Simple Macroeconomic Model for MDGs based Planning and Policy Analysis

Thangavel Palanivel UNDP Regional Centre in Colombo OutlineOutline ofof thethe presentationpresentation •• MDGMDG consistentconsistent SimpleSimple MacroeconomicMacroeconomic frameworkframework (SMF)(SMF) •• NeedNeed forfor aa macroeconomicmacroeconomic modelmodel forfor MDGMDG basedbased planningplanning •• CommonlyCommonly usedused modellingmodelling approachesapproaches •• BestBest strategystrategy inin modelmodel buildingbuilding •• SMFSMF processprocess andand stepssteps •• TentativeTentative trainingtraining schedulesschedules forfor SriSri LankaLanka MDGMDG consistentconsistent SMFSMF (1)(1)

MDGMDG--consistentconsistent SMFSMF isis thethe frameworkframework thatthat •• providesprovides aa setset ofof sectoralsectoral projectionsprojections consistentconsistent withwith eacheach otherother andand alsoalso withwith macroeconomicmacroeconomic goalsgoals andand policiespolicies,, andand •• takestakes intointo accountaccount thethe levellevel andand compositioncomposition ofof investmentinvestment requiredrequired toto achieveachieve MDGMDG targetstargets andand itsits potentialpotential effecteffect onon thethe economy.economy. MDGMDG consistentconsistent SMFSMF (2)(2)

ExamplesExamples ofof MDGMDG consistentconsistent macroeconomicmacroeconomic frameworkframework •• ProjectionsProjections ofof realreal sectorsector (i.e.,(i.e., growth,growth, consumption,consumption, investment,investment, etc)etc) needneed toto bebe consistentconsistent withwith projectionsprojections ofof fiscal,fiscal, monetarymonetary andand externalexternal sectorssectors andand MDGMDG targetstargets •• ProjectionsProjections ofof fiscalfiscal accountsaccounts (revenue,(revenue, expenditures,expenditures, fiscalfiscal balance)balance) needneed toto bebe consistentconsistent withwith real,real, external,external, andand monetarymonetary sectorsector projectionsprojections andand MDGMDG financingfinancing requirements.requirements. MDGMDG consistentconsistent SMFSMF (3)(3)

•• SectoralSectoral projectionsprojections needneed toto bebe consistentconsistent withwith nationalnational developmentdevelopment goalsgoals andand targetstargets suchsuch asas growth,growth, poverty,poverty, inflation,inflation, etc.etc. •• InvestmentsInvestments basedbased onon MDGMDG NANA maymay createcreate somesome imbalancesimbalances amongamong macromacro variables.variables. DevelopingDeveloping MDGMDG consistentconsistent macroeconomicmacroeconomic frameworkframework isis aa processprocess toto provideprovide policypolicy optionsoptions toto addressaddress itit.. ObjectivesObjectives ofof MDGMDG consistentconsistent SMFSMF •• ProvideProvide inputinput forfor preparingpreparing MDGMDG basedbased longlong termterm developmentdevelopment planningplanning •• StrengthenStrengthen coherencecoherence betweenbetween planningplanning andand MTEF/budgetaryMTEF/budgetary frameworkframework •• ProvideProvide aa monitoringmonitoring && evaluationevaluation frameworkframework •• SupportSupport thethe nationalnational policypolicy dialoguedialogue && negotiationsnegotiations withwith developmentdevelopment partnerspartners MacroeconomicMacroeconomic ModelModel

