Page 52 - Azerbaijan State University of Economics

Hashim Al-Ali: An integrated macro-fiscal forecasting model and its application for
the Bangladesh economy

resource envelop. These equations have been formulated and solved for tax, and non-tax revenue.

Within the tax revenue they also being solved to determine the direct tax and indirect tax revenue.
Furthermore, equations to forecast the outlook for income tax revenue, value-added tax (VAT) and

customs revenue, have been formulated and empirically articulated. As the optimal objective of any
developing economy is to achieve a nationally balanced budget, equation (64) was structured in such

a way to determine the overall budget conditions in the country. Hence, whether there is going to be
a public account or fiscal equilibrium in a given year or not. However, such equilibrium and/or

surplus in the government account, could be very difficult to achieved, particularly, for developing

countries with limited natural endowment resources, in a short to medium term. Given such prevailed
reality in Bangladesh, for example, it looks quite challenging to fulfill a targeted balanced budget in

the near future. Undoubtedly, in such a situation, the government has to resort to and adopt a

borrowing policy in order to balance the nations’ budget, and hence offsetting the likely budget
deficit. Accordingly, equations (65-67) have been solved to identify, in quantitative sense, the

volume of likely additional required annual borrowing to balance the public account. This borrowing
has its both; domestic and external dimensions. Nonetheless, it is economically viable, in this case,

as there is no development or budgetary reason preventing an occurrence of a public debt, as long as
such debt is well calculated, to meet well defined needs, together with maximum efficiency in obtain

and use. More importantly, such needed debt should be mobilized and acquired from different

sources and means other than through the Bangladesh Bank (Central Bank). At this juncture, it is
worth stating that public borrowing should be based on issuing treasury bills and government bonds,

where the private banking systems, private sector institutions and individuals can contribute to such
debt, using their access to liquidity, deposits and savings. This will, undoubtedly, leads to optimal

mobilizing of financial resources, better utilization of idle savings (or hoardings), curtailing debt
accumulation and enhancing economic growth and development.

The set of equations (68) depicts the monetary aspect of the financial sector segment. It

captured money demand, supply, real interest rate and other related variables. That said, one of
the strategies that should be considered by the Bangladesh Bank (BB), would be to develop an

approach to a monetary target, that preserves the automatic stabilizing properties of unsterilized

intervention to stabilize the prices, exchange rate and the like. Hence, this could give primacy to
the exchange rate while monitoring base money as a source of information on development. Or

in another word, could give primacy to the base money target, allowing the market exchange rate

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