## PREFACE ## Source details **Canonical URL:** [PREFACE](https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024047.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2024/english/tarea2024047.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2024/english/tarea2024047.pdf.json) --- ### Mission overview - A Technical Assistance (TA) scoping mission visited Dhaka, Bangladesh from January 22 to February 1, 2023, to diagnose macroeconomic forecasting and policy analysis systems at the Finance Division of the Ministry of Finance (MOF) and deliver a shortened Financial Programming and Policies (FPP) course. - Mission team: Christian Johnson (Mission Chief, SARTTAC); Werner Schule (STX); Barrett Owen (ICDMF); Bhaswar Mukhopadhyay (Deputy Director, SARTTAC) joined during the final two days. - Counterparts and coordination: - Introductory meetings with Additional Secretary Rehana Perven (Wing Chief, Macroeconomic Wing—MEW) and Additional Secretary Dr. Mohammad Altaf Alam (Wing Chief, Treasury and Debt Management Wing—TDMW). - Daily working sessions with MEW, TDMW, Budget Wing (BW), and Economic Advisor Wing (EAW). - Mr. Tawhid Ilahi (Deputy Secretary, MEW) coordinated from the MOF side. - Training logistics: IPF provided venue and catering; administrative support from ICDMF and SARTTAC staff and the IMF Resident Representative Office in Bangladesh. ### Executive summary — purpose and design of the TA project - Purpose: - Build macroeconomic framework capacity at MEW and the wider Finance Division (FD) of the MOF. - Enhance the Medium-term Macroeconomic Framework (MTMF) centered on a tool based on Financial Programming and Policies (FPP) principles. - Scoping mission components (January 22 to February 1, 2023): - Scoping: diagnose current systems and develop an action plan. - FPP training: shortened course focusing on essentials of financial programming. - Staffing and institutional challenges: - Turnover within MEW and FD identified as a substantial challenge; average tenure of MEW reportedly around 1 year and a half to 2 years. - Small, motivated staff delivering consistent outputs but current MTMF tools are either overly complex given turnover challenges or lack structure and linkages for credible baseline forecasts and scenario analysis. - Sustainability requirements: - Tool must be accessible to a wider group of staff; supplement with user guides and associated material. - Agreed action plan “ad referendum”: - Project includes 10 missions across four phases with a hybrid in-person/virtual model. - Timeline spans approximately 2-3 years from January 2023 to July 2025. - Counterparts agreed to proceed with the Macroframework Foundations Tool (MFT). - Initial core team: 17 staff, led by Joint Secretary Dr. Ziaul Abedin and coordinated by Deputy Secretary Tawhid Ilahi. - Phase sequencing and priorities: - Phase 1 (January to June 2023): introduce generic MFT; core team populates with local data. - Phase 2 (July to December 2023): customize MFT to Bangladesh economy. - Phase 3 (January to August 2024): expand MFT and begin scenario use. - Phase 4 (September 2024 to July 2025): institutionalize MFT, finalize user manual and associated material. *IMF | Technical Report – Bangladesh Macroeconomic Framework TA: Scoping Mission — PREFACE (content unit).* ### Background: context and TA request - Macroeconomic context: - Long-term progress in growth and social development; authorities aim to reach upper-middle income status by 2031. - Climate risks acute; expected graduation from the UN’s LDC list by 2026 with related challenges. - External shocks caused BoP pressures, reserve drawdown and Taka depreciation; external pressures constrain fiscal conditions and activity. - External support and program: - IMF program approved by the Executive Board on January 30. - Program duration: 42-months. - Program financing totals $4.7 billion across ECF, EFF, and RSF. - Prior engagement and re-scoping: - SARTTAC and ICD supported predecessor MTMF TA (2019–2020); engagement stalled in 2021. - MOF requested re-scoping and FPP refresher mission for January 22–February 1, 2023, noting heavy turnover since 2020. ### Integration with surveillance and program priorities - Improved MTMF tools align with IMF program and authorities’ priorities, including assessment of climate risks. - ICD and SARTTAC will consult regularly with the IMF country team to ensure alignment with program priorities. ### Key procedural notes and scope - Diagnosis is based on information available at time of visit in January 2023. - Findings and recommendations represent IMF mission team views; report shared with authorities for input. ### SECTION II — Scoping mission findings and assessment (summary) - Scoping mission concluded on February 1st, 2023; inputs included questionnaires, a 5-day FPP training, and prior project documentation. - Institutional setup and MTMF practice: - MEW: primary government entity for macroeconomic and fiscal analysis; composed of three Offices (Macroeconomic Policy Analysis & Forecasting Office; Fiscal Policy Office; Budget Monitoring, Evaluation, and Reporting Office). - MTMF: three-year horizon (current fiscal year t+2); aggregates like Real GDP and inflation often aligned with Five-Year Plan targets; revenue variables forecast as constant ratios with nominal GDP with ad-hoc adjustments. - Informal fiscal rule: budget deficit should not exceed approximately 5 percent of GDP; forecasts adjusted to respect this rule. - Only one MTMF scenario produced; no published risk or alternative policy scenarios. - MTMPS lacks detailed assumptions, interlinkages, quantified uncertainties, and quantified fiscal risks. - Other Wings and coordination: - TDMW manages domestic/foreign debt, liquidity and cash forecasting; seeks tools for debt-sustainability and cash liquidity forecasting. - BW prepares MTBF and annual budget; EAW provides longer-term sectoral analysis. - Inter-agency arrangements exist (MTMF working group, Coordination Council) but lack of structured forecasting tools limits technical dialogue. - Human and material resources: - MEW total staff: 13 (Wing Chief, 3 Joint Secretaries, 6 Deputy Secretaries, and 3 Senior Assistant Secretaries); each Office typically has 4 staff. - Staff qualifications: Masters or PhDs in economics-related fields; limited tenure hinders deep forecasting expertise. - Training: 10 staff participated in 5-day FPP refresher; learning gains of 11 percent observed. - Material: reliable laptops and internet; Excel available to all MOF staff; only MEW staff have EViews licenses. - Existing tools: - Accounting FPP framework: primary tool in use; limited inter-sectoral linkages and no behavioral relationships. - Updated MTMF Tool developed in 2020 (CAEM-like) exists but has not been used; only one MEW member familiar. - Data: generally good availability for annual national accounts, BoP, monetary and fiscal data with noted limitations (CPI reliability, limited PPI, limited granular fiscal stock data, labor force survey last in 2016/17). - Needs assessment highlights: - MEW lacks an MTMF tool with sufficient structure and linkages for credible baseline forecasts and scenario analysis. - Need improved accounting linkages, consistency checks, data management, and capacity to assess policy and risk scenarios (including climate and debt-path scenarios). - Sustainability requires an accessible tool, training materials, and user guides to mitigate turnover risks. ### Turnover risks and skills capacity - Turnover: - Heavy turnover systemic across Bangladesh Civil Service; average MEW tenure around 1.5 to 2 years. - Only one member of the 2020 core team remained at time of report. - Mitigation: develop larger reserve pool including staff from related Wings; design action plan with turnover mitigation measures. - Skills: - Staff have theoretical background but limited exposure to forecasting/econometrics. - Demand for further training in sectoral accounts, macroeconomic forecasting, fiscal and monetary policy, debt-sustainability analysis. - Training resource gap: Wings lack formal internal capacity to train new staff on FPP and forecasting. ### Tools, TA interactions and data management - Ongoing and planned TA: - World Bank: MFMod training to MEW; MEW plans to adopt MFMod for climate shock assessment (target end-June 2024 for some deliverables). - IMF: ICDMM assisting BB on macro framework TA; SARTTAC and FAD considering fiscal forecasting project (pre-scoping). - TDMW priorities: embed a simple Debt-Dynamics Tool (DDT) in macro framework; use LIC DSF annually. - Data management: MEW maintains Excel database within current MTMF tool; lacks systematic consistency checks and granular access; improved tool would enable better verification and challenge of data providers. ### Needs assessment implications for project design - Project should deliver: - An accessible MFT that improves baseline projection structure and enables scenario and risk analysis. - Enhanced data management, consistency checks, and a user manual and training package to support institutionalization amid turnover. - Integration with debt-path analysis (DDT) and a climate-dimension module. ### SECTION III — Proposed action plan (summary) - Agreement ad referendum on February 1, 2023, on draft action plan. - Principal objectives: - (1) Improve depth, structure and consistency of baseline MTMF projections. - (2) Expand tool use to assess policy measures and macro risks (including climate and debt). - (3) Enhance MEW’s analytical contribution to MTMF Working Team and Coordination Council. - TA axes: - a. Improve macroeconomic database and consistency checks. - b. Customize MFT to Bangladesh. - c. Identify policy options and macro risks and incorporate in the tool (including informal fiscal rule compliance). - d. Expand MFT to include disaggregation and interface with Debt Dynamic Tool. - e. Add climate shock/module considerations. - f. Prepare user guide and associated materials. - g. Use MFT forecasts to improve policy advice and reporting. - Delivery schedule: - Ten missions across 2-3 years (including 1 buffer mission and the scoping mission); tentative schedule January 2023 to July 2025. - Project phases: - Phase 1: first half of 2023 — scoping and introduction to MFT. - Phase 2: second half of 2023 — initial