•• MacroeconomicMacroeconomic modelsmodels areare numericalnumerical representationsrepresentations ofof economiceconomic theory,theory, intuitionintuition andand data.data. •• TheyThey highlighthighlight thethe importantimportant linkageslinkages andand transmissiontransmission mechanismsmechanisms inin thethe economyeconomy •• TheyThey provideprovide aa consistentconsistent frameworkframework withinwithin whichwhich behaviouralbehavioural relationshipsrelationships areare storedstored andand policypolicy issuesissues examined.examined. NeedNeed forfor aa MacroeconomicMacroeconomic ModelModel forfor MDGMDG basedbased Plans?Plans? (1)(1) •• SocioSocio--economiceconomic variablesvariables interactinteract inin aa complexcomplex manner;manner; aa macroeconomicmacroeconomic modelmodel helpshelps toto understandunderstand thethe complexcomplex interactioninteraction •• ItIt helpshelps inin developingdeveloping aa MDGMDG consistentconsistent macroeconomicmacroeconomic frameworkframework whichwhich isis keykey forfor formulatingformulating MDGMDG basedbased nationalnational plans.plans. •• ItIt alsoalso helpshelps inin undertakingundertaking exex--postpost andand exex--anteante policypolicy impactimpact assessmentassessment andand monitoringmonitoring whichwhich areare keykey forfor designingdesigning MDGsMDGs orientedoriented policies/strategies.policies/strategies. NeedNeed forfor aa MacroeconomicMacroeconomic ModelModel forfor MDGMDG basedbased Plans?Plans? (2)(2) •• ItIt complementscomplements thethe workwork onon MDGMDG sectoralsectoral needneed assessmentsassessments towardstowards preparingpreparing MDGMDG basedbased planplan •• BecauseBecause itit analyzeanalyze thethe impactimpact ofof scalingscaling upup expenditureexpenditure andand assessesassesses thethe ‘‘absorptiveabsorptive capacitycapacity’’ ofof thethe economyeconomy •• ItIt isis alsoalso usefuluseful inin addressingaddressing somesome emergingemerging issuesissues suchsuch asas thethe impactimpact ofof crudecrude oiloil andand foodfood priceprice increases.increases. MajorMajor ApproachesApproaches inin MacroeconomicMacroeconomic ModellingModelling

• Macroeconometric Approach (i.e., ME Models) • Computable General Equilibrium Approach (i.e., CGE Models)

– (focuses on modelling approaches, not on specific models) Macroeconometric Models

•• MainMain purposepurpose isis toto produceproduce shortshort--termterm forecastsforecasts oror longlong--termterm outlookoutlook andand policypolicy evaluation.evaluation. •• MainMain strengthstrength lieslies inin theirtheir abilityability toto estimateestimate robustrobust parametersparameters •• MainMain weaknessweakness isis thatthat thethe parametersparameters maymay notnot properlyproperly capturecapture thethe changeschanges inin thethe policypolicy regimeregime.. CGECGE ModellingModelling

•• CGECGE modellingmodelling isis aimedaimed toto incorporateincorporate micromicro behaviourbehaviour intointo macroeconomicmacroeconomic analysisanalysis •• MainMain purposepurpose isis policypolicy evaluationevaluation.. •• ButBut areare complexcomplex andand datadata--demandingdemanding (detailed(detailed inputinput--outputoutput matrixmatrix forfor aa year)year) KeyKey DifferenceDifference betweenbetween MEME andand CGECGE ApproachesApproaches •• MEME modellingmodelling:: parameterparameter valuesvalues areare estimatedestimated usingusing econometriceconometric techniquestechniques •• CGECGE modellingmodelling:: parameterparameter valuesvalues areare drawndrawn fromfrom aa varietyvariety ofof sourcessources –– PriorPrior econometriceconometric studiesstudies –– OtherOther simulationsimulation modelsmodels –– IntuitionIntuition andand judgmentjudgment ChoosingChoosing AmongAmong ApproachesApproaches

•• NoNo singlesingle economiceconomic modelmodel oror approachapproach cancan fullyfully capturecapture allall thethe interactionsinteractions andand impactsimpacts •• DifferentDifferent modelsmodels areare designeddesigned forfor differentdifferent purposespurposes •• AA modelmodel mustmust ultimatelyultimately bebe judgedjudged onon whetherwhether itit answersanswers thethe questionsquestions itit waswas designeddesigned toto answeranswer

NoNo ““OneOne SizeSize FitsFits AllAll”” ModelModel BestBest StrategyStrategy inin ModelModel buildingbuilding

