PACIFIC ECONOMIC MANAGEMENT (PEMTA)

1. PACIFIC ECONOMIC MANAGEMENT (PEMTA) FISCAL MANAGEMENT MODEL Savenaca Narube Team Leader PEM TA

2. Aims and purposes of the FMM Aim • To assist the Ministries of Finance maintain fiscal stability Purposes • Predict long term implications of fiscal policies on the budget; • Explore the mix of policies that will provide the desired impact on the budget; • Explain the likely effects of policy decisions; and • Policy and budgeting tool.

3. Preliminaries • Not an economic model: e.g. GDP and inflation are projected outside the model. • It’s a budget projection model—simple, spreadsheet based • Projection period: 10/15 years • Projections • Three years ahead: MTBF • Beyond three years: Simple assumptions

4. Examples of long run assumptions Economic • Real GDP--long run growth rate • Nominal GDP--Inflate real GDP by inflation • CPI—1o year average Tax revenues • Growth rate or % of nominal GDP/trend • Departure tax—visitor arrivals

5. Examples of long run assumptions Expenditure • Wages and salaries—Fully or partly indexed to CPI • Maintenance—Indexed to CPI • Contingency —% of current expenditure • Purchase of goods and service—Indexed to CPI • Subsidies and transfers—Fixed (Policy) • Capital expenditure—Fixed (Baseline)

6. Structure of the FMM

7. Examples of scenario scanning Change in assumptions • Change in the rate of growth of real GDP • Change in the CPI growth rate Change in policy • Change in the rate of consumption tax • Change in the rate of indexation of wages and salaries Drawdown of a new loan in a certain future year

8. Outputs • Tracks key fiscal indicators over the long term • Compares the baseline and the impact of policy option • Generate budget graphs/tables

9. Other issues • Updating—automatically linked to MTBF and debt statistics • Degree of consolidation to suit countries • Sustainability • Manual • PEM TA support • Easy to use

10. DEMONSTRATION