customization; begin shadow baseline and scenario forecasts. - Phase 3: first half of 2024 — further expansion; conditional replacement of previous MTMF with MFT. - Phase 4: remaining timespan — full institutionalization and finalization of user manual. - Core team and modalities: - Core team size: 17 staff (10 MEW, 3 TDMW, 3 BW, 1 EAW). - Leadership: Dr. Ziaul Abedin (Joint Secretary, MEW) with coordination by Mr. Tawhid Ilahi (Deputy Secretary, MEW). - Hybrid modality: about half of 10 missions in-person; in-person for intensive tasks, virtual for follow-up. - Communication: WhatsApp, mailing list, Zoom, Microsoft Teams; online data sharing platforms explored. - Training emphasis: sectoral accounts, macro forecasting, fiscal policy; user manual and training of new staff prioritized. ### Chosen tool and customization (MFT) - Tool options considered: - (i) Enhance accounting framework; (ii) finalize 2020 tool; (iii) use MFT template (chosen); (iv) use CAEM template. - Chosen: Macroframework Foundations Tool (MFT) — option (iii). - Reasons for MFT selection: - Accessibility and sustainability given high turnover and limited forecasting/econometrics exposure. - Faster deployability to produce usable scenarios; synergies with World Bank MFMod training. - Positive experience in the 5-day FPP training: 10 participants had learning gains of 11 percent and became relatively comfortable using barebones MFT. - MFT characteristics (Box 1 overview): - Tractable, integrated Excel-based model built on FPP; retains four-sector FPP structure but streamlined. - Key features: simplicity, flexibility, consistency, minimum data and modest calibration. - Incorporates essential links, consistency checks, financing sources, and an easy-to-use dashboard for scenario simulations. - Behavioral expenditure and inflation equations underpin projections; simultaneous system with feedbacks. - Required customization for Bangladesh: - (i) Local data input sheets and comprehensive consistency checks. - (ii) Module to estimate potential output and trend variables. - (iii) Tailor behavioral equations, parameters and forecasting methods. - (iv) Disaggregate fiscal and external sector variables. - (v) Integrate Debt Dynamics Tool (DDT) and LIC DSF aspects. - (vi) Investigate climate module incorporation (per ECF-EFF-RSF program priority). - (vii) Potentially incorporate CAEM elements (e.g., exchange rate forecasting) given transition to inflation targeting. ### Risks and mitigation measures - High staff turnover [High Risk] - Mitigation: reserve pool across Wings; user manual and materials; ICD and SARTTAC training support; run tools in parallel initially. - Complexity of alternative tools [Mitigation] - Mitigation: adopt accessible MFT and incremental customization; targeted training; hybrid mission mix. - TA fatigue and multiple tools [High Risk] - Mitigation: coordinate TA projects; link tools via interfaces; schedule missions to avoid overlap. - Staff resource constraints [Moderate Risk] - Mitigation: schedule around busy periods; hybrid modality; senior management support. - Lack of engagement during hybrid deliveries [Moderate Risk] - Mitigation: front-load in-person missions; virtual follow-ups for lighter tasks; explore alternate venues (e.g., SARTTAC Centre). - Institutionalization challenges [Low Risk] - Mitigation: involve wider MTMF working group; align with multi-year WB and IMF programs and targets; accessibility of MFT aids uptake. - Extreme weather and global shocks [Moderate Risk] - Mitigation: flexible delivery timing; consider off-site missions if needed. ### Key outputs and timeline highlights - Missions (selected): - Mission 1 - Scoping mission (in-person): January 2023 - Mission 2 (virtual): April 2023 - Mission 3 (in-person): July 2023 - Mission 4 (virtual): September 2023 - Mission 5 (in-person): January 2023 - Mission 6 (virtual): February 2024 - Mission 7 (in-person): June 2024 - Mission 8 (in-person): September 2024 - Mission 9 (virtual): December 2024 - Mission 10: Concluding Mission (in-person): July 2025 - Selected planned outputs: - Assessment of current forecasting and policy analysis systems. - Refresher FPP training and practice with barebones MFT. - Compilation of macroeconomic database and customization of input sheets. - Finalize customization of fiscal and monetary sectors; produce full-scale baseline scenario. - Develop and test behavioral equations and forecasting options. - Begin climate module development and interface DDT with tool. - Produce and compare multiple scenarios, including risk and policy scenarios. - User-manual development, training of new core team members, and formalization of reporting and working group processes. ### Annex A — Results Framework (selected targets and milestones) - Objective: Develop capacity in macroeconomic forecasting and policy analysis to support policy decision making and communications - GMA. - Core team and milestones: - Core team size: 17 staff (listed in Annex B). - Target: 80% of core team successfully complete agreed training (outcome indicator). - Learning gain milestone: A learning gain of at least 10 percent in the January 2023 shortened FPP course / Target Completion Date: 01/31/2023. - Core MFT customization milestone: Core MPT team fully customized the MPT for the Bangladesh economy / Target Completion Date: 07/30/2024. - User manual milestones: initial draft by 12/31/2023; final user manual by 6/30/2025. - Roles and responsibilities: core team agreed roles by 04/15/2023; maintain participation or equivalent replacements for one year by 04/15/2024. - Presentation of results to MTMF working group: Target Completion Date: 03/31/2024. - Integration and joint-institutionalization across tools: Target Completion Date: 09/30/2024. - Outcome assessment baseline/current values reported in Annex A (e.g., learning gain achieved: 11 percent from the 5-day FPP refresher). *IMF | Technical Report – Bangladesh Macroeconomic Framework TA: Scoping Mission — PREFACE/SECTIONS I–III and Annexes A–D (tarea2024047).* ### PREFACE ................................................................................................................ ### PREFACE ### Mission overview - A Technical Assistance (TA) scoping mission visited Dhaka, Bangladesh from January 22 to February 1, 2023, to diagnose the current macroeconomic forecasting and policy analysis systems at the Finance Division of the Ministry of Finance (MOF) and deliver a shortened Financial Programming and Policies (FPP) course. - Mission team: - Christian Johnson (Mission Chief, SARTTAC) - Werner Schule (STX) - Barrett Owen (ICDMF) - Bhaswar Mukhopadhyay (Deputy Director, SARTTAC) joined during the final two days. - Counterparts and coordination: - Introductory meetings held with Additional Secretary Rehana Perven (Wing Chief, Macroeconomic Wing—MEW) and Additional Secretary Dr. Mohammad Altaf Alam (Wing Chief, Treasury and Debt Management Wing—TDMW). - Daily working sessions conducted with staff from MEW, TDMW, Budget Wing (BW), and Economic Advisor Wing (EAW). - Mr. Tawhid Ilahi (Deputy Secretary, MEW) coordinated the team from the MOF side. - Training logistics support: - IPF (Institute of Public Finance) provided venue and catering for training sessions. - Administrative support from Irela Dinora Aleman Casco (ICDMF), Claudia Salgado (ICDMF), Mudit Mittal (SARTTAC), and Gloria Halder (IMF Resident Representative Office in Bangladesh). ### Key procedural notes and scope - The diagnosis is based on information available at the time of the visit in January 2023. - Findings and recommendations represent the views and advice of the IMF mission team and do not necessarily reflect those of the authorities. - The mission presented its assessment to MEW Wing Chief Rehana Perven, Joint Secretary Dr. Ziaul Abedin, Joint Secretary Dr. Shaikh Moniruzzaman, and Monitoring Cell Wing Chief Shirajun Noor Chowdhury. - The report has been shared with the authorities for their input and comments. - The mission expressed appreciation for MOF staff engagement, organization, and logistical support. ### Executive summary — purpose and design of the TA project - Purpose: - Help build macroeconomic framework capacity at the Macroeconomic Wing (MEW) and the wider Finance Division (FD) of the MOF of Bangladesh. - Specifically aimed at enhancing the Medium-term Macroeconomic Framework (MTMF) and centered around development of a tool based on principles of Financial Programming and Policies (FPP). - Scoping mission components (January 22 to February 1, 2023): - Scoping component: diagnose current macroeconomic forecasting and policy analysis systems and develop an action plan. - FPP training component: shortened FPP training course focusing on essentials of financial programming. - Staffing and institutional challenges: - Turnover within MEW and FD identified as a substantial challenge. - Despite small staff cohort and heavy work remit, staff are highly motivated and deliver consistent quality outputs. - Current MTMF tools are constrained: either overly complex given turnover challenges or lacking necessary structure and linkages to develop baseline forecasts with a satisfactory economic narrative and scenario analysis. - Sustainability requirements: - A sustainable tool must be accessible to a wider group of staff to mitigate turnover risks and enable more effective dialogue with policymakers and the MTMF working group. - Supplementation with user guides and associated material is necessary to integrate new MEW members. - Action plan agreed “ad referendum” with authorities: - Project includes 10 missions across four overarching phases with a hybrid model of in-person and virtual deliveries. - Timeline spans approximately 2-3 years from January 2023 to July 2025. - Counterparts agreed to proceed with the Macroframework Foundations Tool (MFT). - An initial core team of 17 staff will be led by Joint Secretary Dr. Ziaul Abedin and coordinated by Deputy Secretary Tawhid Ilahi, with ICD assistance; core team composition may vary with FD needs. - Phase sequencing and priorities: - Current phase (January to June 2023): introduce core team to generic MFT; core team populates it with local data (see Annex A). - Customization phase (July to December 2023): core team customizes MFT to Bangladesh