• Start small: Go small to large • Start simple: Go from simple to complex • Choose approach (ME or CGE models) depending upon objectives and data availability • Choose software (EViews, Vensim, Gams) depending upon modelling types • Keep it transparent – avoid any ‘black-box’ syndrome • Develop several models instead of try to address all issues by one model • Have always two versions of the model: one operational and another in development RollRoll--outout ExperienceExperience ofof SMFSMF inin AsiaAsia andand thethe PacificPacific •• SMFSMF hashas alreadyalready beenbeen appliedapplied inin BhutanBhutan andand MongoliaMongolia.. •• InIn Bhutan,Bhutan, thethe modelmodel hashas beenbeen usedused forfor thethe preparationpreparation ofof 1010th FiveFive--YearYear Plan.Plan. •• InIn Mongolia,Mongolia, thethe modelmodel hashas beenbeen usedused forfor formulationformulation ofof MDGMDG strategiesstrategies andand MTEFMTEF •• ThereThere areare requestrequest fromfrom aa fewfew moremore countriescountries (e.g.,(e.g., LaosLaos andand NepalNepal)) •• KeyKey aspectsaspects ofof thethe SMFSMF rollroll--outout areare givengiven below:below: SMFSMF InitialInitial considerationsconsiderations-- whatwhat wewe wantedwanted •• AA simplesimple projection/policyprojection/policy evaluationevaluation modelmodel takingtaking intointo considerationconsideration ofof thethe specificitiesspecificities ofof LDCsLDCs •• CapableCapable ofof analyzinganalyzing MDGMDG resourceresource needsneeds andand policypolicy optionsoptions inin anan integratedintegrated frameworkframework •• ComprehensivenessComprehensiveness –– enoughenough disaggregationdisaggregation inin thethe realreal andand fiscalfiscal sectorssectors toto analyseanalyse thethe macroeconomicmacroeconomic impactimpact ofof scalingscaling--upup ofof publicpublic expendituresexpenditures •• LongLong--TermTerm perspectiveperspective untiluntil 20152015 •• UserUser--friendlinessfriendliness andand locallocal expertiseexpertise •• TimelinessTimeliness –– sixsix monthsmonths toto completecomplete initialinitial phasephase ofof thethe workwork andand capacitycapacity developmentdevelopment SMFSMF InitialInitial considerationsconsiderations –– whatwhat wewe decideddecided •• AA SimpleSimple MacroeconometricMacroeconometric structuralstructural ModelModel becausebecause thatthat isis whatwhat commonlycommonly usedused forfor longlong-- termterm projection/scenariosprojection/scenarios analysisanalysis •• ByBy usingusing EViewsEViews softwaresoftware becausebecause thatthat isis whatwhat commonlycommonly usedused forfor MEME structuralstructural modelsmodels •• ProductionProduction disaggregateddisaggregated intointo 33 sectorssectors –– agriculture,agriculture, industryindustry andand services.services. •• Prices/inflationPrices/inflation disaggregateddisaggregated intointo 33 components.components. •• GovernmentGovernment RevenueRevenue disaggregateddisaggregated intointo 55--77 categoriescategories •• GovernmentGovernment expenditureexpenditure disaggregateddisaggregated intointo 77--88 sectorssectors –– inin lineline NANA sectorssectors classification.classification. SMFSMF ProcessProcess (1)(1)

InIn termsterms ofof process,process, itit isis –– AimedAimed toto buildbuild nationalnational capacitycapacity –– NationallyNationally ownedowned –– PartPart ofof onon--goinggoing planningplanning exercisesexercises –– TransparentTransparent –– ReviewedReviewed andand updatedupdated periodicallyperiodically SMFSMF ProcessProcess (2)(2)

•• SMFSMF isis beingbeing implementedimplemented jointlyjointly byby nationalnational teamsteams (policy(policy makersmakers andand researchers)researchers) andand RCCRCC modellingmodelling expertsexperts •• TrainedTrained countrycountry teamsteams inin analyticalanalytical methodologymethodology andand computercomputer softwaresoftware •• AdaptedAdapted toto countrycountry requirementsrequirements •• KnowledgeKnowledge sharingsharing throughthrough international/international/ regionalregional workshopsworkshops •• ContinuousContinuous technicaltechnical backback stoppingstopping byby RCCRCC expertsexperts SMFSMF StepsSteps

