ECA launches macroeconomic forecasting programme
By Cristina Müller
24 November 2005

The ECA’s Economic and Social Policy Division (ESPD) is scheduled to host on Friday (25) a workshop for economists from several Ethiopian economic institutions including the Ministry of Finance, the department of Statistics, the Ministry of Revenue, the Central Bank, the Addis Chamber of Commerce, and the Ethiopian Economic Association.

Sponsored by the Macroeconomic unit of ESPD, this very technical practical training workshop will consist of a run-through of ESPD’s latest draft publication: The ESPD-ECA Macroeconomic Forecasting Framework: An Applied Manual for use by African Ministries of Finance and Economic Development. A CD-Rom containing interactive software for model estimation, forecasting, and policy simulations accompanies the manual.

Once considered necessary in resolving economic management problems faced by nations, macroeconomic forecasting witnessed a downturn in the 1990s, especially given the decline in the policy thrust of Keynesian macroeconomic theory, in favour of non-structural macroeconomic approaches. In effect, large-scale macroeconomic forecasting models did not live up to their original promise, largely because they failed to consider behavioural and non-structural factors that affect the performance of economies.

More recently, with the advancement of macroeconomic theory and computer-based econometric and statistical programmes, planning and finance ministries worldwide have once again resorted to macroeconomic forecasting models, which provide timely and reliable projections of key macroeconomic variables key to policy-making.

Unlike models of the past, today, macroeconomic forecasting does not need to revert to fixed trends, but is flexible enough to consider instead the possibility of exogenous shocks that are beyond the control of national economies. Forecasting models provide the link between economic theory and data, on the one hand, and practical appreciations of practical problems and policy orientations, on the other.

Forecasting models are a crucial planning instrument. We can use an econometric model to describe how an economy works, and predict future growth rates or carry out simulations to determine how much investment is needed in order to achieve the Millennium Development Goals, for example,” said Adam Elhiraika, an economist at ESPD.

Historically faced with a great dependence on the external economic scenario for its survival, for Africa providing such models is of increasing importance.

“There are several challenges before our economies can really begin to produce relevant models, however,” said Elhiraika.

“One of the most pressing challenges is the lack of reliable data, as well as the lack of analytic capacity within ministries and even universities on the continent,” he said. “There is a keen need for well-trained professionals capable of preparing consistent short to medium term plans or a comprehensive long-term planning framework.”

To this end, the ECA produced a forecasting manual, where several generic models are outlined, and that can be adapted to fit the needs of individual economies.

“The idea is to start a series of training workshops on macroeconomic modeling with Ethiopia, and make our way around Africa, raising the profile and capacity for such an exercise,” said Elhiraika.