economy. - Expansion and scenario use (January to August 2024): expand MFT to meet needs and begin using it to develop scenarios for MTMF projections. - Institutionalization (September 2024 to July 2025): prioritize institutionalization, utilization of MFT for policy advice and analytical content, and finalization of a user manual and associated material to ensure sustainability. - Full action plan detailed in Section III of the report. ### SECTION I — BACKGROUND: genesis and context A. The macroeconomic context of Bangladesh - Long-term progress: - Bangladesh has experienced impressive economic growth over the last decades and has made substantial progress on achieving social development objectives. - Authorities aim to reach upper-middle income status by 2031. - Structural reform agenda includes improvements in tax mobilization, addressing gaps in social and development spending, diversifying exports, and enhancing the investment environment and financial sector. - Climate risks are particularly acute; building resilience to future shocks is a priority. - Expected graduation from the UN’s Least Developed Countries (LDC) list by 2026, which is expected to create challenges around loss of preferential trade agreements and access to concessional financing. - External pressures and BoP developments: - Economy faced Balance of Payment (BoP) pressures due to multiple external shocks. - Initial rebound from the Covid-19 Pandemic was followed by stagnating export recovery amid tight external demand and substantially increased nominal imports due to global supply disruptions and rising commodity prices. - Resulted in sharp drawdown in foreign reserves and a depreciation of the Taka. - External pressures are constraining fiscal conditions and domestic activity and limit authorities’ ability to absorb further shocks. - Without additional support, external pressures are expected to continue amidst global uncertainties. - External support and program: - Authorities sought external assistance, including a recently approved program with the IMF under the Extended Credit Facility (ECF), Extended Fund Facility (EFF), and the Resilience and Sustainability Facility (RSF). - The program was approved by the IMF Executive Board on January 30. - Program duration: 42-months. - Program financing totals $4.7 billion across the three facilities. - Program targets supporting authorities in achieving reforms in key areas, protecting macroeconomic stability, and building resilience to climate shocks. B. The TA request of the authorities - Prior engagement: - SARTTAC and ICD supported the MOF with a predecessor macroeconomic framework TA project between 2019 and 2020. - Strong and consistent demand from FD for SARTTAC and IMF capacity development since SARTTAC’s inauguration in 2017. - Particular demand for training in Financial Programming and Policies (FPP); SARTTAC and ICD previously provided FPP training using a training template with authorities’ data. - Core MTMF tool used by authorities for budget process is based on FPP principles. - Previous project aim and challenges: - Previous TA aimed to modernize MTMF tool from primarily an accounting framework to incorporating key behavioral equations. - Project began with successful combined scoping and FPP training refresher in late-2019. - In late-2020, virtual work over three months with a small core team produced an updated MTMF akin in complexity to the Comprehensive Adaptive Expectations Model (CAEM). - Engagement stalled in 2021 due to MOF staff resource constraints during the budget process and broader pandemic impacts. - Re-scoping request: - Authorities requested and agreed on a re-scoping and FPP training refresher mission during January 22–February 1, 2023. - MOF highlighted heavy turnover since 2020; most members of previous core team have left and few remaining staff have worked with the updated MTMF tool. - IMF team and authorities agreed on a 9-day mission at the end of January with scoping and FPP training components. C. Integration with surveillance and program priorities - Alignment: - Improved macroeconomic framework tools and associated capacity align with priorities of both the IMF program and the authorities. - Program and other support place heavy emphasis on enhancement of capacity across reform areas, including MTMF improvements and ability to assess shocks, including climate risks. - Improved MTMF and capacity can strengthen assessment of policy combinations and time-paths, risks to the macroeconomy, and progress on reform targets. - Accessible macroeconomic framework and associated capacity can further facilitate dialogue on macroeconomic policies. - Coordination: - ICD and SARTTAC will consult regularly with the IMF country team throughout the project and seek feedback at each stage to ensure alignment with program priorities. *IMF | Technical Report – Bangladesh Macroeconomic Framework TA: Scoping Mission — PREFACE (content unit).* ### SECTION II. SCOPING MISSION FINDINGS AND ASSESSMENT ### SECTION II. SCOPING MISSION FINDINGS AND ASSESSMENT ### A. Introduction - Scoping mission concluded on February 1st, 2023. - Information sources informing the draft action plan: - Questionnaire responses, discussions and feedback with the authorities. - A corresponding FPP training session held over 5 days during the scoping mission with members of the potential core team. - Previous 2019 and 2020 project briefing papers and back-to-office reports, with changes verified during the scoping mission. ### B. Institutional setup of the TA beneficiary departments — The Macroeconomic Wing (MEW) overview - MEW responsibilities and structure: - Primary Government entity responsible for macroeconomic and fiscal policy analysis and forecasting, and budget monitoring. - Wing Chief reports directly to the Senior Secretary of the Finance Division. - Wing composed of three Offices, each headed by an Additional-Secretary or Joint-Secretary: - Macroeconomic Policy Analysis & Forecasting Office — leads development of the Government’s Medium-Term Macroeconomic Framework (MTMF). - Fiscal Policy Office — focuses on fiscal forecasts and fiscal policy analysis, with a focus on revenues. - Budget Monitoring, Evaluation, and Reporting Office — responsible for monitoring budget execution and developing related reports. - In practice staff collaborate across these workstreams and MEW is regularly tasked ad-hoc by the offices of the Finance Minister and Secretary. - MTMF institutional arrangements and timing: - Public Money and Budget Management Act of 2009 (PMBM Act 2009) requires a policy statement to be submitted to Parliament with the annual budget and any budget revisions, detailing the MTMF, strategic priorities, fiscal policies, and evaluation of borrowing policies. - MTMF must be approved by a Coordination Council (CC) twice a year, in November and April. - CC membership includes the Ministry of Finance (chair), the Governor of the Bangladesh Bank (BB), the Minister of Planning, the Chairman of the National Board of Revenue (NBR), and the Director General of the Bangladesh Bureau of Statistics (BBS). - The MTMF is produced early in the budget process to inform expenditure ceilings, ahead of the Budget Call Circular in November, and revised in April before the budget is finalized. - MEW’s technical coordination role: - Primary responsibility for coordinating technical work to prepare the MTMF sits with the MEW. - Inputs sourced from the BB, BBS, other Wings of MOF, and external sources. - A cross-agency MTMF Working Group discusses and coordinates the MTMF at the technical staff level; includes representatives from BB, BBS, NBR, Ministry of Planning, and MOF. - Forecast differences are discussed in the working group and consensus is sought, but MEW ultimately has the final say over figures incorporated into the MTMF. - Key findings on MTMF quality and practice: - Substantial room to strengthen MTMF forecasts and to develop alternative scenarios. - Key characteristics of current MTMF production: - Horizon: three-year horizon (current fiscal year t+2). - Aggregates such as Real GDP and inflation are often set to correspond with targets in the Five-Year Plan; remaining variables forecasted judgmentally to correspond with those figures. - Revenue variables generally forecasted at an aggregate level as a constant ratio with nominal GDP, with ad-hoc adjustments for expected policy changes. - An informal fiscal rule exists that the budget deficit should not exceed approximately 5 percent of GDP; if forecasts exceed this the figures are adjusted to fall within the rule. - Currently only one MTMF scenario is produced; no risk scenarios or alternative policy scenarios are published. - Resulting differences between budget forecasts and actuals are substantial in most fiscal years. - MTMPS (Medium-Term Macroeconomic Policy Statement) observations: - MEW produces the MTMPS to accompany the published budget and detail the MTMF, as required by PMBM Act 2009. - MTMPS contents: review of macro performance, MTMF figures and explanations, major issues, medium-term and long-term fiscal policies and strategy aligned with Ministry of Planning national development plans, and chapters on Government expenditure plans, revenue mobilization, and debt strategy. - Improvement areas: - Macroeconomic assumptions are broadly described; scope to elaborate detailed assumptions and interlinkages across variables. - Document lacks explanation of how macro assumptions compare with alternative projections and does not discuss or quantify uncertainties. - Fiscal risks are neither quantified nor discussed in the budget documents. ### C. Other remits and outputs of the MEW - Fiscal Policy Office: - Focuses on fiscal sector of MTMF, assesses proposed revenue policies, monitors resource mobilization measures. - Coordinates closely with National Revenue Board (NBR) and Internal Resources Division (IRD). - Conducts revenue forecasts that feed the MTMF; forecasts are aggregate, linked as ratio with nominal GDP and disaggregated by IRD into economic categories for NBR targets. - Conducts ad-hoc expenditure policy work at request of Minister and Secretary but ongoing responsibility for expenditure lies with other Wings. - Budget Monitoring, Evaluation, and Reporting Office: - Tracks revenue