Step 1: Specifications of the Model Step 2: Data collection and Assessment Step 3: Parameters Estimation Step 4: Solving the model for historical period Step 5: Historical Validation Step 6: Choice of Scenarios (BAU, MAG, etc) Step 7: Link SMF with MDG NA and provide input for MDG based plans Step 8: Link SMF with on-going long/medium term planning process and provide inputs for budgetary and planning process StepStep 1:1: SpecificationsSpecifications ofof thethe RCCRCC ModelModel (1)(1) •• RealReal sectoralsectoral GDPGDP isis determineddetermined byby land,land, labourlabour && capital,capital, andand theirtheir productivity.productivity. •• RealReal privateprivate consumptionconsumption isis determineddetermined byby realreal GDP,GDP, inflationinflation andand interestinterest rate.rate. •• RealReal governmentgovernment consumptionconsumption isis determineddetermined byby govtgovt revenue,revenue, inflationinflation andand itsits ownown laglag •• RealReal privateprivate fixedfixed investmentinvestment isis basedbased onon realreal GDP,GDP, inflation,inflation, interestinterest raterate andand netnet domesticdomestic creditcredit •• PublicPublic investmentinvestment isis basedbased onon publicpublic expenditureexpenditure andand inflation.inflation. StepStep 1:1: SpecificationsSpecifications ofof thethe RCCRCC ModelModel (2)(2) • Sectoral GDP deflators (inflation) are estimated through money supply, import prices and imbalances in the supply & demand. • Prices of other items (consumption, investment, exports and imports) are determined by GDP deflator • Money supply is determined through an identity of domestic credits to private and public sectors, net foreign assets, etc. • Net foreign assets are based on CAB, exchange rate, and its own lag • Net domestic credit to the public sector is determined by fiscal balance and real GDP • Net domestic credit to the private sector is determined by real GDP and interest rate StepStep 1:1: SpecificationsSpecifications ofof thethe RCCRCC ModelModel (3)(3) •• SubSub--componentscomponents ofof taxtax revenuerevenue areare determineddetermined byby theirtheir respectiverespective taxtax ratesrates andand taxtax basesbases •• SubSub--componentscomponents ofof nonnon--taxtax revenuerevenue areare estimatedestimated byby linkinglinking nominalnominal GDPGDP inin industryindustry andand servicesservices •• SubSub--componentscomponents ofof governmentgovernment expenditureexpenditure areare determineddetermined onon thethe basisbasis ofof availabilityavailability ofof governmentgovernment revenue,revenue, grants,grants, andand publicpublic borrowing.borrowing. •• FiscalFiscal balancebalance isis obtainedobtained byby subtractingsubtracting expenditureexpenditure fromfrom revenuerevenue StepStep 1:1: SpecificationsSpecifications ofof thethe RCCRCC ModelModel (4)(4) •• DisaggregatedDisaggregated nominalnominal exportsexports areare functionfunction ofof domesticdomestic output,output, worldworld GDP,GDP, relativerelative priceprice (domestic(domestic priceprice vs.vs. externalexternal price),price), exchangeexchange rate,rate, andand capitalcapital goodsgoods imports.imports. •• DisaggregatedDisaggregated nominalnominal importsimports areare determineddetermined byby exchangeexchange raterate andand netnet forexforex resourceresource availabilityavailability afterafter deductingdeducting thethe interestinterest andand otherother payments.payments. •• CABCAB isis determineddetermined fromfrom tradetrade balance,balance, netnet foreignforeign incomeincome (dividends,(dividends, interest)interest) andand currentcurrent transferstransfers (ODA,(ODA, remittances,remittances, etc.etc. StepStep 1:1: SpecificationsSpecifications ofof thethe RCCRCC ModelModel (5)(5) •• LabourLabour supplysupply isis determineddetermined throughthrough populationpopulation growthgrowth andand labourlabour forceforce participationparticipation rate.rate. •• LabourLabour demanddemand isis estimatedestimated throughthrough sectoralsectoral GDPGDP growth,growth, wageswages andand technologytechnology •• LabourLabour productivityproductivity isis determineddetermined throughthrough publicpublic expenditureexpenditure onon educationeducation andand healthhealth inin orderorder linklink MDGMDG investmentinvestment withwith realreal sector.sector. •• DisaggregatedDisaggregated socialsocial (including(including MDGs)MDGs) sectorsector modelmodel dependsdepends uponupon thethe datadata availability.availability. OverviewOverview ofof thethe BhutanBhutan ModelModel

