DDP 720. Bruce R. Bolnick. "The Role of Financial Programming in Macroeconomic Policy Management." September 1999. 18 pp.

Most African governments have made considerable progress in pursuing macroeconomic stabilization, usually under the tutelage of the International Monetary Fund. Policy targets for the IMF-supported programs are universally derived from some variation of the standard financial programming methodology. Yet most governments in the region remain dependent on the Fund for the technical analysis. This technical dependency often engenders a lack of ownership of program targets, and the targets themselves are often unrealistic, on the side of austerity. This paper makes the case that African governments must now develop their own financial programming models and system, to take command of the technical analysis, negotiate with the Fund in more pro-active terms, and establish the foundation for a deeper commitment to prudent macroeconomic policy management. Every country has economists who have been trained in financial programming. This is a start, but a concerted effort is needed to develop practical, customized applications, with supporting systems to implement, maintain and refine the models. The paper outlines the basic structure of a generic financial programming model, explains the importance of developing the capacity for home-grown programming, and briefly addresses some common criticisms about the pertinence of financial programming for small, low-income countries with structural rigidities, as predominate in the region.

JEL Codes: E0, E5, E6, O1, O2

Keywords: macroeconomics, monetary policy, economic development, development planning

This paper was prepared for the Regional Workshop on the Implementation of Financial Programming, which was held in Lilongwe Malawi on June 10-11, 1999. The workshop was organized by the Reserve Bank of Malawi, the Economics Department, Chancellor College, University of Malawi, and the Harvard Institute for International Development, with funding from the United States Agency for International Development through the Equity and Growth through Economic Research -- Public Strategies for Growth and Equity (EAGER-PSGE) project and the Malawi Economic Management and Reform (MEMAR) project.

Bruce Bolnick is a Senior Associate at the Harvard Institute for International Development. His specialties include macroeconomic policy, tax policy, and financial market development, all in the context of developing countries. He is presently serving as senior advisor to the Ministry of Planning and Finance in Maputo, Mozambique. This paper was written when he was serving as Senior Advisor to the Reserve Bank of Malawi, in Lilongwe, Malawi.