outruns monthly against targets and coordinates with IRD and NBR on revenue shortfalls. - Monitors budget expenditure execution by economic and administrative categories; reviews implementation of major projects and programs. - Compiles quarterly and semi-annual budget execution reports and frequent memos for the Finance Secretary. - Quarterly information used ad-hoc to inform in-year fiscal projections by Macroeconomic Policy Analysis & Forecasting Office. - Collaborates closely with Budget Wings (BW), Planning Commission, and Office of the Comptroller General of Accounts. - Assists drafting related budget documentation, leads development of the Budget Speech, and produces working papers at CC request. - MEW’s coordination role: - MEW staff often report directly to Offices of the Finance Minister and the Secretary; frequently receive ad-hoc work requests. - Staff heavily involved in interactions with international partners on fiscal issues, including IMF and World Bank missions. - MEW leads several inter-agency working groups, including the MTMF working group. ### D. Other related Wings of the MOF Finance Division (engagement relevance) - Treasury and Debt Management Wing (TDMW): - Responsibilities: - Managing domestic and foreign debt portfolio of the Government. - Liquidity and cash management and forecasting. - Overseeing government non-tax revenue sources, including those from financial assets. - TDMW works with MEW on debt and non-tax revenue figures in the MTMF. - Produces Medium-Term Debt Management Strategy (MTDMS); aiming to enhance outputs, including developing MTDMS into an annual document with World Bank and IMF assistance incorporating LIC DSF inputs. - Focus areas: debt-associated risks, cash liquidity, and equity management have become larger focus given recent macroeconomic context. - Budget Wings (BW): - Responsible for preparation of the Medium-term Budget Framework (MTBF) and the annual budget, collaborating with line ministries, and managing and monitoring budget execution (non-development and development/capital budgets). - For development budget, MOF works closely with the Planning Commission and Economic Relations Division on external aid (loans and grants). - BW split into Budget-1 and Budget-2: one focuses on non-development budget and consolidation, the other on development budget. - BW previously coordinated MTMF before creation of MEW and continues close collaboration. - Economic Advisor Wing (EAW): - Takes longer-term perspective and focuses on specific analytical topics related to the real sector. - Major output: Annual Economic Review covering main sectors. - Provides economic updates on request to key stakeholders including relevant Ministries, Prime Minister’s office, and President’s office. - Responsible for monitoring implementation progress of Annual Development Programme (ADP) projects under MOF Finance Division and all non-ADP projects. - Front Offices and Administrative and Coordination Wing (ACW) engagement: - Front Offices include Offices of the Finance Minister and the Secretary; ACW coordinates MOF activities and advises senior officials and handles human resources and training. - MEW and Front Office staff work closely and MEW staff are often asked to assist on ad-hoc tasks. - Keeping Front Office and ACW updated is important to ensure senior official support and staff resource commitment. ### E. Intra- and inter-agency cooperation - Intra-MOF cooperation: - Wings have strong working relationships and collaborate across projects, but arrangements and working groups are not formalized. - MEW works across Finance Division; high turnover and movement across Wings means conflict is not a large issue. - Forecasting working group arrangements are not formalized; roles and inputs of other Wings into forecasts are limited. - Scope exists to enhance collaboration in forecasting, involve other Wings more systematically, validate forecast outputs, and formalize core team roles. - Further collaboration with Economic Relations Division would strengthen grant and external financing forecasts in the MTMF. - Inter-agency cooperation: - Institutional arrangements for inter-agency cooperation are strong (MTMF working group and CC), but lack of adequate forecasting tools across agencies limits discussions and policy input. - Agencies lack a medium-term macroeconomic forecasting tool with sufficient structure and linkages to facilitate effective dialogue on forecast differences and alternative scenarios. - In practice, discussions are limited and final MTMF variable forecasts are largely decided by the respective agency responsible for that sector. - The ability of technical teams to input into CC discussions and contribute to policy decisions is limited by these challenges. ### F. Existing human and material resources - Staff sizes, availability and turnover: - MEW staff composition and numbers: - Total staff: 13. - Composition: Wing Chief, 3 Joint Secretaries heading each office, 6 Deputy Secretaries, and 3 Senior Assistant Secretaries. - All members are full Bangladesh Civil Servants at the MOF. - Each Office within MEW has 4 staff, though staff often work across workstreams. - Staff constraints: - Heavy work remit and limited staff numbers compared to similar peer units in other countries. - Frequent ad-hoc project assignments further constrain staff resources. - Staff commitment and availability: - Staff and Wing Chief emphasized motivation and commitment to allocate time resources to the project despite constraints. - Most availability outside budget preparation process and from the months of July to January. - Virtual engagement office hours: 9am to 4pm each day. - Strong preference for in-person missions and conducting missions off-site from the MOF. - Preference to conduct missions at the SARTTAC Centre in India to mitigate risk of being called away during mission engagements, though risk exists that off-site modality may hamper sustainable capacity building and embedding of developed tools into institutional processes. - Previous virtual engagements were difficult; in-person missions have generally been successful. *IMF | Technical Report – Bangladesh Macroeconomic Framework TA: Scoping Mission — SECTION II. SCOPING MISSION FINDINGS AND ASSESSMENT* ### 24. Turnover risks will be the largest challenge for the success of the project. Heavy turnover is ### 24. Turnover risks will be the largest challenge for the success of the project. Heavy turnover is ### Turnover risks and institutional context - Heavy turnover is a systemic challenge across the Bangladesh Civil Service, with frequent staff movements across and within Ministries and positions. - The Finance Division of the MOF has an informal agreement with the Ministry of Public Administration (MOPA) to contain some turnover within the Division, given the need for greater financial specialization capacity; nevertheless staff are frequently moved across Wings. - The average tenure of the MEW is reportedly around 1 year and a half to 2 years. - Turnover was the largest challenge in the previous 2020 MTMF project; only one member of that core team remained in the MEW at the time of this report, and none of the others had exposure to the updated tool developed in 2020. - Seniority of posts in the MOF and Bangladesh Central Administration is listed as: (1) Senior Secretary, (2) Secretary, (3) Additional Secretary, (4) Joint Secretary, (5) Deputy Secretary, (6) Senior Assistant Secretary, and (7) Assistant Secretary. - Large turnover of current MEW staff can be expected through the project timeframe; developing a larger reserve pool including staff from related Wings is important to mitigate this risk. - Wing Chiefs and staff were enthusiastic about including further members from other Wings; participants for the FPP training refresher during the scoping mission were chosen accordingly. - The action plan will need to be carefully designed with further turnover risk mitigation measures (discussed in Section III of the source). ### Skills capacity of staff - Staff characteristics: - MEW staff all have Masters or PhDs in Economics-related fields, providing general theoretical economics knowledge and analytical skills. - Staff from other Wings have diverse educational backgrounds, including some with accounting backgrounds; all are often generalists due to frequent moves. - Staff are rarely in the MEW long enough to develop deep forecasting and policy analysis expertise. - Training and exposure: - All staff have taken a relevant ICD course at some point, including Fiscal Policy Analysis, FPP, and Macroeconomic Diagnostics (via SARTTAC, Singapore Regional Training Institute, or edX). - MEW staff have some base knowledge in working with a simple accounting framework FPP tool during current forecasting exercises. - Gaps identified during the FPP training refresher: sectoral accounts and linkages, macroeconomic forecasting, and some aspects of fiscal and monetary policy; staff expressed demand for further training in these areas. - Despite the condensed 5-day course, staff exhibited significant learning gains of 11%. - Note: 10 staff from MEW, BW, TDMW and EAW participated in the 5-day FPP training course; these were all potential members of the proposed core team. - Training resource gap: - Wings lack formal resources to train new staff on financial programming and forecasting; staff generally learn informally on-the-job or rely on external courses. - The MEW staff indicated a TA project would need a heavy focus on assisting in development of related training materials to sustain capacity. - TDMW highlighted large gaps and demand for assistance in debt sustainability analysis, liquidity and cash management and forecasting, and debt and asset management. ### Material resources and software - Material readiness: - All staff have access to reliable laptops and internet, meeting rooms and workstations. - Staff emphasized desire to work off-site to avoid being called away during missions; Institute of Public Finance (IPF) venue was used during FPP refresher but internet and resources there are not as reliable as at the MOF. - Assistance may be required with venues during virtual and in-person missions. - Software access: - All MOF staff have access to Excel. - Only MEW staff have EViews