TheMacroeconomicFramework-WorldBankGroup.pptVIP

The Macroeconomic Framework Given a set of macroeconomic goals and a policy framework, a macroeconomic framework is a set of sectoral projections (for the real, external, fiscal, and monetary sectors) consistent with each other, consistent with the policy framework, and consistent with the macroeconomic goals Examples of macroeconomic goals Preserve macro stability—growth at around 7%, inflation below 5%, keep government debt on a sustainable path, and build-up official reserves Engineer a soft landing from unsustainable growth rates Lower inflation to single digits Fiscal consolidation: Reduce debt to X% of GDP by 2008 Return the BOP to sustainability by reducing the current account deficit to X% of GDP over the medium term Elements/examples of a policy framework Fiscal responsibility legislation Exchange rate regime Inflation targeting or reserve money targeting frameworks for monetary policy Structural policies Real sector projections GDP Production approach: GDP= sum of value added across sectors Expenditure approach: GDP=C+I+X-M Ensure consistency with fiscal accounts (C and I) and the BOP (X and M) Key link with BOP: S-I=CAB where S=National saving=GDP+Net Foreign Income+Net transfers-Consumption Prices: CPI and GDP deflator Exchange rate regime What are cost pressures raising prices? What is the stance of economic policies? Estimate impact of changes to regulated prices, competition policy, or trade policy Forecasting the BOP Decide appropriate level of disaggregation for projections Consider developments in economies of main trading partners; terms of trade; competitiveness trends Consistency with fiscal accounts: Grants and loan disbursements/repayments Key lines in Bhutan: X and M; Transportation and travel; factor income; remittances and grants; government loans. Projections for fiscal accounts Revenues: Tax revenue: First do “passive” projections, based on existing policies. Then, add/subtract from expected policy changes. Non-tax revenue: