REVIEW OF MACROECONOMIC FORECASTS AND GOVERNMENT POLICY TOOLS AND APPROACHES USED BY PBO KENYA

ECONOMIC ANALYSIS Tools and Approaches used by PBO Kenya to verify government’s: Economic outlook including fiscal risks Adherence to fiscal rules Ability to achieve targets (inflation, exchange rate etc)

ECONOMIC OUTLOOK: TOOLS and APPROACHES PBOM Model for Economic Forecasting and Policy Analysis Empirical structural macroeconomic model based on time series data from KNBS, CBK, National Treasury or expert knowledge Can be used for budget forecasts as well as reviewing policy scenarios Model automatically produces output tables including real GDP growth, inflation, employment growth, effects on governments revenues, expenditures and deficit, the Balance of Payments, government debt etc

ECONOMIC OUTLOOK: TOOLS and APPROACHES Complementary to Macro Model is a Poverty module which translates macroeconomic developments into changes in number of households below the poverty line

ECONOMIC OUTLOOK: TOOLS and APPROACHES Macroeconomic Diagnostics Analyze potential output and calculate output gaps, identify expenditure composition of growth, measure inflation, and assess sources of inflation Assess monetary policy and fiscal policy stance Analyze public and external debt sustainability, analyze the external position Assess medium–term prospects of the economy including the sustainability of public and external debt, and identify impediments to long–term growth

ECONOMIC OUTLOOK: TOOLS and APPROACHES Preparation of Budget Options Document provides alternative macro framework, resources available, expenditure priorities Review of Budget Policy Statement Preparation of Analytical brief – assess underlying risks to key macro variables based on expert opinion and past performance; realism of revenue forecasts and deficit targets

ADHERENCE TO FISCAL RULES: TOOLS and APPROACHES There are existing rules limiting external debt; regional rule limiting fiscal deficit PBOs review expenditure plans and any indicative possibility of flouting these rules based on realism of entire macro fiscal framework

OTHER DOCUMENTS: TOOLS and APPROACHES Monthly Bulletins Half Year Economic and Fiscal Update Quarterly briefs Continuous interrogation – keeping track of what is happening helps determine if we are on track

Q &A