licenses. ### Tools and macroeconomic frameworks - Existing MTMF tools held by the MEW: - Accounting FPP framework: primary version in use; essentially an accounting framework incorporating key accounting linkages; limited inter-sectoral linkages and no behavioral relationships; initially developed with IMF assistance in 2006 and largely kept the same structure since. - Updated MTMF Tool developed in 2020: akin to ICD’s Comprehensive Adaptive Expectations Model (CAEM) in approach and complexity, including (i) key behavioral equations with adaptive expectations, (ii) endogenization of all core variables to create a general equilibrium-like framework, (iii) trend and gap approach and error correction model specifications, and (iv) options to switch between model-based and judgement-based approaches for each equation while maintaining the model approach for scenarios. - Usage and limitations: - The accounting FPP framework is the only tool used in practice; only one MEW member had knowledge about the updated MTMF Tool developed in 2020 and it has not been used since development. - The current accounting framework MTMF tool lacks necessary structure and linkages to develop scenarios and even a baseline forecast with a sufficient economic narrative. - Sector-specific forecasts of key variables are done on a purely judgement-basis and fed into the MTMF tool: - MEW starts with a forecast of overall Real GDP growth, aligning it to the 5-year plan growth targets, then conducts sector-by-sector value added forecasts corresponding with overall Real GDP. - Inflation forecasts are conducted similarly, aligned to 5-year plan growth targets. - Remaining key variables across sectors are forecasted with long-term averages and adjusted to correspond with Real GDP and inflation projections. - Some monetary and balance of payments aggregates are received from the BB during MTMF working group sessions. - Where differences exist across agencies, consensus is decided during MTMF working group and CC discussions; MEW and MOF have most say in final overall aggregates except for the monetary sector. - Corresponding TA projects and tools under development: - World Bank (WB) is providing training to the MEW on the WB Macro-Fiscal Model (MFMod); MOF has agreed with donors to improve their current MTMF, particularly to incorporate assessment of climate shocks, reflected in the recent ECF-EFF-RSF program agreement with the IMF with a target date to have this by end-June 2024. - PEFA review reportedly includes a specific reference to the use of the MFMod in its recommendations; this project is part of the World Bank’s Strengthening Public Financial Management Program to Improve Service Delivery (SPFMS) with the Finance Division. - MEW has received one training session on MFMod so far; a follow-up training session is planned with the WB in the coming months. - Senior officials and staff plan to adopt the MFMod but recognize it might be a “black-box” tool for the foreseeable future due to current staff skills capacity and turnover risks; they expect MFMod to be useful to assess macroeconomic impact of climate shocks. - IMF engagements: - ICDMM assisting the BB on a Macroeconomic Framework TA project in the context of modernizing monetary policy formulation; a scoping mission concluded in August and the next mission was planned for 2023Q1. - SARTTAC and FAD are considering a project to assist the MEW, IRD and BW in enhancing fiscal forecasting; this fiscal forecasting project is in pre-scoping stages and not confirmed. - TDMW tool needs: - TDMW lacks tools for debt-sustainability analysis, non-tax revenue forecasting, and cash liquidity forecasting; expressed demand for TA and training across these workstreams and plan to develop resources for independent sustainable capacity. - TDMW and MEW are interested in embedding a simple Debt-Dynamics Tool (DDT) within their macroeconomic framework tool to analyze debt dynamics and better understand LIC DSF implications; IMF and WB will support TDMW in utilizing a LIC DSF tool annually to inform publication of the MTDMS. ### Data, data management and other inputs - Data quality and availability (sector highlights): - Real sector: Annual national accounts statistics available on production and expenditure sides stretching back to 1980; final GDP estimates released 4 months after the reference period; rebasing to 2015/16 benchmark completed in 2020; IMF and SARTTAC TA supporting BBS in developing a quarterly GDP series expected to be released by the end of 2023. - Prices: Limitations in pricing statistics including concerns about CPI reliability and lack of comprehensive PPI; authorities working on improvements using updated index weights, HIES survey and VAT data, and COICOP. - Fiscal sector: IMF and SARTTAC TA supporting MOF in developing quarterly government finance statistics and moving closer to GFSM 2014; consolidated central government flow data largely available annually, with budget execution data monthly; published stock data and data on extrabudgetary and local government units limited; MEW has further direct access to internal fiscal data sources at more granular level. - External sector: Comprehensive BoP and IIP statistics readily available quarterly in line with BPM6; minor discrepancies across BoP, IIP and external debt statistics and between BoP and national accounts trade statistics; BB improving compilation and reporting of gross international reserves with a target to release these by mid-2023. - Monetary sector: BB compiles monetary data using standardized report forms with consistent time series available from December 2001; data on non-bank financial institutions limited but being developed; policy rate (repo rate) largely flat and currently not useful for analysis; 91-day Treasury Bill rate and other short-end rates might be more useful but not easily accessible; as BB moves towards flexible inflation targeting, interest rates likely to become more relevant. - Other data inputs: MEW not making significant use of other data sources currently, though high-frequency data exists (trade, remittances, financial indicators, production indicators, Quantum Index of Industrial Production); labor force and wage statistics limited, last labor force survey conducted in 2016/17. - Data management and quality control: - MEW maintains an excel database of macroeconomic data within their current MTMF tool; receives timely data from statistical providers and can follow-up on missing data through MTMF working group arrangements. - MEW highlighted lack of access to more granular data across sectors, limiting database detail and corresponding analysis. - TDMW developing more comprehensive databases on the debt portfolio and more information on state-owned enterprises that generate dividends for Central Government. - No systematic process exists for conducting consistency checks and ensuring data quality; current MTMF tool conducts some simple accounting checks but these are not comprehensive or systematically used to verify data quality. - A more comprehensive tool with further consistency checks would improve efficiency and position the team to better challenge data providers where concerns exist. ### Needs assessment: summary of key needs and implications for project design - Key findings (if addressed in the project, could greatly assist MEW and MOF objectives): - The MEW lacks an MTMF tool with necessary structure and linkages to develop baseline forecasts with satisfactory economic narratives; current accounting framework and judgement-based forecasts are not meeting team needs and the resulting MTMF is largely aligned to targets rather than assessing the macroeconomic baseline path. - There is room to improve accounting linkages, consistency checks, and data management processes to improve historical data quality and database management. - MEW requires a tool that can assess a variety of policy and risk scenarios, including climate and debt-path related scenarios; FD has demand for a tool to produce multiple alternative MTMF scenarios given large reform agenda and growing domestic and global risks. - A tool that can be sustained independently and used meaningfully amid high turnover must be accessible to a wider group of staff; many complex tools built over the last decade saw limited practical use largely because of high turnover and insufficient tenure to build necessary forecasting and policy analysis capacity and mentor new members. - FD wishes to address skills capacity gaps sustainably to mitigate turnover risks: develop training material and user guides, design a user-friendly tool, and provide training in sectoral accounts, macroeconomic forecasting, and fiscal policy. *IMF | Technical Report – Bangladesh — Macroeconomic Framework TA: Scoping Mission* ### SECTION III. PROPOSED ACTION PLAN ### SECTION III. PROPOSED ACTION PLAN ### A. Introduction - Agreement reached “ad referendum” on February 1, 2023, on a draft action plan to develop, operate and institutionalize a macroeconomic framework tool. - Core team: Finance Division (FD) within the Ministry of Finance (MOF); main counterpart Macroeconomic Wing (MEW). - Reserve pool involvement: Budget Wing (BW), Treasury and Debt Management Wing (TDMW), Economic Advisory Wing (EAW). - Purpose: detail objectives, steps, timeframes, modalities, proposed tool and required customization, core team, risks and mitigation measures. ### B. Principal objectives, axes, and delivery schedule - Principal objectives (three): - (1) Improve the depth, structure and consistency of baseline MTMF projections, and MTMF applicability to the evolving Bangladesh context. - (2) Expand use of the tool to assess effects of policy measures and account for various macroeconomic risks, including effects of shocks on the debt path and effects of climate change. - (3) Enhance analytical contribution of MEW and the core team to technical and policy discussions at the MTMF Working Team and the Coordination Council. - TA axes for accomplishing objectives: - a. Improve macroeconomic database and inputs feeding into the MTMF, including systematic consistency checks. - b. Customize the MFT to Bangladesh-specific requirements, data, and inputs to replace the MTMF as soon as technically and institutionally possible. - c. Identify