Blocks Behavioural Identities/ Total equations Linking equations Number of Equations Real sector 7 28 35 Price Block 8 1 9 Fiscal Sector 15 18 33 Monetary Sector 4 3 7 External Sector 6 10 16 Social sector including labour markets/ 7 4 11 MDGs Total Number of 47 64 111 Equations StepStep 2:2: DataData RequirementsRequirements andand AssessmentAssessment (1)(1) •• GDPGDP andand itsits components:components: sectoralsectoral valuevalue added,added, personalpersonal consumption,consumption, governmentgovernment consumptions,consumptions, privateprivate investment,investment, andand publicpublic investmentinvestment •• Prices:Prices: deflatordeflator forfor GDPGDP componentscomponents •• Revenue:Revenue: taxation,taxation, nonnon--taxation,taxation, andand grantsgrants •• Expenditure:Expenditure: ExpenditureExpenditure byby sectorssectors •• ExternalExternal trade:trade: exports,exports, imports,imports, exchangeexchange rate,rate, •• Monetary:Monetary: moneymoney supply,supply, netnet foreignforeign exchangeexchange asset,asset, netnet domesticdomestic creditcredit toto privateprivate andand publicpublic sectors,sectors, interestinterest rate,rate, •• SocialSocial sector:sector: Poverty,Poverty, GiniGini ratios,ratios, HDI,HDI, literacyliteracy rate,rate, lifelife expectancyexpectancy rate,rate, population,population, labourlabour and empploloyymentment StepStep 2:2: DataData CollectionCollection andand ConsistentConsistent checkingchecking (2)(2) •• RequiredRequired datadata collectedcollected oror compiledcompiled fromfrom varietyvariety ofof sourcessources •• PreferencesPreferences givengiven toto governmentgovernment publicationspublications •• WhereverWherever datadata notnot availableavailable fromfrom governmentgovernment sourcessources readily,readily, thenthen thethe requiredrequired datadata areare obtainedobtained fromfrom ADBADB andand WorldWorld BankBank databasedatabase •• DataData areare checkedchecked forfor consistencyconsistency asas wellwell asas forfor stationarystationary StepStep 3:3: ParametersParameters EstimationEstimation

•• AllAll equationsequations werewere estimatedestimated inin aa linearlinear formform byby usingusing OLSOLS methodmethod •• NonNon--stationarystationary variablesvariables havehave beenbeen estimatedestimated byby usingusing firstfirst differencesdifferences oror ErrorError CorrectionCorrection MethodMethod (ECM).(ECM). •• DiagnosticDiagnostic testingtesting hashas beenbeen donedone byby usingusing standardstandard methodsmethods suchsuch asas ‘‘RR2’ forfor goodnessgoodness ofof fit,fit, ‘‘tt’’ statisticsstatistics forfor significancesignificance ofof coefficients,coefficients, ‘‘D.WD.W’’ testtest forfor serialserial correlation,correlation, ‘‘RMSPERMSPE’’ forfor modelmodel reliability,reliability, etc.etc. •• DummyDummy variablesvariables havehave beenbeen usedused frequentlyfrequently toto taketake carecare ofof datadata outliersoutliers StepStep 4:4: SolutionSolution ofof thethe modelmodel

• The model specified in the step 1 updated with estimated parameters • Model was then solved for 1996- 2005 to assess the performance StepStep 5:5: HistoricalHistorical ValidationValidation

•• ComparisonComparison ofof actualactual andand estimatedestimated valuesvalues forfor thethe periodperiod 19961996--20052005 •• ErrorError (RMSPE)(RMSPE) valuesvalues areare lessless thanthan 1010 %% forfor mostmost ofof thethe variablesvariables •• ErrorsErrors areare relativelyrelatively smallsmall forfor keykey indicatorsindicators suchsuch asas GDP,GDP, inflation,inflation, totaltotal revenue,revenue, totaltotal expenditure,expenditure, exports,exports, imports,imports, etc.etc. •• ErrorsErrors areare relativelyrelatively largelarge forfor nonnon--taxtax revenue,revenue, creditcredit toto publicpublic sector,sector, expenditureexpenditure onon publicpublic works,works, fiscalfiscal deficits,deficits, tradetrade balance,balance, andand savings.savings. StepStep 6:6: ChoiceChoice ofof ScenariosScenarios

