Enhancing the accuracy of fiscal projections in South Africa

Abstract

The accuracy of the National Treasury's projections of GDP and key fiscal aggregates is comparable to that of the projections of private sector economists, other reputable organisations and the fiscal authorities of other countries. The errors in the projections of the National Treasury have nonetheless been substantial in some years, and have increased from 2000/01 to 2010/11. This paper argues that the credibility of fiscal policy would have been severely tested if the largest annual errors in respect of the various aggregates had coincided. Against this backdrop, the paper makes the case for structured bi-annual discussions of government's forecasts during public parliamentary hearings as a mechanism for improving the accuracy and credibility of official projections. It also discusses the potential benefits for South Africa of two alternative mechanisms, namely fiscal councils and committees of independent experts.

Interests over institutions: Political‐economic constraints on public debt management in developing countries

“…The ALM hopes the “spending limit acts as a debt limit” (Interview 47) but the ceiling is not binding on policymakers. It is a “flexible” or “soft” reference point the ALM can merely reference in an advisory role (Calitz, Siebrits, & Stuart, 2016, p. 339). In fact, Charts 2 and 3 show spending and debt levels have increased since the benchmark was introduced in 2012.…”

Fiscal transparency, fiscal forecasting and budget credibility in developing countries

“…Although few studies have explicitly focused on the term "budget credibility," this concept is very much related to the literature on accuracy of fiscal forecasting, and hence the latter can be straightforwardly adapted to study budget credibility and its determinants. The literature on fiscal forecasting is relatively more extensive, and it includes many recent studies on budgetary forecasts in developed countries (e.g., Afonso & Silva, 2015; Beetsma et al, 2009; Pina & Venes, 2011), in addition to the far fewer studies on fiscal forecasting in developing ones (e.g., Calitz et al, 2016; Mudhunguyo, 2017).…”

“…Thus the fiscal disclosure will not be sufficient in this case because good quality of disclosed fiscal information should be ensured as well. Moreover, the stakeholders' engagement in the budgetary planning stage (e.g., public parliamentary hearings on government's budget forecasts) act as a mechanism for improving accountability and hence budget credibility (Calitz et al, 2016). Regarding politicians' noncompliance in executing the budgets, fiscal transparency can help limit the scope of deviating from forecasts by politicians mainly through strengthening the legislature role in amending and monitoring the budgets and publishing in‐year reports.…”

“…Accordingly, enhancing the credibility of budgets is important to ensure that governments would not spend significantly lower nor higher than the approved budgets. The former can hinder the achievement of developmental objectives and social welfare (de Renzio et al, 2019;Von Hagen & Harden, 1995), the latter may undermine the aggregate fiscal discipline (Beetsma, Giuliodori, & Wierts, 2009;Calitz, Siebrits, & Stuart, 2016). However, many countries, especially the developing ones, are still performing poorly in budget credibility measures according to both the Public Expenditure and Financial Accountability (PEFA) 1 assessment reports and the BOOST data set created by the World Bank.…”

A review of Zimbabwe’s macro-fiscal forecasts

“…Regarding the extent of GDP forecast errors being responsible for revenue forecast errors and revenue forecast translating into budget deficit forecast errors, our methodology borrows from the simple regression analysis applied by Calitz et al (2013). The equation of forecasting errors is, therefore, specified as follows: where ( T a − T f ) t is the revenue forecasting error, ( Y a − Y f ) t is the GDP forecasting error and ε t is the disturbance term.…”