## Preface and Executive Summary (IMF TA mission report for the NBRB) ## Source details **Canonical URL:** [Preface and Executive Summary (IMF TA mission report for the NBRB)](https://www.imf.org/-/media/files/publications/cr/2020/english/1blrea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1blrea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1blrea2020001.pdf.json) --- ### Mission context and purpose - At the request of the National Bank of the Republic of Belarus (NBRB), a MCM project mission comprising Karel Musil (external expert, Czech National Bank) visited Minsk during August 21–31, 2018 for the seventh of the planned eight short-term technical assistance (TA) missions to help the NBRB enhancing its modeling, forecasting and policy analysis capacity, and the forecasting and policy analysis system, sponsored by the Swedish International Development Agency. - The mission followed up on the November-December 2016 MCM project initiation mission “Building Capacity in Monetary Policy Modeling and Analysis” and six subsequent follow-up missions and two in-country customized training events. - The mission met with Dmitry Murin, Head of the Monetary Policy and Economic Analysis Directorate (MPEAD); Zhanna Snopkova, Deputy Head of the Monetary Policy and Economic Analysis Directorate; and other senior officials and staff of the NBRB. ### Core objectives during the visit - Review initial conditions and compile a QPM-based forecast as part of the NBRB’s September forecasting round. - Strengthen processes within the FPAS (Forecasting and Policy Analysis System). - Provide feedback on forecast presentation and the structure and timing of forecasting-round meetings. ### Additional activities covered - Review of the previous forecasting round in June, including debriefing from the policy meeting and lessons from forecast errors. - Assistance interpreting forecast results, assessing risks and uncertainties, and guidance on compiling a model-based macroeconomic narrative. - Feedback on a first draft of a forecast presentation for the Board. - Discussion of the difference between money market rates and NBRB’s main policy rate. - Assessment of potential training demands and agreement on follow-up activities. ### Progress and objectives (Executive Summary) - The NBRB is reforming its monetary policy framework in line with past IMF TA recommendations and its Road Map for Transitioning to Inflation Targeting (IT) with the aim of eventually adopting inflation targeting (IT). - Transitioning to IT requires strengthening the FPAS and better integrating the core quarterly projection model (QPM) into the decision-making process. - This mission was the seventh in a planned series of quarterly FPAS TA missions. It focused on reviewing initial conditions and compiling a QPM-based forecast in the September 2018 forecasting round and on FPAS processes. - The authorities started to use model-based results to support policy decisions in March 2018. - The first regular forecasting round in March 2018 helped initiate internal processes, communication channels, deadlines and responsibilities that constitute a full model-based FPAS; these need further development and institutionalization. - The NBRB has made substantial progress in improving its FPAS and integrating it into monetary policy decision-making. - The Bank is on track to meet the project’s main milestones and successfully finalize the whole project as indicated in Appendix A. ### Key Recommendations (selected actions with timing, prioritization, responsibilities) - Scheduling monetary policy meetings for the next year, including the timing of the forecasting round. - Timing: Short Term - Prioritization: 2 - Implementation Responsibility: NBRB Board; MPEAD Management; QPM team; NTF experts - Comment: Before end-2018 and before the schedule is publicly available. - Establishing a Head of the forecasting team (FT) and considering personal sustainability within the FT. - Timing: Short Term - Prioritization: 3 - Implementation Responsibility: MPEAD Management; QPM team - Comment: Preferably before the next forecasting round. - Expanding the modeling team by at least 2 experts. - Timing: Medium Term - Prioritization: 5 - Implementation Responsibility: MPEAD Management - Comment: New members of the team can participate in the follow-up mission in 4Q 2018. - Improving the NTF techniques, fiscal policy analyses in particular. - Timing: Medium Term - Prioritization: 7 - Implementation Responsibility: NTF experts - Improving internal and external communication to be more efficient and forward-looking. - Timing: Medium Term - Prioritization: 6 - Implementation Responsibility: QPM team; Head of the FT; MPEAD Management; NBRB Board - Comment: Gradual process that should be initialized as soon as possible. - Proper planning of meetings within