Zambia’s foreign debt is predicted to keep increasing from 2022 to 2035 amounted to USD 80.5862 billion. The results also show that compared to government debt in 1973, within 49 years, Zambia’s foreign debt is predicted to rise by 209.34%.
I. INTRODUCTION
Since independence, the need for development programs is increasing every year in Zambia. Consequently, there is need for the Zambian government to provide sufficient funding to finance all programs for improving people’s welfare. To finance these programs, the Zambian government has two main sources; taxation and debt issuance for example through government bonds (DiPeitro & Anoruo, 2012).
Government debt is closely related to government expenditure and tax revenue (Chatterjee, Bhattacharya, Taylor, & West, 2019). Meanwhile, the tax revenues, most of the time, are not in line with what has been targeted causing the government to take debt as the only option (Žaja, Kržić, & Habek, 2018). Government debt is not only a means of fundraising to finance public needs, but also an effective tool to stabilize the country’s economic development, whose predictive values allow making effective management decisions at the state level and developing effective measures to improve the economic and debt situation (World Bank, 2017