PI-14. MACROECONOMIC AND FISCAL FORECASTING
ABOUT THE INDICATOR
This indicator measures the ability of a country to develop robust macroeconomic and fiscal forecasts, which are crucial to developing a sustainable fiscal strategy and ensuring greater predictability of budget allocations. It also assesses the government’s capacity to estimate the fiscal impact of potential changes in economic circumstances. It contains the following three dimensions and uses M2 (AV) for aggregating dimension scores.
- Dimension 14.1. Macroeconomic forecasts
- Dimension 14.2. Fiscal forecasts
- Dimension 14.3. Macrofiscal sensitivity analysis
IMPACT ON BUDGETARY OUTCOMES
Robust and verifiable macroeconomic and fiscal projections are essential to support the development of a predictable and sustainable fiscal strategy that supports aggregate fiscal discipline.
INDICATOR MEASUREMENT GUIDANCE
Preparing economic forecasts and estimating future revenue flows should be a transparent and formalized process. Underlying assumptions should be clearly explained and verifiable.
Dimension 14.1. Macroeconomic forecasts
DIMENSION MEASUREMENT GUIDANCE
14.1:1. This dimension assesses the extent to which comprehensive medium-term macroeconomic forecasts and underlying assumptions are prepared for the purpose of informing the fiscal and budgetplanning processes and are submitted to the legislature as part of the annual budget process. Forecasts should be updated at least annually during the budget process.
14.1:2. To be consistent with PI-5, element 6, forecasts must include at least estimates of GDP growth, inflation, interest rates, and the exchange rate. The assessors should also analyze the extent to which macroeconomic forecasts and assumptions have been reviewed by an entity other than the preparing entity, for example a fiscal council. For an A, the official macroeconomic forecasts must be prepared by a BCG agency. For B and C scores the official macroeconomic forecasts may be prepared by the central bank. Assessors should also examine whether the main economic parameters and hypotheses used in the projections are clearly stated and defined.
14.1:3. Preparation of the macroeconomic forecasts by a committee of separate institutions also meets the criterion of review by an entity other than the preparing entity if the process involves substantive review. This may be difficult for the assessor to
Dimension 14.1. Scoring
|Score||Minimum requirements for scores|
|A||The government prepares forecasts of key macroeconomic indicators, which, together with the underlying assumptions, are included in budget documentation submitted to the legislature. These forecasts are updated at least once a year. The forecasts cover the budget year and the two following fiscal years. The projections have been reviewed by an entity other than the preparing entity.|
|B||The government prepares forecasts of key macroeconomic indicators, which, together with the underlying assumptions, are included in budget documentation submitted to the legislature. These forecasts cover the budget year and the two following fiscal years.|
|C||The government prepares forecasts of key macroeconomic indicators for the budget year and the two following fiscal years.|
|D||Performance is less than required for a C score.|
PEFA Handbook Volume 1: The PEFA Assessment Process – Planning, Managing and Using PEFA