Public sector forecasting in the Third World

Fiscal forecasting in the Third World is still in its infancy. This paper indicates the many constraints faced by those attempting to make intermediate term (three to five year) forecasts of government revenues and expenditures. Because of the lack of extensive data and complex forecasting models of the economy, revenue projections are most commonly made from simple time series or elasticity-based models. Spending forecasts are generally made using deterministic methods, relying primarily upon current input combinations and assumptions concerning future changes in these inputs along with assumptions regarding price increases. The paper demonstrates how these techniques were used in Thailand during the early 1980s when the nation faced serious problems of deficits and had approached the World Bank for a structural adjustment loan. A portion of the loan proceeds was used to form an inter-agency forecasting group comprised of the key agencies involved in making short- and long-term economic and fiscal policy. The results of the exercise was a forecast that was subsequently used to alter both revenue and expenditure policies. The recent improvement in the central government fisc of this developing country may be at least in part attributed to the increased understanding that the forecasting effort fostered.