An Integrated Macro-Fiscal Forecasting Model and Its Applications for the Bangladesh Economy

Comprehensive economic models in general, and macro-fiscal integrated models in particular, are needed to ensure consistency and optimality in constructing government annual integrated budgets and economic development programmes. Mathematical models can provide decision-makers and planners with alternative optimal policies and scenarios, based on slightly different objectives and/or assumptions. Hence, an informal choice may be made among these scenario alternatives. Thus, this allows policy making to be evidence-based with objectivity and scientific in orientation. In addition to revealing the implications of policy decisions by the relevant authority, the macroeconomic-fiscal models make direct and indirect impacts of various policies obvious to decision-makers. Besides, the future structure and growth path for the economy can be simulated using these mathematical/economic models. This is basically what macro-fiscal forecasting models do and that is why so much consideration and attention has been given, in recent years, to the use of applied models in macroeconomic development and planning, national and sectoral economic analysis and public finance management fields. Without an analytical framework, attempts to solve problems in one area or segment of the economy often aggravate those in other areas and segments. Arising from the situation analysis which was made possible by macroeconomic-fiscal models, for instance governments in some countries, have been able to take remedial actions on the most feasible ways of redressing the negative impacts of policy, which arise from the implementation of medium-term plans, investment programmes, medium-term budget frameworks and/or annual budgets. Ordinarily, annual budgets, medium term plans and strategies as well as long term development visions, evolve their policy options from simulations, and result-oriented macroeconomic-fiscal models. It is when short, medium and long term development programmes are articulated from the results of macroeconomic-fiscal models’ simulation, that governments are considered to be planning or budgeting with facts; otherwise such governments are referred to as planning without quantified facts. That said, hitherto, no integrated macro-fiscal model has been formulated and articulated, for forecasting and decision purposes in Bangladesh. Given the actual modeling needs, the limitation and coverage of the available statistical data and limited modelling related capacity within the ministry of finance (MOF), an attempt has been made here to structure, formulate and numerically articulate a macro-fiscal forecasting model that is characterized as; realistic, simple, though comprehensive but easy to understand and comprehend, integrated for all the segments of the national economy (real economy, fiscal, financial and external sector) included in the model and brought together, in an economically viable causal-chain sequential relationship, with impact oriented and feed-back solutions processes. The constructed model however, has been structured in such a way so that it can be absorbed by the prevailed technical capabilities and capacities of the existing MOF/macroeconomic wing (MEW) staff, this comprehensive model has been calibrated, empirically articulated, and implemented as well as run with different economic and development scenario alternatives, for future projections, and hence, it can be used as an effective tool for forecasting and decision as well as policy making process. An integrated macro-fiscal forecasting and simulation modelling application and results. On such results a realistic macroeconomic and fiscal framework would be structured and quantified, to cover the next five years, and can be beyond. Such framework and other related results on real economy, fiscal, financial and external sector of the national economy, will be used as a consistent results-base approach to formulate, draw and quantify the economy medium term fiscal framework (MTFF) and medium term budget framework (MTBF), for years 2013-2017.