THE Department of Finance (DOF) is moving to institutionalize new macroeconomic and public-debt forecasting tools developed with the International Monetary Fund (IMF) to improve its capacity to assess economic scenarios and guide fiscal policy.
In its technical assistance report for the Philippines, the IMF said the DOF will integrate the use of the Comprehensive Adaptive Expectations Model (CAEM) into its Forecast and Policy Analysis System.
The CAEM is an Excel-based macroeconomic projection tool that integrates data management, model assumptions, sectoral projections and reporting features in a comprehensive framework for macroeconomic forecasting.
Its design ensures consistency across different sectors-real, fiscal, external, and monetary-allowing for general-equilibrium feedback and consistent scenario analysis, the IMF said.
The technical assistance will also expand the DOF’s use of the IMF’s Public Debt Dynamic Tool to strengthen its capacity in forecasting and analyzing the dynamics of public debt.
The IMF recommended that the DOF’s core forecasting team publish formal analytical reports after each official projection round, given the agency’s role in setting medium-term fiscal targets with other agencies through the Development Budget Coordination Committee.
This comes after the DOF sought technical assistance from the IMF in late 2022 to develop and institutionalize a comprehensive macroeconomic forecasting tool that would complement its existing forecasting and policy-analysis capabilities.
The IMF and DOF subsequently agreed on an action plan centered on strengthening technical capacity through hands-on training and developing a user-friendly macroeconomic projection tool.
‘High staff turnover a high risk for the project’
However, the IMF flagged the high staff turnover at the DOF as a key risk to the sustainability of the project.
‘Loss of core team members due to staff rotation risks delaying the implementation of the project and eroding the institutional knowledge of operating the CAEM. The probability and impact of this risk is considered high,’ the IMF said.
To address this, the IMF recommended integrating the CAEM into the DOF’s roster of forecasting tools and developing user manuals as part of the knowledge management system of the agency.
‘The collaboration with IMF in the development of CAEM and DDT provides valuable opportunities for DOF staff to exchange views with IMF staff economists on macroeconomic forecasts and policy analysis,’ the DOF said in the report.
The DOF said implementation of the modeling tools and the IMF’s recommendations would be undertaken by individual offices based on their analytical needs, policy priorities and available institutional resources.