main policy options and macroeconomic risks, incorporate them in the selected tool, and draw policy implications; incorporate assessment of compliance with informal fiscal rules into tool. - d. Expand the MFT to meet core team needs, including disaggregation of key variables and interfacing with the Debt Dynamic Tool. - e. Incorporate a simple framework/sheet to assist consideration of climate shocks, climate effects and climate policies on the macroeconomic framework. - f. Elaborate a user guide and associated material for MFT to guarantee institutionalization and facilitate maintenance despite staff rotation. - g. Use macroeconomic forecasts from MFT to improve policy advice and analytical content of the core team’s reporting and contributions to policy discussions. - Delivery schedule and missions: - Ten missions across 2-3 years have been designed (including 1 buffer mission and the scoping mission). - Tentative schedule runs from January 2023 to July 2025. - Missions: 10 missions agreed, delivery schedule to be regularly reviewed and updated. - Logical framework (Logframe - Annex B) provides roadmap and identifies critical milestones with targeted dates. - Project phases (four): - Phase 1: first half of 2023 — scoping and introduction to the MFT. - Phase 2: second half of 2023 — develop initial MFT customized to Bangladesh; begin running shadow baseline and scenario forecasts by end of phase. - Phase 3: first half of 2024 — further expand and customize MFT; conditional on confidence, replace previous MTMF with MFT for forecasting. - Phase 4: remaining project timespan — fully institutionalize the tool and fully replace current MTMF with customized MFT to produce the MTMF. ### C. Core team and technical assistance modalities - Core team leadership and TA support: - Core team of authorities will lead tool development; ICD and SARTTAC provide technical assistance and complementary training across phases. - Core team responsible for developing the tool during missions with ICD and SARTTAC guidance. - Work and training between missions, including periodical remote check-ups by mission team, are critical. - Core team composition and leadership: - Core team size: 17 staff. - Composition: 10 staff from MEW, 3 from TDMW, 3 from BW, and 1 from EAW. - Team leadership: led by Dr. Ziaul Abedin (Joint Secretary, MEW); coordinated by Mr. Tawhid Ilahi (Deputy Secretary, MEW). - Oversight: Wing Chiefs and Joint Secretaries of respective departments; primary supervisor Additional Secretary Rehana Perven, MEW Wing Chief. - Wider stakeholder engagement: technical counterparts from agencies in the MTMF working group at key stages. - Turnover risk mitigation and capacity sustainability: - Reserve pool design to mitigate high turnover: supplement core team with members from other Wings involved in MTMF forecasting (TDMW, BW, EAW). - MEW staff to lead development between missions; other Wings participate during missions. - Development of tool user manual and associated material to ensure sustainability as staff turnover occurs. - ICD and SARTTAC to support training of new staff as core team is replenished. - Communication and collaboration methods: - Planned methods: WhatsApp group, mailing list, Zoom, Microsoft Teams. - Scheduled meetings to coordinate in-between mission work. - Online data sharing platforms being explored for sharing tool, database and information. - Responsibilities and tasks to be assigned and revisited throughout the project. - Modalities of missions and training: - Hybrid model of in-person and virtual missions; about half of the 10 missions planned in-person, health and safety permitting. - In-person missions for intensive tasks; virtual missions for momentum and follow-up. - ICD and SARTTAC provide clear guidance for in-between mission tasks and virtual support. - Timing allocated for complementary training where gaps identified, and refresher courses to initiate upcoming phases. - Training focus areas: sectoral accounts, macroeconomic forecasting, fiscal policy. - Training delivery: summarized training within ICD courses or referrals to relevant IMF online courses and reference material. ### D. Proposed macroeconomic framework tool - Tool options considered (four): - (i) Build on existing accounting framework used by MEW and add intersectoral linkages and basic behavioral equations. - (ii) Replace existing framework with tool developed in previous project in 2020 and finalize its development. - (iii) Replace existing framework with the MFT template, tailored and expanded as required. - (iv) Replace existing framework with the Comprehensive Adaptive Expectations Model (CAEM) template, tailored and expanded as required. - Assessment of current MTMF: - Current accounting framework MTMF is not meeting needs: lacks necessary structure and linkages to develop scenarios or baseline forecasts with sufficient economic narrative. - Requires substantial cleaning and extensions despite some accounting consistency across sectors. - Agreement to develop a new tool and run both tools in parallel in initial phases before replacing current tool. - Chosen option: - Agreed proposed tool: Macroframework Foundations Tool (MFT) — option (iii). - Reasons for choosing MFT over options (ii) and (iv): - High turnover in MOF and limited tenure of MEW staff necessitate an accessible tool sustainable by a wider range of staff. - Current staff have limited exposure to macro forecasting and econometrics; existing methods are judgment-based; more complex features (e.g., error correction model specifications) would be a barrier. - Experience from the previous 2020 project highlights risks of implementing a more complex tool in a high-turnover environment; many current staff were unaware of that tool’s existence. - Senior officials requested a tool that can be developed quickly to produce scenarios; MFT accessibility enables earlier usable outputs and incremental customization. - Synergies with WB TA project: MFT is more accessible and aligns with MFMod training the WB is providing to MEW. - FPP training course experience: 10 participants (from MEW, BW, EAW and TDMW) used a barebones MFT during a condensed 5-day FPP training segment; participants had learning gains of 11% and showed broad understanding; by end of 5 days they were relatively comfortable using the tool to develop and explain scenarios. - Comparison with CAEM and 2020 tool: - CAEM and 2020 tool are relatively more complex and less accessible: more sheets, greater sectoral disaggregation, heavier data/input requirements. - These tools aim for more general-equilibrium-like approaches with greater endogeneity (e.g., exchange rates), trend-gap focus, and error correction model specifications. - MFT is more streamlined and lends itself better to ground-up customization. - Box 1: Overview of the MFT (key characteristics) - Tractable, integrated model for forecasting and policy simulation; built on Financial Programming framework (FPP). - Retains four-sector FPP structure but is streamlined in size. - Tailorable to country-specific TA needs and capacity constraints (institutional, staffing, statistical). - Key features: simplicity, flexibility, consistency, minimum data and modest calibration requirements. - Incorporates essential links and consistency checks, accounts for financing sources, adapts to multiple objectives while focusing user on most important issues. - Employs an easy-to-use dashboard and macros to create policy scenarios: - Conduct simulations of changes in: (i) underlying forecast assumptions; (ii) introduction of specific shocks; (iii) other policy measure refinements or changes. - Key behavioral expenditure and inflation equations underpin projections along with standard macroeconomic identities. - Expenditure equations: simple structure with rich inter-linkages; model is a simultaneous system solved in an internally consistent manner (e.g., private consumption depends on disposable income and real interest rates, with feedback from GDP, inflation, policy variables and exogenous variables). - Additional variables can be incorporated to allow additional risk and policy scenarios. - MFT customization required for Bangladesh: - (i) Adjust input sheets to incorporate local Bangladesh data and comprehensive consistency checks. - (ii) Add an input sheet module to estimate potential output and other trend variables. - (iii) Tailor behavioral equations, parameters and forecasting methods to Bangladesh context. - (iv) Disaggregate and adjust fiscal and external sector variables to core team needs. - (v) Integrate the Debt Dynamics Tool to assess shocks on the debt-path and deepen understanding of LIC DSF aspects. - (vi) Investigate possibility of incorporating a climate dimension given priority in recent IMF ECF-EFF-RSF program. - (vii) Potentially pull elements from the CAEM (e.g., method to forecast exchange rates) given planned transition in Bangladesh to an inflation targeting regime. ### Risks and mitigation measures (as highlighted) - Risk: High staff turnover and limited tenure in MEW reducing sustained forecasting expertise. - Mitigation: Design core team with reserve pool from other Wings; develop user manual and associated materials; ICD and SARTTAC to support training of new staff; run tools in parallel initially to build confidence. - Risk: Complexity of alternative tools (CAEM or 2020 tool) creates barriers to adoption. - Mitigation: Choose the more accessible MFT and customize incrementally; provide targeted training and use hybrid mission modalities to focus intensive work in-person. *Source: SECTION III. PROPOSED ACTION PLAN (tarea2024047).