every forecasting round and improvement in their efficiency. - Timing: Short Term - Prioritization: 4 - Implementation Responsibility: QPM team (Head of the FT) - Comment: Before the next forecasting round. - Boosting forecasting and policy analyzing capacity by finalizing the final version of the projection and reviewing the QPM. - Timing: Short Term - Prioritization: 1 - Implementation Responsibility: QPM team - Comment: Before the next TA mission in 4Q 2018. ### Immediate project status - QPM team and mission expert generated a QPM-based forecast scenario reflecting initial conditions approved by the Board during the mission. - Simulated scenarios discussed included sanctions against Russia and oil price adjustments and tax maneuver applied by Russia on Belarus. - Expert judgment (tunes) is important but must be used carefully; overuse without detailed analysis risks worsening forecasts. - The generated forecast scenario was to be presented as the first version of the projection to the Board during the second Board meeting within the September forecasting round; the QPM would re-simulate based on Board feedback and newly available data. --- ### Enhancing the Modeling Capacities: current situation, challenges, recommendations - Main tasks during the visit: - Work with the core modeling team to review initial conditions for the forecast. - Help compile a QPM-based forecast and simulate alternative scenarios as part of the September forecasting round. - Work on the FPAS and its processes. - Further development and formalization of the model-based FPAS is necessary to fully benefit from model-based projections and analyses. - Specific recommended institutional steps: - (i) Consider how the current schedule of monetary policy meetings should be arranged for the next year. - (ii) Strictly follow a set of regular meetings during forecast rounds, incorporated into an internal forecasting calendar and formally approved by the NBRB’s Board during each forecasting round, to discuss and present model-developed forecasts. - (iii) Establish a formal head of the forecasting team and strengthen FT’s role as a forum for sharing expert views within the MPEAD. - (iv) Formally set up information channels, rights and responsibilities. - (v) Strengthen internal and external communication to spread knowledge of model-based simulations and establish a common language within the institution. ### Scheduling and timing recommendations - Mission suggested scheduling either four or eight monetary policy meetings in the next year. - Common practice noted: eight meetings with four full forecasting rounds and inflation reports as the outcome, and four forecast updating rounds between the full forecasting ones. - Recommendation: consider announcing a calendar of policy meetings for the whole year 2019 once a conclusion on frequency is reached. - Current setting: policy meetings scheduled at about 11th or 12th week of every quarter (end of quarter); forecasting team treats current quarter as history despite many variables not yet released. - Alternative recommended: hold Board meetings 6-7 weeks after the end of a quarter so forecasting team would have actual releases for inflation indices, wages, exchange rates and interest rates; the only variable that might need nowcasting would be real GDP. - Recommendation: Board and MPEAD management consider shifting policy meetings; the quarter when the meeting is held would then be the first quarter in the projection period. ### Staffing, responsibilities, and capacity - Need for clear (vertical) managerial responsibility within forecasting process. - Establish a formal head of the forecasting team within MPEAD; head responsible for managing team activities and timely delivery. - Core QPM team currently consists of three experts—considered the minimum to operate the model. - Recommendation: expand the modeling team by at least two economists (model operators) to: - Cover all important aspects of forecasting with desirable depth and scope. - Provide potential back up and personal substitutability. - Financial programming plays a less important role in monetary policy analyses and projections in favor of QPM; financial programming experts are advised to be reallocated to sectoral analyses carried out by the NTF team. ### Meeting planning and recommended sequence (weeks as in mission Table 2) - Forecasting techniques (Week 1): Present changes in the QPM and other forecasting tools. Audience: FT. Outcome: Approval of changes and amendments. - Issue meeting 1 (Week 1): Discuss issues important for the Board. Audience: FT, management. Outcome: List of issues to be analyzed. - Near-term forecast (NTF) (Week 2): Discuss nowcast, NTF and sectoral expert views. Audience: FT, management. Outcome: Consensual views on current macroeconomic developments. - Initial