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Developing an integrated macroeconomic model for Uganda

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Ed Humphrey, Matthew Powell

Governments need accurate economic forecasts to support effective budget-setting and resource allocation. They also need to be able to see the impact of budget decisions on macroeconomic variables and at the level of the household to support effective, inclusive policymaking that is aligned with wider poverty reduction targets.

We worked with the Government of Uganda to develop an integrated macroeconomic model for the country that accurately captures the interrelationships between government, the economy, and households and allows for robust impact analysis across a range of scenarios.

Challenges

Effective economic modelling can support government planning and policymaking over both the medium- and long-term. Accurate forecasts of the economy are essential for setting the medium-term budget ceiling and establishing an efficient, prioritised, and credible budget which ultimately translates into improved delivery of essential public services.

Governments also need to see the impact of budget decisions on key macroeconomic variables such as GDP and employment to help plan for stable economic growth over the long term. In addition, understanding the potential impact of different economic policies on industries and households can determine poverty level indicators and support targeted, pro-poor policymaking.

Models provide an opportunity to capture multiple interrelationships between government, the economy, and households and examine the outcomes of different scenarios. This project was established to support the Government of Uganda in developing an integrated macroeconomic model that accurately captures these relationships and allows for high-impact, evidence-based policymaking that supports poverty reduction goals, maintains economic stability, and encourages growth.

Our approach

Our team of macroeconomic experts worked with the Government of Uganda to design and implement an integrated macroeconomic model for the country. The team adopted a participatory approach, consulting with key stakeholders at every stage of the project to ensure the model meets their needs. The model was also being backed by an extensive capacity building programme to help promote its uptake and continued refinement, supporting its sustainability beyond the life of the project.

The model includes three interlinking components: a dynamic Computable General Equilibrium (CGE) model, a micro-simulation model, and a macroeconometric model. This integrated approach helps ensure the model captures both those social and poverty indicators that use household level data as well as more macro-level effects such as GDP growth and employment, enhancing its overall value as a policy assessment tool.

Specific activities undertaken by the team include:

  • providing technical assistance support to the Macroeconomic Policy Department of the Ugandan Ministry of Finance, Planning and Economic Development;
  • conducting stakeholder mapping exercises, in-country interviews, and extensive reviews of existing models, frameworks, and dataset sources;
  • constructing an integrated model incorporating macro- and micro- modules and an economy-wide dynamic model framework underpinned by an updated Social Accounting Matrix (SAM) and other data sources; and
  • designing and implementing capacity building activities including formal and on-the-job training, mentoring, seminars, and workshops.

Outcomes

This project aimed to provide a platform for strengthened public financial management in Uganda. The model helped forecast the financial envelope for Uganda’s budget, supporting more effective priority-setting and resource allocation. It also supports analysis of the impact of a wide range of policy scenarios on the economy, government finances, household income, and poverty indicators, providing evidence to feed into more targeted policymaking to achieve wider development goals.

More broadly, effective modelling will help contribute to the formulation of sustainable and consistent economic policy and development strategies. Over the longer term, this should support improved public service delivery and better development outcomes for the citizens of Uganda.