Financial Programming: Enhancing the Link Between Training and Application

In my fellowship technical paper (November 2003) I wrote about the experience of financial programming in Tanzania. In that work, I described the financial programming model, discussed issues related to constructing the requisite macroeconomic framework and estimated a money demand equation that is central to financial programming. I also estimated short-term broad money supply equation with a view to linking the financial programming with the reserve money programming of a central bank. In that paper’s case, the central bank seeks to attain money supply target that is equivalent to the broad money demand determined endogenously by financial programming model. The central bank’s operational variable is reserve money supply, which is why it was necessary to estimate the short-term broad money supply process that would link the operational variable to the broad money supply.

Drawing from that work, and the experience that I have gained in applying financial programming in Tanzania and training for the past three to four years, I discuss two issues which I believe can be of assistance to application of financial programming by the institutions receiving training on financial programming. The issues are step-by-step approach to building flow of funds (and the way to build) and importance of building a modular framework. I also discuss issues of handling statistical discrepancies in financial programming exercise. The step-by-step approach to flow of funds construction, which is illustrated using typical macroeconomic data, is meant to provide a documentation of systematic approach, which I trust will be helpful to those trying to construct flow of funds for their countries. As for the modular framework of financial programming, I recommend that the computer file set-up should be designed such that it facilitates teamwork, enhances flexibility, improves time efficiency, increases participation and supports solidification of ownership.