conditions (IC) (Week 2): Present and get feedback on IC prepared for Board meeting. Audience: FT, management. Outcome: Management feedback on initial conditions. - Initial conditions meeting with the Board (Week 3): Present and discuss IC with the Board. Audience: FT, management, Board. Outcome: Board view and feedback. - First version of the forecast (Week 3): Present the first version of a forecast. Audience: FT, management. Outcome: Consensual view on the forecast. - Meeting on the first version of the forecast with the Board (Week 4): Present and discuss the first version; collect demand for alternative scenarios. Audience: FT, management, Board. Outcome: Board’s view and list of alternative scenarios. - Final forecast (Week 4): Present and discuss the final forecast. Audience: FT, management. Outcome: Approval of the forecast by the management. - Meeting on the final forecast with the Board (Week 5 or 6): Present the final version. Audience: management, Board. Outcome: Monetary policy decision. - Post mortem (Week 5 or 6): Identify issues during the forecast round. Audience: FT, management. Outcome: Improvements of forecasting processes for the next round. - Note: Meetings with the Board are highlighted as critical steps within the sequence. --- ### Forecasting calendar and governance; expert judgments and interest rate trajectory - The forecasting calendar is generated during every forecasting round by the QPM team and approved by the management. - Recommendation: Continue the current practice and have the forecasting calendar formally approved by the Board of the NBRB so it becomes obligatory and serves as a schedule for every forecasting round. - Next forecasting round planned for November/December; a follow-up visit should take place in early-November. - QPM-based forecasts can serve as inputs for policy decisions only if expert judgments are properly implemented without compromising the endogenous nature of the projected interest rate trajectory. - FPAS and its core model are designed so that expert judgments can be easily imposed. - Risks: Inappropriate judgments or overuse might distort the analytical work. - The final outcome of the forecasting exercise is an endogenous and forward-looking recommended interest rate trajectory for central bank market operations to target. - When doubts remain, produce alternative scenarios to handle management and policy-maker concerns efficiently. ### Sectoral inputs, fiscal analysis, and external environment - Nowcast and first quarter of a model-based projection should be re-taken from the NTF tools and sectoral experts. - Sectoral experts should provide NTF covering all required areas with special attention to fiscal issues. - Fiscal policy area offers scope for significant improvement given that main issues of the September forecasting round were linked to fiscal policy measures and adjustments. - To properly assess fiscal stance, a deeper analysis of fiscal policy and the quantification of a fiscal impulse are required as exogenous factors entering QPM-based projections. - A comprehensive analysis by a NTF expert (currently missing) should help include the impact of fiscal policy into the model framework more precisely. - Analyses and projection of the external environment (exogenous in QPM) are advised to be carried out by sector experts and not by the QPM team (current practice at the NBRB). - Comparative staffing note: "Currently there are six sectoral experts responsible for analyzing the domestic economy development, three for fiscal policy analyses, and three for external environment analyses at the Czech National Bank." ### Communication, press releases, and publications - Press releases should be developed further to sharpen the policy message. - Suggested improvements: - Give greater prominence to the price stability objective and the role of monetary policy in achieving it. - Make language less technical. - Introduce forward-looking elements. - Streamline the delivered message. - Recommendations apply to internal presentations as well. - Recommendation: Develop a draft inflation report using model-based policy analysis and projections to be phased in when the NBRB officially moves to an inflation targeting framework. - The new report should usefully replace the current NBRB flagship publication "Main Tendencies in Economy and Monetary Sector in the Republic of Belarus", which: - Lacks forward-looking policy perspective, - Is descriptive in nature, - Is published with a lag of two month, - These characteristics diminish its role as a timely policy communication tool. ### TA support, capacity building, and immediate tasks before the next mission - Given this mission is the last one of eight short-term TA missions of the project, follow-up visit recommended in early-November focused on assisting the QPM team during