Modeling and forecasting public debt in South Africa

The principal interest of any developing country like South Africa is to preserve sustainable public debt. Recently, for developing economies there has been a growing concern regarding the importance of debt in setting the path for development and growth. The objective of this paper is to model and forecast total public debt in South Africa. Public debt in South Africa has grown substantially since the financial crisis in 2008 until now and it has not recovered. Debt is a crucial instrument for the small to medium economy such as South Africa and a vital source of fiscal policy. The study applied the ARIMA model to select the appropriate model to estimate and forecast public debt. As it is conventional for any time series modelling to assess the order of integration of the series used. The study employed the ADF unit root test to determine the order of integration and the results show that public debt variable is integrated of order one. The second step was to identify the best model to forecast public debt. In all the competing models the study identified that ARIMA13,1,1 was selected according to the coefficient significance and Akaike information criteria. The forecast shows that, there is an expected reduction in the stock of public debt in the future. It is therefore recommended by this study that fiscal policy makers should adopt a strong fiscal reform to keep the public debt to a minimum.