Workshop Participants Present Own Findings to Permanent Secretary for Finance and Economic Development

In view of the need to uplift capacity in the use of Excel Software for evidence based macroeconomic analysis, MEFMI held an in-country workshop for macroeconomic analysts in the Zimbabwe Ministry of Finance and Economic Development. This training workshop on “Excel Based Macroeconomic Model Building and Simulations” was attended by fifteen economists drawn from the Ministry’s four departments of Economic Affairs & Modeling, Economic Research, Fiscal Policy & Advisory Services, and Revenue. The major objective of the AfDB’s sponsored workshop was to impart skills and knowledge on Excel as a tool for building Macroeconomic Models and carrying out simulations.  The acquired knowledge allow for better evidence based policy decisions by the Ministry officials. 

The workshop also presented an opportunity for MEFMI to disseminate the Macroeconomic Modeling and Forecasting Manual which the Institute published for use in the MEFMI region and beyond.  The manual can be used as a reference tool in daily duties. In order to strengthen the officials’ modeling techniques, MEFMI presented ten copies of the manual to the participants free of charge. A complimentary copy of the manual was also handed-over to the Permanent Secretary for Finance and Economic Development during the closing ceremony.

With their consistent guidance, the consultants for the workshop, Professor Christopher Malikane and Mr. Joseph Mverecha, the Director of the Macroeconomic Management Programme Dr Sehliselo Mpofu, and MEFMI Programme Officer, Mr. Jean-Baptiste Havugimana assisted the Ministry technicians in coming up with a small macroeconomic model for Zimbabwe. The workshop was divided into two parts, the theoretical part and the practical one. The latter was devoted ample time to ensure that all the more hands-on/practical steps are carried out smoothly and no one of the participants is left behind.

In the theoretical part of the workshop the following topics were covered among others:

• Inferring macroeconomic dynamics from the macro-balance: the capital account balance, current account balance as well as the budget balance;
• Basic macroeconomic relationships were also explained in great details. Facilitators used the relationship between goods and labour market (Okun’s Law), relationship between inflation and unemployment (Phillips curve) and the relationship between output and interest rates (IS curve) to demonstrate macroeconomic dynamics in an economy.
• Designing appropriate policy rules. This entailed introducing fiscal policy in the basic model, public debt dynamics as well as inflation targeting.

The practical part of the workshop was devoted to applying the above imparted theory to the case of Zimbabwe. Participants were then divided into three groups which worked on the estimations for the Zimbabwean economy. Under this part, participants estimated a number of equations that included: Inflation Equation- Phillips Curve; Output Equation – IS Curve; Debt Equation; Exchange Rate Equation- focusing on South Africa exchange rate; and Fiscal Rule Equation. The components of aggregate demand for Zimbabwe which are private consumption, private investment, government spending, exports and imports including the drivers of each component were critically articulated. As real-life experience is critical in such estimations, in order to impart the much needed knowledge and expertise, the workshop used data from Zimbabwe which was exported into E-views while trying to estimate the parameters of the variables used in the aforementioned model equations. They then took the estimated equations from E-views and exported them to excel in order to integrate them and come up with a model framework. They also linked them in order to pursue simulations. A small macro model made of four excel sheets (gap simulations, forecast levels, updating levels and updating gaps) was created.

From the developed model, participants were now able to perform simulations. They performed simulations on the basis of topics chosen on their own from the real economic context of Zimbabwe/real life situations of the economy of Zimbabwe and carried out evidence based analysis to ascertain the current macroeconomic policy stance of the economy of Zimbabwe.  The three topics that the three groups deliberated on were: (i) “Impact of external shocks on economic performance-A case for Zimbabwe”; (ii) “Optimal fiscal policy rules in a dollarised economy: The case for Zimbabwe”; and (iii) “Reducing debt burden in Zimbabwe with little sacrifice on the growth of the economy”.

Participants’ appreciation was also enhanced particularly with regards to the aim of the Fiscal Rule. They now have more understanding of what the fiscal rule is and how it works.  They realized that the more complicated the monetary policy framework becomes, the more difficult will be the fiscal rule to stabilize public external debt and that a Fiscal Rule reacts to other macro-balance. However, for the case of Zimbabwe the fiscal rule was almost straight forward as currently there is no complicated monetary policy.

The major outcome of the workshop was that participants managed to compile actual data for Zimbabwe and came up with a model that is representative of the country’s economy. They worked tirelessly to come up with the outputs presented in their three hands-on presentations on the last day of the workshop. The groups presented its findings to the Permanent Secretary for Finance and Economic Development Mr. Willard Manungo and the Resident Representative for the Africa Development Bank (AfDB) Dr Mateus Magala.