the forecasting round and completing remaining tasks. - Modeling team is advised to continue working with TA experts remotely to support and increase modeling capacity. - Work after this TA mission and prior to the one scheduled for the fourth quarter of 2018 should focus on: - Finalizing the final version of the projection based on (i) comments of the Board members from the meeting about the first version of the projection, (ii) discussion with the MPEAD management, and (iii) newly available data; - Keeping updated the current version of the forecast scenario (especially before the follow-up mission in the fourth quarter), so that the impact of newly observed data can be fully understood by the forecasting team; - Reviewing the structure of the QPM and calibrated parameters so that any potential recalibration or adjustment in model structure can be discussed (and possibly implemented) during the next TA mission. ### Project milestones and timeline (selected entries) - Review and recommendations about current status, practices and needs on the FPAS. Identification of upgrading needs of the existing QPM. — Completion Date: January 2017 — Status: Done; the project program was approved. - Enhancement and recalibration of the original version of the QPM to reflect the current situation in the economy, monetary policy transmission mechanism, current monetary policy regime and country specific features. — Completion Date: October 2017 — Status: Done; the QPM was enhanced and completely recalibrated. - Adjustment of the QPM to be flexible and to allow for (i) switching the operational target, (ii) making monetary policy more forward-looking, and (iii) transiting to the inflation targeting regime in the future. — Completion Date: December 2017 — Status: Done; part of the QPM enhancement process in 2017. - QPM-based identification, discussions and presentations of the initial conditions. — Completion Date: December 2017 — Status: Done; realized during the December 2017 TA mission. - Definition of role of forecasting team and its responsibilities. — Completion Date: February 2018 — Status: Defined in Feb 2018; reviewed and enhanced every TA mission. - Simulating a mock-up QPM-based forecast scenario that is compiled and discussed with the Board and the management of the NBRB. — Completion Date: March 2018 — Status: Done; the first fully-fledged forecasting round took place in March 2018. - Review, gradual and continuous improvement of near-term forecasting tools supporting the QPM. — Completion Date: December 2018 — Status: In process; working with experts every TA mission. - Training activities for the QPM team, practicing and operating the QPM, producing consistent forecast, scenarios, reports, presentations, and recommendations to Board every forecasting round. — Completion Date: December 2018 — Status: In process; the remaining TA mission in 2018 will be aimed at these activities and practicing. - Complete integration of FPAS outputs in monetary policy decisions. — Completion Date: December 2018 — Status: In process; the remaining TA mission will be focused on more efficient integration of the FPAS to monetary policy decisions and communication. *Source: Preface and selected sections from the IMF TA mission report for the NBRB (August 21–31, 2018) contained in 1blrea2020001 - Preface.* ### Preface ................................................................................................................ ### Preface ### Mission context and purpose - At the request of the National Bank of the Republic of Belarus (NBRB), a MCM project mission comprising Karel Musil (external expert, Czech National Bank) visited Minsk during August 21–31, 2018 for the seventh of the planned eight short-term technical assistance (TA) missions to help the NBRB enhancing its modeling, forecasting and policy analysis capacity, and the forecasting and policy analysis system, sponsored by the Swedish International Development Agency. - The mission followed up on the November-December 2016 MCM project initiation mission “Building Capacity in Monetary Policy Modeling and Analysis” and six subsequent follow-up missions and two in-country customized training events. - The mission met with Dmitry Murin, Head of the Monetary Policy and Economic Analysis Directorate (MPEAD); Zhanna Snopkova, Deputy Head of the Monetary Policy and Economic Analysis Directorate; and other senior officials and staff of the NBRB. ### Core objectives during the visit - Review initial conditions and compile a QPM-based forecast as part of the NBRB’s September forecasting round. - Strengthen processes within the FPAS (Forecasting and Policy Analysis System). - Provide feedback on forecast presentation and the structure and timing of forecasting-round meetings. ### Additional activities covered - Review of the previous