* ### 57. The MOF has several other ongoing and possible TA Projects, and it will be important to ### 57. The MOF has several other ongoing and possible TA Projects, and it will be important to ### Coordination across TA projects - The Wings are engaged on MFMod training with the WB, a potential FAD and SARTTAC project to assist on fiscal forecasting, and a planned annual assistance on a LIC DSF analysis. - Effective coordination will allow the Wings to build on synergies between the projects. - TA fatigue could become an issue if the projects are not timed taking this into consideration. - Multiple projection tools could create confusion in the forecasting process if the work done using these tools is not well coordinated. - The project action plan times missions and considers options for building on planned work across other projects. - The core team and mission team will coordinate with relevant stakeholders throughout the project. ### MFMod and MFT: similarities, complexity, and coordination - The MOF intends to utilize both the MFMod and the MFT and it will therefore be important to coordinate the two tools given their similar purposes. - The MFMod tool has a higher level of complexity than previous tools that other TA projects attempted to build with the MOF, which were unsuccessful. - Staff recognize MFMod may initially be a “black-box” for them, given current staff capacity. - Turnover risks going forward will be acute. - A smaller sub-group of the core team may develop capacity to utilize the MFMod for deeper scenario analysis, particularly for climate shocks, and as a check on MFT forecasts. - Coordination aspects between the two tools should include: - ensuring similar external exogenous inputs and historical data; - calibration of shared parameters across the two tools; - examination of medium-term trends; and - comparison and discussion of differences in forecasting rounds. ### Fiscal forecasting project integration (FAD and SARTTAC) - The fiscal forecasting project with FAD and SARTTAC is in pre-scoping phases; the action plan prepares for integration of this work. - As part of MFT enhancement, the core team will create more granularity within the fiscal sector to correspond with the tool and methods built during the possible FAD and SARTTAC project. - Similar members may participate across both teams, although the fiscal forecasting team is likely to incorporate more members from the BW and the NBR. - Synergies: work on the fiscal sector can feed directly into the wider framework, strengthening forecasts across sectors. - Risk: cross-project work could create spill-over risks and delays; mitigating these challenges will be a priority. ### DDT component and LIC DSF linkage - Incorporation of a DDT component within the MFT can complement the annual LIC DSF exercises. - The TDMW and the wider core team are enthusiastic about integrating the DDT into the MFT. - Benefits: - Better understanding of debt-path dynamics within the more complex LIC DSF. - Assessment of implications of macroeconomic shock scenarios on the debt-path capturing further feedback loops. - Missions will not be held during the annual LIC DSF exercises to ensure no overlap for members of TDMW on both teams. ### Staffing, scheduling, and training arrangements - Authorities are aware of TA fatigue risks and considered this when inputting tentative mission dates and core team composition. - Core teams selected strategically across projects to avoid overburdening individual members. - Mission dates have been planned to avoid close overlaps. - MFMod training history and plans: - One training session late-last year with a small core team in-person in Washington, DC. - One further training planned around May with a WB team in-person in Bangladesh over a few weeks. - No further WB missions currently planned; WB available for future follow-ups. - The bulk of work on developing the initial customized MFT with the core team will take place in the second half of 2023, outside busier budget-process period. ### Risks and mitigation (summary of identified risks and mitigating factors) - Heavy staff turnover [High Risk] - Challenge: MEW experienced heavy turnover; none of the core team from 2020 remain. - Mitigating factors: choice of tool to mitigate risk; work with a larger core group replenished to create a continuous reserve pool; focus on user manual, associated material, and training of new members by current members. - Staff resource constraints [Moderate Risk] - Challenge: limited staff and large remit; core team busy during MTMF forecasting rounds and lead up to budget. - Mitigating factors: delivery schedule designed around busy periods; tasks allocated between missions; hybrid modality for flexibility; strong senior MOF management support and ongoing updates to senior management. - TA fatigue and conflict with multiple projection tools [High Risk] - Challenge: Wings engaged on several TA projects (MFMod with WB, potential fiscal forecasting project, planned annual LIC DSF), risking overburden and uncoordinated tools complicating forecasting. - Mitigating factors: close coordination of TA projects; linking tools via interfaces or forecasting steps to ensure comparison and consistency; chosen tool for this TA is relatively more accessible and can act as a stepping-stone to other tools. - Lack of engagement during hybrid deliveries [Moderate Risk] - Challenge: past difficulties engaging MOF during hybrid deliveries, particularly during the Covid-19 pandemic. - Mitigating factors: hybrid modality with strategically front-loaded in-person missions to build momentum; in-person missions focus on intensive tasks, virtual follow-ups on lighter tasks; exploring other delivery options. - Challenges in institutionalizing the tool [Low Risk] - Challenge: success in building a tool with a small core group can be followed by difficulties institutionalizing it into wider policy processes; current MTMF projections based on policymaker targets may conflict with new tool projections. - Mitigating factors: existing MTMF process and functioning cross-agency working groups; MEW mandate to coordinate MTMF improvements; involvement of wider working group at key milestones; multi-year WB and IMF programs include targets requiring strengthened macro forecasting and shock analysis; relative accessibility of the MFT favors institutionalization and wider core team engagement. - Risks due to extreme weather and global economic shocks [Moderate Risk] - Challenge: cyclones, flooding, and external shocks can disrupt economic activity and authorities’ functioning, reducing space to implement the project. - Mitigating factors: flexible TA delivery timing; reconsider mission timing if needed; reduce economic imbalances with improved macroeconomic and scenario analysis from the TA; hold in-person missions in the SARTTAC center if risks prevent attendance in Dhaka. ### Key outputs and timing (selected schedule highlights) - Phase 1 – Scoping and introduction to the MFT - Mission 1 - Scoping mission (in-person): January 2023 - Mission 2 (virtual): April 2023 - Phase 2 – Initial customization of MFT to Bangladesh - Mission 3 (in-person): July 2023 - Mission 4 (virtual): September 2023 - Mission 5 (in-person): January 2023 - Phase 3 – Expansion of the MFT to meet the needs of Core Team - Mission 6 (virtual): February 2024 - Mission 7 (in-person): June 2024 - Mission 8 (in-person): September 2024 - Mission 9 (virtual): December 2024 - Mission 10: Concluding Mission (in-person): July 2025 - Selected planned outputs across missions: - Assessment of current forecasting and policy analysis systems. - Agreement ad-referendum on project action plan, including core team and delivery schedule. - Refresher FPP Training and practice with barebones MFT. - Compilation of macroeconomic database and customization of input sheets. - Finalize customization of fiscal and monetary sectors; produce full-scale baseline scenario. - Develop and test behavioral equations and forecasting options. - Begin work on developing climate module and interfacing DDT with tool. - Produce and compare multiple scenarios, including risk and policy scenarios. - User-manual development, training of new core team members, and formalization of reporting and working group processes. *IMF | Technical Report – Bangladesh Macroeconomic Framework TA: Scoping Mission* ### Annex A: Resuls Framework ### Annex A: Resuls Framework ### Objective - Develop capacity in macroeconomic forecasting and policy analysis to support policy decision making and communications - GMA ### Outcome: Authorities have a baseline understanding of their existing macroeconomic forecasting, policy analysis and analytical capabilities and opportunities for improvement - Annual Assessment Rating: - Outcome Rating Date: 16/12/2022 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Diagnostic or scoping have produced baseline and opportunities for improvement / No baseline / A project plan for developing capacity on macroeconomic forecasting and analysis / 4 - Milestones: - Aide Memoire detailing findings from scoping and mission / Target Completion Date: 01/02/2023 / Milestone Rating: 4 - Detailed Action plan has been agreed with the authorities / Target Completion Date: 01/02/2023 / Milestone Rating: 4 ### Outcome: Improved analytical skills, and better macroeconomic forecasting and policy analysis capacity - Annual Assessment Rating: - Outcome Rating Date: 16/12/2022 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Relevant staff have successfully completed agreed training delivered via various modalities (online, classroom courses, workshops) / No baseline / 80% of core team responsible for MPT successfully completed agreed training / 1 - Milestones: - A learning gain of at least 10 percent in the January 2023 shortened FPP course / Target Completion Date: 01/31/2023 / Milestone Rating: 4 - Core team responsible for MPT have successfully completed agreed training on sector accounts and interrelations / Target Completion Date: 05/31/2023 / Milestone Rating: 1 - Core team responsible for MPT to have successfully completed agreed training on fiscal policy analysis, FFPx2 and macro forecasting / Target Completion Date: 01/31/2024 / Milestone Rating: 1 - Core team responsible for MPT to have successfully completed agreed DDTx training / Target Completion Date: 05/30/2024 / Milestone Rating: 1 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Analytical framework centered around the MPT is used to produce medium-term forecasts, scenarios as well as risk and policy analysis / MPT is not operated by staff / MPT is completed by staff supported by TA, and staff demonstrates absorption of knowledge to forecast with the MPT, analyze its results and produce different scenarios / 1 - Relevant staff demonstrates the capability to independently operate the MPT and other auxiliary analytical models and tools / Core team have not demonstrated capability / Core team