•• ‘‘BusinessBusiness--asas--usualusual’’ simulationsimulation cancan bebe usedused asas BaseBase lineline forfor comparisoncomparison •• MDGMDG NANA simulationsimulation –– toto examineexamine thethe possiblepossible impactimpact ofof scalingscaling upup publicpublic expenditureexpenditure onon thethe economy.economy. •• OtherOther policypolicy simulationssimulations –– e.g.,e.g., taxtax reformsreforms simulationsimulation toto assessassess thethe potentialpotential scopescope ofof risingrising domesticdomestic resourcesresources toto meetmeet thethe MDGsMDGs StepStep 7:7: LinkingLinking SMFSMF withwith MDGMDG NANA estimatesestimates •• SinceSince ourour aimaim isis toto prepareprepare MDGMDG consistentconsistent macromacro framework,framework, wewe needneed linklink SMFSMF withwith MDGMDG NANA estimatesestimates •• ThisThis willwill indicatesindicates thethe macromacro economiceconomic implicationsimplications ofof MDGMDG NANA relatedrelated investmentinvestment •• ThisThis willwill alsoalso indicatesindicates economiceconomic growthgrowth raterate (and(and itsits distribution)distribution) requirerequire toto achieveachieve incomeincome povertypoverty targetstargets •• ThisThis willwill alsoalso helphelp inin developingdeveloping comprehensivecomprehensive MDGMDG financingfinancing strategystrategy StepStep 7:7: LinkingLinking SMFSMF withwith MDGMDG NANA estimatesestimates •• NANA sectoralsectoral costcost onon education,education, healthhealth andand agricultureagriculture linkedlinked withwith respectiverespective SMFSMF sectoralsectoral equationsequations ofof publicpublic expenditureexpenditure •• NANA costscosts onon gendergender andand capacitycapacity developmentdevelopment linkedlinked withwith SMFSMF equationequation onon generalgeneral administrationadministration expenditureexpenditure •• NANA costcost onon roads,roads, waterwater andand sanitationsanitation linkedlinked withwith SMFSMF equationequation onon publicpublic worksworks expenditureexpenditure •• NANA costcost onon energyenergy andand environmentenvironment linkedlinked withwith SMFSMF equationequation onon publicpublic expenditureexpenditure forfor trade,trade, industryindustry andand powerpower Step 8: Linking SMF with Budgetary Framework

•• LongLong termterm MDGMDG consistentconsistent SMFSMF cancan provideprovide inputsinputs forfor formulationformulation ofof mediummedium termterm fiscalfiscal andand expenditureexpenditure frameworkframework (MTFF,(MTFF, MTEF)MTEF) throughthrough –– longerlonger termterm revenue,revenue, expenditureexpenditure andand investmentinvestment projectionsprojections –– UndertakingUndertaking policypolicy simulationssimulations toto prioritizeprioritize publicpublic investmentsinvestments BhutanBhutan SMFSMF KeyKey FindingsFindings Parameters estimation for the period 1980- 2005 shows that • Output responsive to changes in investment is relatively higher in the services sector compared to other sectors • Inflation seems to be borrowed phenomenon here. It is mainly determined by prices of imports, which in turn determined by Indian prices. • 1 % increase in the import prices is likely to increase the prices of agricultural, industrial and services items by 0.88, 1.24 and 0.76 % respectively. BhutanBhutan SMFSMF KeyKey FindingsFindings