forecasting round in June, including debriefing from the policy meeting and lessons from forecast errors. - Assistance interpreting forecast results, assessing risks and uncertainties, and guidance on compiling a model-based macroeconomic narrative. - Feedback on a first draft of a forecast presentation for the Board. - Discussion of the difference between money market rates and NBRB’s main policy rate. - Assessment of potential training demands and agreement on follow-up activities. ### Acknowledgements - The mission expressed appreciation to the management and staff of the NBRB for hospitality and arrangements, and to Julia Lyskova at the IMF Office in Belarus for assistance during the mission. --- ### Executive Summary ### Progress and objectives - The NBRB is reforming its monetary policy framework in line with past IMF TA recommendations and its Road Map for Transitioning to Inflation Targeting (IT) with the aim of eventually adopting inflation targeting (IT). - Transitioning to IT requires strengthening the FPAS and better integrating the core quarterly projection model (QPM) into the decision-making process. - This mission was the seventh in a planned series of quarterly FPAS TA missions. It focused on reviewing initial conditions and compiling a QPM-based forecast in the September 2018 forecasting round and on FPAS processes. ### Use of model-based results and institutionalization - The authorities started to use model-based results to support policy decisions in March 2018. - The first regular forecasting round in March 2018 helped initiate internal processes, communication channels, deadlines and responsibilities that constitute a full model-based FPAS; these need further development and institutionalization. ### Project status - The NBRB has made substantial progress in improving its FPAS and integrating it into monetary policy decision-making. - The Bank is on track to meet the project’s main milestones and successfully finalize the whole project as indicated in Appendix A. --- ### Key Recommendations (summary of Table 1) - The table of key recommendations provides: Action, Timing, Prioritization, Implementation Responsibility, and Comments. - Timing horizon definitions: - Short Term: up to 2 quarters. - Medium Term: 3-6 quarters. - Prioritization ranks actions from most important (1) to least important (7). Selected actions, timing, prioritization, and responsibilities (preserve numeric values exactly): - Scheduling monetary policy meetings for the next year, including the timing of the forecasting round. - Timing: Short Term - Prioritization: 2 - Implementation Responsibility: NBRB Board; MPEAD Management; QPM team; NTF experts - Comment: Before end-2018 and before the schedule is publicly available. - Establishing a Head of the forecasting team (FT) and considering personal sustainability within the FT. - Timing: Short Term - Prioritization: 3 - Implementation Responsibility: MPEAD Management; QPM team - Comment: Preferably before the next forecasting round. - Expanding the modeling team by at least 2 experts. - Timing: Medium Term - Prioritization: 5 - Implementation Responsibility: MPEAD Management - Comment: New members of the team can participate in the follow-up mission in 4Q 2018. - Improving the NTF techniques, fiscal policy analyses in particular. - Timing: Medium Term - Prioritization: 7 - Implementation Responsibility: NTF experts - Improving internal and external communication to be more efficient and forward-looking. - Timing: Medium Term - Prioritization: 6 - Implementation Responsibility: QPM team; Head of the FT; MPEAD Management; NBRB Board - Comment: Gradual process that should be initialized as soon as possible. - Proper planning of meetings within every forecasting round and improvement in their efficiency. - Timing: Short Term - Prioritization: 4 - Implementation Responsibility: QPM team (Head of the FT) - Comment: Before the next forecasting round. - Boosting forecasting and policy analyzing capacity by finalizing the final version of the projection and reviewing the QPM. - Timing: Short Term - Prioritization: 1 - Implementation Responsibility: QPM team - Comment: Before the next TA mission in 4Q 2018. --- ### I. Introduction and Background - The NBRB is strengthening its monetary policy framework following a three-stage strategy recommended by past IMF TA missions. - First stage (completed): conventional money targeting framework. - Second stage (ongoing): in January 2018 the NBRB shifted its operational target to the overnight interbank rate and an official end-of-year inflation target of “no more than 6 percent” (with an internal inflation target of 5.5 percent). - Final stage: gradual shift to fully-fledged IT once analytical tool kits are developed, policy transmission is strengthened and legal and governance framework is reformed. - The