independently operate the MPT and demonstrated capability to the ICD team / 1 - Milestones: - Core team responsible for MPT successfully incorporate inputs for MPT and conduct consistency checks, identifying any issues / Target Completion Date: 08/30/2023 / Milestone Rating: 1 - Individuals within the core team responsible for MPT successfully demonstrate an ability to run baseline and scenarios using the generic MFT populated with local data / Target Completion Date: 08/30/2023 / Milestone Rating: 1 - Core team responsible for MPT successfully customize the current MFT template to the Bangladesh economy / Target Completion Date: 12/30/2023 / Milestone Rating: 1 - Core team responsible for MPT successfully enhance the MFT in aspects agreed on during the previous milestones, to further meet the needs of the core team / Target Completion Date: 07/30/2024 / Milestone Rating: 1 - Core team responsible for MPT demonstrate ability to conduct debt-path analysis and ability to test for different risk scenarios / Target Completion Date: 07/30/2024 / Milestone Rating: 1 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Roles and responsibilities identified/streamlined/clarified within the core forecasting team / Roles are not clarified and documented / Roles and responsibilities of core team responsible for MPT are clear and documented / 1 - Milestones: - Core team responsible for the MPT agreed on and defined roles and responsibilities / Target Completion Date: 04/15/2023 / Milestone Rating: 1 - One-year passed with core team and participation maintained or replaced with equivalent number of representatives / Target Completion Date: 04/15/2024 / Milestone Rating: 1 ### Outcome: Analytical models and forecasting tools are developed and operational - Annual Assessment Rating: - Outcome Rating Date: 16/12/2022 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Macroeconomic Projection Tool (MPT) is developed in the form of an Excel-based macroeconomic framework for forecasting and policy analysis, respecting accounting relationships / No MPT developed or refined / MPT has been developed and customized to the Bangladesh economy / 1 - Milestone: - Core MPT team has fully customized the MPT for the Bangladesh economy / Target Completion Date: 07/30/2024 / Milestone Rating: 1 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - A user manual on MPT and other auxiliary models and tools is prepared, and is readily available to all staff / No user manual exists / A user manual has been prepared and available / 1 - Milestones: - Initial draft of user manual is developed / Target Completion Date: 12/31/2023 / Milestone Rating: 1 - User manual finalized / Target Completion Date: 6/30/2025 / Milestone Rating: 1 ### Outcome: Decision-making process is well-structured, streamlined, and documented, and associated roles and responsibilities are well-defined. - Annual Assessment Rating: - Outcome Rating Date: 16/12/2022 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Projection Coordinator assumes official responsibility for coordinating and leading the forecasting activities / Limited clarity of coordination and split roles, responsibilities and outputs / Well defined and well institutionalized coordination between MPT team and wider MTMF working group / 1 - Milestones: - Agreement on roles, responsibilities, and outputs between the core MPT team members in relation to tool development and use / Target Completion Date: 04/15/2023 / Milestone Rating: 1 - Presentation and discussion of results from the customized MFT to the MTMF working group / Target Completion Date: 03/31/2024 / Milestone Rating: 1 - Final agreement on linkages across tools in use by the core team, and plan for their joint-institutionalization / Target Completion Date: 09/30/2024 / Milestone Rating: 1 - Agreement on input into reporting, interactions of tools across agencies, and presentation of results with MTMF working group / Target Completion Date: 09/30/2024 / Milestone Rating: 1 ### Outcome: Transparency and policy credibility are improved through better external communication of the macroeconomic outlook and related forecasting scenarios and policy analysis - Annual Assessment Rating: - Outcome Rating Date: 16/12/2022 - Outcome Indicator / Baseline Value / Target Value / Current Assessment Value: - Periodical analytical reports are published with pre-announced frequency / Reports exist but do not incorporate updated MPT-related outputs / Policy reports incorporate output from updated MPT work and outputs / 1 - Milestones: - Staff responsible for MTMPS is informed by MPT results / Target Completion Date: 06/30/2025 / Milestone Rating: 1 - Internal MOF memos informed by MPT results / Target Completion Date: 06/30/2025 / Milestone Rating: 1 ### Annex B: Core Group and Supporting Professional Staff (core team and supervisory team) - Core Team (Name / Wing / Position): - Dr. Ziaul Abedin / Macroeconomic Wing / Joint Secretary and Chair of the Core Forecasting Group - Mr. Tawhid Ilahi / Macroeconomic Wing / Deputy Secretary and Coordinator of the Core Forecasting Group - Ms. Dilruba Shaheena / Macroeconomic Wing / Additional Secretary - Dr. Ahmed Ullah / SPFMS / Senior Consultant - Mr. Mohammad Jahirul Quayum / Macroeconomic Wing / Deputy Secretary - Dr. Md. Rashedur Rahman Sardar / Macroeconomic Wing / Deputy Secretary - Ms. Khandker Sadia Arafin / TDM / Deputy Secretary - Dr. Joynal Abdin / Macroeconomic Wing / Deputy Secretary - Ms. Masuda Begum / TDM / Deputy Secretary - Ms. Khaleda Nasrin / Budget-2 / Deputy Secretary - Mr. Abdul Mannan / Macroeconomic Wing / Senior Assistant Secretary - Mr. Md. Rakibul Hasan / Macroeconomic Wing / Senior Assistant Secretary - Mr. Shahriar Jamil / Budget-1 / Senior Assistant Secretary - Ms. Suhana Islam / Macroeconomic Wing / Senior Assistant Secretary - Mr. Faisal Zahur / Budget-2 / Senior Assistant Secretary - Ms. Tasnova Rahman / Economic Advisor / Senior Assistant Secretary - Supervisory Team (Name / Wing / Position): - Rehana Perven / Macroeconomic Wing / Chief / Additional Secretary - Dr. Shaikh Moniruzzaman / Macroeconomic / Joint Secretary - Dr. Mohammad Altaf Alam / TDM Wing / Chief / Additional Secretary - Shirajun Noor Chowdhury / Budget Wing / Chief / Additional Secretary ### Annex C: Scoping Mission Meeting Agenda (selected highlights) - Mission dates: January 22nd to February 1st, 2023 (Dhaka, Bangladesh Time) - Scoping Component (22nd to 24th January): courtesy meetings, strategic considerations, meetings with Debt Wing, project design discussions. - FPP Training Component (25th to 31st January): course structure and topics included: - L1 - Financial Programming and Macroeconomic Stabilization - L2 - Interrelations Among Macroeconomic Accounts - W1 – Plenary Workshop: Introduction: Barebones FPP - L3 - Real Sector; L4 – External Sector; W2 – Breakout Workshop (Real Sector and BOP) - L5 - Fiscal Sector; L6 – Fiscal Policy; W3 – Breakout Workshop (Fiscal Accounts) - L7 - Monetary Sector; L8 – Monetary Policy; W4 – Breakout Workshop (Monetary aggregates) - L9 - Introduction to Program Scenario; W5 – Breakout Workshop on policy scenarios; plenary presentations and course evaluation - Mission Closing and Agreement on Action Plan (1st February): TA scoping mission findings and action plan discussion; debriefing with Macro and Debt Wing Chiefs. ### Annex D: Overview of Comprehensive Adaptive Expectations Model (CAEM) - General description: - The CAEM is an excel-based macroeconomic framework tool built by staff of the Institute for Capacity Development (ICD) and used in training and technical assistance projects. - CAEM augments the standard Excel-based FPP framework by adding a core macro model. - Two main blocks: core macro model (red block) and standard FPP components (blue block). - Core macro model enriches analysis of prices (including, inflation, policy rate, exchange rate) and real GDP expenditure components using adaptive behavior and error-correction specifications. - Interest rate governed by the Taylor rule; CPI inflation by the Phillips curve; exchange rate by a combination of UIP and PPP theories. - Blue block includes deflators, external, fiscal, and financial/monetary sectors with higher granularity. - User inputs: historical data and key assumptions; template supports high degree of granularity and disaggregation. - Framework flexible to impose expert judgement consistently. - Purpose: - Strike balance between simplicity for projections and realistic properties customized for each economy. - Provide a common language to discuss economic issues and risk scenarios. - Key behavioral relationships (as presented): - Private consumption: - ∆c_t = β0_c + β1_c ∆c_{t−1} + β2_c ∆y_{t}^d − β3_c r̂_t^L − λ_c (c_{t−1} − ỹ_{t−1} − γ0_c) + ε_t^c - Private investment: - ∆i_{t} = β0_i + β1_i ∆i_{t−1} + β2_i ∆y_{t} − β3_i r̂_t^L − λ_i (i_{t−1} − ỹ_{t−1} − γ0_i) + ε_t^i - Exports: - ∆x_t = β0_x + β1_x ∆x_{t−1} + β2_x ∆y_{t}^* + β3_x ∆rrx_t − λ_x (x_{t−1} − ỹ_{t−1} − γ1_x rrx̄_{t−1} − γ0_x) + ε_t^x - Imports: - ∆m_t = β0_m + β1_m ∆m_{t−1} + β2_m ∆y_{t} − β3_m ∆rrim_t − λ_m (m_{t−1} − ỹ_{t−1} − γ1_m rrrm̄_{t−1} − γ0_m) + ε_t^m - Interest Rate Rule: - i_t = ρ i_{t−1} + (1−ρ)[ r_t^* + π_t^e + α1(π_t^e − π̃) + α2 ỹ_t ] + ε_t^i - Expected inflation: - π_t^e = ω π_{t−1} + (1−ω) π̃ - Nominal exchange rate: - s_t = φ( i_t^* + PP_r P_m − i_t ) + s_{t−1} + 2[ Δ z̅_t + (π̃ − π̃^* ) ] + ε_t^d - (formula includes UIP-PPP related terms as shown) - Money demand: - Δm_t^d = α_π π_t − α_i Δi_t^L + α_b Δy_t + ε_t^m - Consumer Inflation: - π_t = θ1 π_{t−1} + (1−θ1 − θ2) π_t^e + θ2[ π_t^{*M} + Δs_t − Δ rrrm̄_t ] + θ3 ỹ_t + ε_t^π - Potential output: - Hodrick-Prescott filter or production function - Modeling features: - Equations generally specified in error correction model (ECM) terms. - Baseline assumes expectations are adaptive or reflect expected medium-term values (known inflation target, trend real appreciation of exchange rate, and others). - Behavioral relationships reflect standard macroeconomic theory and guarantee a well-defined balanced growth path and stable “great ratios” in the medium and long term. *IMF | Technical Report – Bangladesh Macroeconomic Framework TA: Scoping Mission (Annexes A–D).* --- _Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024047.pdf_