Assessing economic outlook

Assessing the economic outlook is important to enable governments to estimate resources that will be available to them. However, governments, especially in developing countries, often lack either the personnel or the institutional incentives to undertake such analyses. As a result revenue forecasts and estimates of expenditure may not exist, and if they do, they may have little basis in reality. Without central guidance the spending ministries may make different assumptions concerning macro-economic variables such as expected inflation or exchange rates. This will lead to inconsistencies that resurface at later stages of the expenditure cycle. Building up both macroeconomic and sector-specific micro-economic skills should be a high priority.

Responsibility for planning and budgeting is often dispersed among several institutions, in a manner depending largely on history and tradition. While a variety of organizational structures can work in practice, coordination is essential. In the absence of such coordination tensions arise, such as that which often exists between the ministries of finance and planning. A common institutional question is whether the two should be merged, but the important issue is not so much whether to have one ministry or two, or a budget office separate from both, but that the two functions should be reconciled.