MACROECONOMIC FRAMEWORK IN PAKISTAN

Ms. Mahjabeen Cheema (Assistant Chief, Planning Commission)Ms. Zaira Najam (Research Officer, Planning Commission)

Institutional Framework 

• Ministry of Planning, Development & Reform

Planning commission 

• Ministry of Finance

Economic Affairs Division 

• State Bank of Pakistan 

• Pakistan Bureau of Statistics

Planning Commission

• sets longer term vision and priorities• integrative role in sectoral policy formulation• tracks progress against respective goals and • ensure optimal utilization of scarce resources

4

TYPES OF PLANS

•Long term Vision

•Economic, Social and Technological  Policy Framework(10‐25 years) 

•Statement of goals  and targets

•Broad framework for formulation of annual plans(3‐5 years)

•Strategy and time frame for achievement of targets

•Instrument for translating long term goals and medium term targets into operational framework

•Performance evaluation of inputs in achieving key annual targets

•Investment programming in the public sector and indicative targets for private investment

PERSPECTIVE  PLAN MEDIUM TERM PLAN ANNUAL PLAN

Perspective Plan : Vision 2025

Achieve 5‐6% growth in medium and 7‐8% inclusive and sustained growth in long term by

Ensuring macroeconomic stability

Removing energy shortages

Managing Internal Security

Reforming PSEs

Enhancing productivity and competitivenessVibrant markets and trade opennessQuality GovernanceCreative CitiesConnectivity to competeYouth and Community

Short / Medium Term

Long Term

Growth & Development Objectives

Introduction to  MTMF Pakistan

• Based on  RMSM‐X (Revised Minimum Standard Model Extended)

• Introduces multiple economic agents in a consistent flow‐of‐funds framework

• Contains 4 Economic sectors– Public     ‐‐‐ Central Government– Financial ‐‐‐Monetary System– Foreign   ‐‐‐ The Balance of Payments– Private   ‐‐‐ Non‐Government agencies

Interrelations in Flow‐of‐Funds Framework

NationalAccounts

Balance ofPayments

GovernmentSector

PrivateSector

MonetarySector

• Focuses on  Real Sector. 

• Determination of growth

RMSM‐X Model  

Data Requirement

• The minimum data requirements for assembling theconsistency framework are one year of historical data forflow variables and two years of data for stock variables.

• The RMSM is an accounting framework that links thenational accounts and the balance of payments, withparticular emphasis on foreign financing gap andprojections of foreign borrowing. The concern ismedium‐term growth and its financing.

Overview of Model Interface

• Original Data Sheet (ORD): Data entry for base year

• Assumptions Sheet (ASU): Sub‐divided into four sections, with user‐specified figures

• Sectoral and Summary sheets: DIT (private sector), CCH (consistency check), BOP, MON (Monetary), GOV, SNA (National Account), TRA (Trade Block) etc

Closure Rules of the Model

• Public Closure– Exogenous  :     Growth, Inflation– Endogenous:     Government budget

• Private Closure– Exogenous  :     Growth, Inflation– Endogenous:     Private Sector variables

• Policy Closure– Exogenous  :     Fiscal & Monetary Policy                 

variables – Endogenous:     Growth, Inflation,

Use for the Govt/ MoF

– MoF is responsible for maintaining Financial discipline in the country,  

– Rmsm‐x: economic agents are highly interlinked and integrated, rmsm takes most of this into context and thus closely imitates the real world etc

– using it for medium term projections, growth, MTBF etc.

Advantages & Applications

• Analyze changes in, composition and dynamics of 4 economic sectors (Private, public, external, banking)

• Evaluate the impact of local and external shocks on major macroeconomic indicators

• Analyze future policy

Limitations of the Model

• Too vast. Large number of assumptions, leaving space for human error

• Requires expertise in all 4 sectors• Large data requirement

Pakistan Specific Limitations

• Assumptions are subject to economy but certain shocks, both domestic and international can hamper model expectations

• Matter of subjective/human judgement

Way Forward..

• Formation of core group to incorporate SDGs

• Members from MoF, SBP, Planning, EAD.