Manila: The Department of Finance (DOF) and the International Monetary Fund (IMF) are working together to integrate a new forecasting model into the DOF's Forecast and Policy Analysis System. This collaboration aims to improve the department's analytical and macroeconomic forecasting capabilities.

According to Philippines News Agency, the IMF reported that the main objective of this technical assistance project is to enhance the DOF's forecasting abilities by developing a macroeconomic forecasting tool specifically tailored to the Philippines' economic and policy context. This tool is intended to complement other existing policy analysis tools used by the DOF.

The Climate-Adjusted Economy Model (CAEM), developed by the Institute for Capacity Development of the IMF, is central to this project. It integrates data management, model assumptions, sectoral projections, and reporting features to provide a comprehensive framework for macroeconomic forecasting. The CAEM is capable of building baseline forecasts of key macroeconomic variables and assessing the effects of various economic or policy shocks through alternative scenarios.

In 2022, the DOF sought ICD's technical assistance to bolster its macroeconomic analytical and forecasting capacity. A scoping mission in 2023, focusing on the DOF's macro-analytical and forecasting needs, recommended the implementation of the CAEM. It also suggested that DOF staff undergo customized training in macroeconomic forecasting to enhance their capabilities further.

As the DOF adopts the CAEM, the IMF suggests that additional resources be allocated for analytical tasks, literature reviews, and quantitative exercises to calibrate the model. A detailed user manual should be developed to preserve and disseminate knowledge among DOF staff. This manual would include instructions on tool operation, data collection, model solving, output production, and version control protocols to track model evolutions over time.

The IMF also recommends establishing a governance framework with defined responsibilities and identified units per module. This will help in delineating roles and accountability, enabling DOF management to allocate and reallocate tasks efficiently in the future.

These recommendations are designed to ensure that the DOF staff can operate, maintain, and update the CAEM continuously, sustaining the enhanced analytical capacity developed through this project and addressing future analytical needs of the DOF.