•• ChangesChanges inin taxtax basesbases (nominal(nominal GDP)GDP) ratherrather changeschanges inin taxtax ratesrates playplay keykey rolerole inin determiningdetermining changeschanges inin taxtax revenuerevenue •• 11 %% increaseincrease inin thethe nominalnominal GDPGDP isis likelylikely toto increaseincrease thethe taxtax revenuerevenue byby 1.1%1.1% (i.e.,(i.e., taxtax buoyancybuoyancy rate)rate) •• 11 %% increaseincrease inin GDPGDP isis expectedexpected toto increaseincrease householdshouseholds consumptionconsumption byby 0.52%.0.52%. IfIf GDPGDP increasesincreases byby 88--9%,9%, thenthen itit takestakes aboutabout 1313-- 1515 yearsyears toto doubledouble HHHH consumptionconsumption levelslevels oror toto reducereduce povertypoverty incidenceincidence byby halfhalf BhutanBhutan SMFSMF KeyKey FindingsFindings BAUBAU simulationsimulation forfor thethe TYFPTYFP (2008(2008--12)12) periodperiod showsshows thatthat •• RealReal GDPGDP -- 8.2%8.2% •• AgriculturalAgricultural GDPGDP -- 3.7%3.7% •• IndustrialIndustrial GDPGDP -- 9.8%9.8% •• ServicesServices GDPGDP -- 8.3%8.3% •• PrivatePrivate investmentinvestment -- 11%11% •• PublicPublic investmentinvestment -- 4.4%4.4% •• InflationInflation raterate -- 7%7% •• FiscalFiscal deficitsdeficits asas GDPGDP -- 4.2%4.2% BhutanBhutan SMFSMF KeyKey FindingsFindings MDG simulation (compared to BAU simulation) shows that • Investment in MDG oriented sectors in the level of $2.6 billion in 2005 prices and $3.6 billion in current prices during 2006-2015 might leads to –– AccelerationAcceleration inin GDPGDP growthgrowth byby aboutabout 1%1% pointspoints –– AccelerationAcceleration inin publicpublic investmentinvestment growthgrowth byby 2.42.4 %% pointspoints –– AccelerationAcceleration inin privateprivate investmentinvestment growthgrowth byby 0.40.4 %% pointspoints (crowding(crowding--inin effect)effect) –– WidenWiden thethe fiscalfiscal deficitsdeficits byby 55--6%6% moremore (with(with samesame levellevel ofof grants)grants) withwith littlelittle impactimpact onon thethe inflationinflation raterate LessonsLessons learntlearnt •• DataData problemsproblems requirerequire thatthat thethe modelmodel needsneeds toto bebe simplesimple •• RobustRobust parametersparameters neededneeded forfor generatinggenerating MDGMDG consistentconsistent macroeconomicmacroeconomic frameworkframework •• RCCRCC modellingmodelling worksworks inin Bhutan,Bhutan, MongoliaMongolia andand SriSri LankaLanka confirmconfirm thatthat aa varietyvariety ofof approachesapproaches areare neededneeded forfor MDGMDG basedbased plansplans •• RCCRCC modelmodel hashas beenbeen designeddesigned toto keepkeep itit aa flexibleflexible platform,platform, soso thatthat itit couldcould bebe usedused forfor (i)(i) MDGsMDGs analysis,analysis, (ii)(ii) medium/shortmedium/short--termterm planningplanning andand budgetbudget formulationformulation andand (iii)(iii) analysisanalysis ofof growth,growth, fiscalfiscal space,space, andand emergingemerging issuesissues 41 AgendaAgenda forfor furtherfurther supportsupport toto BhutanBhutan •• ProvidingProviding technicaltechnical inputinput toto MTFFMTFF processprocess byby addingadding aa fewfew moremore equationsequations inin thethe modelmodel toto capturecapture balancebalance ofof paymentspayments andand disaggregationdisaggregation ofof realreal sectorsector •• ExtendingExtending SMFSMF toto encompassencompass povertypoverty andand incomeincome distributiondistribution outcomesoutcomes ofof MDG/TFYPMDG/TFYP investment.investment. •• ImpartingImparting anotheranother roundround ofof trainingtraining toto corecore staffstaff workingworking onon planningplanning andand budgetarybudgetary frameworkframework AgendaAgenda forfor FutureFuture workwork atat regionalregional levellevel •• ImprovingImproving modellingmodelling –– StrengtheningStrengthening social/MDGsocial/MDG modulemodule –– AddingAdding moremore modulesmodules (gender,(gender, environment,environment, andand energy)energy) –– LinkingLinking withwith householdshouseholds surveyssurveys toto accountaccount forfor povertypoverty andand inequalityinequality impactimpact –– ExploreExplore sectoralsectoral oror satellitesatellite modellingmodelling approachapproach •• MoreMore disaggregateddisaggregated modellingmodelling particularlyparticularly inin realreal sectorsector