The general trend of the relationship of government spending with foreign reserves of Iraq for the period (2004-2020) with future forecasts for the period (2021-2030) using the comparative method of exponential smoothing models

Abstract

The basis of the relationship between the general budget and foreign reserves is the position of the commercial account on oil revenues. The internal imbalance is represented by the deficit of the general budget, which leads to financing either by borrowing directly from the central bank or indirectly by issuing debt securities to finance that deficit. In confirmation of this, the process is linked to foreign reserves through the currency sale window. This connection aims to address the double deficit in the current account, which is closely correlated with the general budget deficit.Therefore, the general trend of the relationship of government spending with foreign reserves is one of the main issues that has the greatest impact on all components of GDP. The prediction process of exponential smoothing models and comparison between them, for that relationship represents the essence of the impact of those components. This paper deals with the utilization of time series data for government spending and foreign reserves within the period of 2004-2020. It employs Exponential Smoothing models. These models are distinct in their high accuracy and flexibility in analyzing time series data. The results of the application reveal the most appropriate and efficient model for representing time series data is: The capacity of the double exponential model (Holt technique) to handle time series data with the non-seasonal general trend component led to its selection. This decision is supported by findings from Iraq's time series data on foreign reserves and government spending for the years 2004 to 2020, which show an increasing non-seasonal general trend. Iraq's government spending and foreign reserves for the years 2021 to 2030 may be accurately predicted due to the determination of the best smoothing parameters, which reduce the mean square error. The predictions show agreement with those found in the original time series. Upon conducting a comparison, it is evident that the double exponential model (Holt method) for foreign reserves in Iraq, as assessed by the standard mean square error (MSE) after determining the optimal smoothing parameters for future predictions, yields fewer indicators than the same model applied to government spending in Iraq. This suggests that the double exponential model (Holt method) is the appropriate and efficient choice for estimating future forecasts for the period 2021-2030.