The project develops a macroeconomic forecasting model, which will become the basic tool in the Government’s planning and budgetary process. It is intended to utilize the output of the modelling framework (i.e. the scenarios and projections produced) in the preparation of the annual Fiscal Strategy, the Poverty Reduction Strategy and in Development Plan.
The on-going process of introducing MTEF as well as other governmental planning processes will be supported in two steps. The first is to prepare a macroeconomic framework for the budget based on forecasts of real sector, monetary sector, and foreign sector developments as well as the government’s revenue, spending and financing over the medium-term years. In the second step this macroeconomic consistency framework is disaggregated sufficiently to analyse the sectoral and social impacts of government spending and revenue sourcing plans.
The model strategy will be trade-off between data availability together with human resources for building, solving and interpreting model results on the one side and detail and reliability of the results on the other side. The optimal model design can be defined before taking these factors into account and will evolve out of the training and development phases of the project.
This first framework will be used to set the parameters of the annual budget and medium term expenditure plans, while making sure that the budget as presented to the legislature conforms to the macroeconomic constraints facing the economy. The aim of the first phase is the introduction of an economic framework that ensures that macroeconomic stability is maintained.
The second framework will be used to assist the government in addressing longer term expenditure allocation issues. The aim of the second phase is to introduce an economic framework that can test the consistency of the government’s expenditure allocations plans and its longer term objectives.