medium-term TA project aims to help the NBRB with medium-term inflation forecasting and policy analysis and related tools to support policy making and transitioning to IT. - The project is composed of a series of TA and training missions focused on forecasts and policy analyses, the medium-term forecasting and policy analysis model, and internal communication of forecasts and policy analysis. --- ### II. Enhancing the Modeling Capacities: Current Situation, Main Challenges, Recommendations ### A. The Provided Technical Assistance - Main tasks during the visit: - Work with the core modeling team to review initial conditions for the forecast. - Help compile a QPM-based forecast and simulate alternative scenarios as part of the September forecasting round. - Work on the FPAS and its processes. - The QPM team and mission expert generated a QPM-based forecast scenario reflecting initial conditions approved by the Board during the mission. - Simulated scenarios discussed included sanctions against Russia and oil price adjustments and tax maneuver applied by Russia on Belarus. - Mission emphasis: - Expert judgment (tunes) is an important part of the projection but must be used carefully due to high risk of worsening forecasts if overused and not supported by detailed analysis. - The generated forecast scenario was to be presented as the first version of the projection to the Board during the second Board meeting within the September forecasting round; the QPM would re-simulate based on Board feedback and newly available data. ### B. Recommendations and Future Steps towards Further Enhancement of the FPAS Findings and recommended institutional steps: - Further development and formalization of the model-based FPAS is necessary to fully benefit from model-based projections and analyses. - Specific recommended actions: - (i) Consider how the current schedule of monetary policy meetings should be arranged for the next year. - (ii) Strictly follow a set of regular meetings during forecast rounds, incorporated into an internal forecasting calendar and formally approved by the NBRB’s Board during each forecasting round, to discuss and present model-developed forecasts. - (iii) Establish a formal head of the forecasting team and strengthen FT’s role as a forum for sharing expert views within the MPEAD. - (iv) Formally set up information channels, rights and responsibilities. - (v) Strengthen internal and external communication to spread knowledge of model-based simulations and establish a common language within the institution. Scheduling of monetary policy meetings: - Mission suggested scheduling either four or eight monetary policy meetings in the next year. - Common practice noted: eight meetings with four full forecasting rounds and inflation reports as the outcome, and four forecast updating rounds between the full forecasting ones. - Constraints: - The forecasting process involves different departments and external experts and is time challenging (see Table 3). - Final arrangement should reflect Board preferences and affect FPAS governance. - Recommendation: consider announcing a calendar of policy meetings for the whole year 2019 once a conclusion on frequency is reached. Timing of forecasting rounds and data availability: - Current setting: policy meetings scheduled at about 11th or 12th week of every quarter (end of quarter). Forecasting team treats current quarter as history despite many variables not yet released (inflation for whole quarter, exchange and interest rates, output and wages). - This prompts use of NTF tools to forecast these variables. - Alternative recommended: hold Board meetings 6-7 weeks after the end of a quarter so forecasting team would have actual releases for inflation indices, wages, exchange rates and interest rates; the only variable that might need nowcasting would be real GDP. - Recommendation: Board and MPEAD management consider shifting policy meetings; the quarter when the meeting is held would then be the first quarter in the projection period. Staffing, responsibilities, and capacity: - Need for clear (vertical) managerial responsibility within forecasting process. - Establish a formal head of the forecasting team within MPEAD; head responsible for managing team activities and timely delivery. - Core QPM team currently consists of three experts—considered the minimum to operate the model. - Risk of staff departures: MPEAD management should expand the modeling team by at least two economists (model operators) to: - Cover all important aspects of forecasting with desirable depth and scope. - Provide potential back up and personal substitutability. - Financial programming plays a less important role in monetary policy analyses and projections in favor of QPM; financial programming experts are advised to be reallocated to sectoral analyses carried out by the NTF team. Meeting planning and efficiency: - Maintain schedule of meetings within every forecasting round and organize meetings effectively. - Recommended structure and sequence of regular meetings within a forecast round are presented in Table 2 (sequential order): - Forecasting techniques (Week 1): Present changes in the QPM and other forecasting tools. Audience: FT. Outcome: Approval of changes and amendments. - Issue meeting 1 (Week 1): Discuss issues important for the Board. Audience: FT, management. Outcome: List of issues to be analyzed. - Near-term forecast (NTF) (Week 2): Discuss nowcast, NTF and sectoral expert views. Audience: FT, management. Outcome: Consensual views on current macroeconomic developments. - Initial conditions (IC) (Week 2): Present and get feedback on IC prepared for Board meeting. Audience: FT, management. Outcome: Management feedback on initial conditions. - Initial conditions meeting with the Board (Week 3): Present and discuss IC with the Board. Audience: FT, management, Board. Outcome: Board view and feedback. - First version of the forecast (Week 3): Present the first version of a forecast. Audience: FT, management. Outcome: Consensual view on the forecast. - Meeting on the first version of the forecast with the Board (Week 4): Present and discuss the first version; collect demand for alternative scenarios. Audience: FT, management, Board. Outcome: Board’s view and list of alternative scenarios. - Final forecast (Week 4): Present and discuss the final forecast. Audience: FT, management. Outcome: Approval of the forecast by the management. - Meeting on the final forecast with the Board (Week 5 or 6): Present the final version. Audience: management, Board. Outcome: Monetary policy decision. - Post mortem (Week 5 or 6): Identify issues during the forecast round. Audience: FT, management. Outcome: Improvements of forecasting processes for the next round. - Note: Meetings with the Board are highlighted as critical steps within the sequence. --- *Source: Preface and selected sections from the IMF TA mission report for the NBRB (August 21–31, 2018) contained in 1blrea2020001 - Preface.* ### 13. The meeting during the forecasting rounds should be developed into an internal ### 13. The meeting during the forecasting rounds should be developed into an internal ### Forecasting calendar and governance - The forecasting calendar is generated during every forecasting round by the QPM team and approved by the management. - Recommendation: Continue the current practice and have the forecasting calendar formally approved by the Board of the NBRB so it becomes obligatory and serves as a schedule for every forecasting round. - Next forecasting round planned for November/December; a follow-up visit should take place in early-November. ### Expert judgments and the interest rate trajectory - QPM-based forecasts can serve as inputs for policy decisions only if expert judgments are properly implemented without compromising the endogenous nature of the projected interest rate trajectory. - FPAS and its core model are designed so that expert judgments can be easily imposed. - Risks: Inappropriate judgments or overuse might distort the analytical work. - The final outcome of the forecasting exercise is an endogenous and forward-looking recommended interest rate trajectory for central bank market operations to target. - Assessing appropriateness requires that the trajectory is based on a credible and plausible macroeconomic story and that judgments in baseline forecasts represent the best expert guess. - When doubts remain, produce alternative scenarios to handle management and policy-maker concerns efficiently. ### Sectoral inputs, fiscal analysis, and external environment - Nowcast and first quarter of a model-based projection should be re-taken from the NTF tools and sectoral experts. - Sectoral experts should provide NTF covering all required areas with special attention to fiscal issues. - Fiscal policy area offers scope for significant improvement given that main issues of the September forecasting round were linked to fiscal policy measures and adjustments. - To properly assess fiscal stance, a deeper analysis of fiscal policy and the quantification of a fiscal impulse are required as exogenous factors entering QPM-based projections. - A comprehensive analysis by a NTF expert (currently missing) should help include the impact of fiscal policy into the model framework more precisely. - Analyses and projection of the external environment (exogenous in QPM) are advised to be carried out by sector experts and not by the QPM team (current practice at the NBRB). - Note on expert staffing (comparative example): "Currently there are six sectoral experts responsible for analyzing the domestic economy development, three for fiscal policy analyses, and three for external environment analyses at the Czech National Bank." ### Communication, press releases, and publications - Press releases should be developed further to sharpen the policy message. - Suggested improvements from TA mission expert reviews: - Give greater prominence to the price stability objective and the role of monetary policy in achieving it. - Make language less technical. - Introduce forward-looking elements. - Streamline the delivered message. - Recommendations apply to internal presentations as well. - Recommendation: Develop a draft inflation report using model-based policy analysis and projections to be phased in when the NBRB officially moves to an inflation targeting framework. - The new report should usefully replace the current NBRB flagship publication "Main Tendencies in Economy and Monetary Sector in the Republic of Belarus", which: - Lacks forward-looking policy perspective, - Is descriptive in nature, - Is published with a lag of two month, - These characteristics diminish its role as a timely policy communication tool. ### TA support, capacity building, and immediate tasks - Given this mission is the last one of eight short-term TA missions of the project, follow-up visit recommended in early-November focused on assisting the QPM team during the forecasting round and completing remaining tasks. - Modeling team is advised to continue working with TA experts remotely to support and increase modeling capacity. - Work after this TA mission and prior to the one scheduled for the fourth quarter of 2018 should focus on: - Finalizing the final version of the projection based on (i) comments of the Board members from the meeting about the first version of the projection, (ii) discussion with the MPEAD management, and (iii) newly available data; - Keeping updated the current version of the forecast scenario (especially before the follow-up mission in the fourth quarter), so that the impact of newly observed data can be fully understood by the forecasting team; - Reviewing the structure of the QPM and calibrated parameters so that any potential recalibration or adjustment in model structure can be discussed (and possibly implemented) during the next TA mission. ### Project milestones and timeline (Appendix I) - The NBRB has made substantial progress in improving its FPAS and is on track to meet project main milestones. - Table 3. Project Milestones (selected entries preserved as stated): - Review and recommendations about current status, practices and needs on the FPAS. Identification of upgrading needs of the existing QPM. — Completion Date: January 2017 — Status: Done; the project program was approved. - Enhancement and recalibration of the original version of the QPM to reflect the current situation in the economy, monetary policy transmission mechanism, current monetary policy regime and country specific features. — Completion Date: October 2017 — Status: Done; the QPM was enhanced and completely recalibrated. - Adjustment of the QPM to be flexible and to allow for (i) switching the operational target, (ii) making monetary policy more forward-looking, and (iii) transiting to the inflation targeting regime in the future. — Completion Date: December 2017 — Status: Done; part of the QPM enhancement process in 2017. - QPM-based identification, discussions and presentations of the initial conditions. — Completion Date: December 2017 — Status: Done; realized during the December 2017 TA mission. - Definition of role of forecasting team and its responsibilities. — Completion Date: February 2018 — Status: Defined in Feb 2018; reviewed and enhanced every TA mission. - Simulating a mock-up QPM-based forecast scenario that is compiled and discussed with the Board and the management of the NBRB. — Completion Date: March 2018 — Status: Done; the first fully-fledged forecasting round took place in March 2018. - Review, gradual and continuous improvement of near-term forecasting tools supporting the QPM. — Completion Date: December 2018 — Status: In process; working with experts every TA mission. - Training activities for the QPM team, practicing and operating the QPM, producing consistent forecast, scenarios, reports, presentations, and recommendations to Board every forecasting round. — Completion Date: December 2018 — Status: In process; the remaining TA mission in 2018 will be aimed at these activities and practicing. - Complete integration of FPAS outputs in monetary policy decisions. — Completion Date: December 2018 — Status: In process; the remaining TA mission will be focused on more efficient integration of the FPAS to monetary policy decisions and communication. *Source: 1blrea2020001 - 13. The meeting during the forecasting rounds should be developed into an internal* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1blrea2020001.pdf_