Transcript Slide 1

Federaal
Planbureau
Economische analyses en vooruitzichten
Bureau
fédéral du Plan
Analyses et prévisions économiques
Independent forecasts and the budgetary process:
lessons from Belgium
Joint CPB-FPB Seminar – February 1st, 2006
Henri BOGAERT, FPB Commissioner
http://www.plan.be
OUTLINE OF THE PRESENTATION

The role of Fiscal Councils in the budgetary planning process in
Belgium

Independence and usefulness of the Fiscal Councils

Lessons drawn from the Belgian experience in the framework of
the SGP
Federaal Planbureau
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1. The role of Fiscal Councils in the budgetary
planning process in Belgium

Role of Fiscal Councils

The institutions fulfilling this role

Timing and place in the budgetary planning process
Federaal Planbureau
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Role played by Fiscal Councils

Independent macroeconomic forecasts

Public finance forecasts

Impact analysis of shocks or policies

Policy recommendations : rules, targets, strategies

Assessment of fiscal performance

1-2-3 = « Positive economics »

4-5 = « Normative economics »
Federaal Planbureau
Bureau fédéral du Plan
Federal Planning Bureau
National Accounts Institute
Positive
Economic Budget
(Short term)
Economics
Federaal Planbureau
Bureau fédéral du Plan
Federal Planning Bureau
National Accounts Institute
Positive
Economic Budget
(Short term)
Economics
Federaal Planbureau
Bureau fédéral du Plan
Study Committee on Ageing
Report on Ageing
(Long term)
Federal Planning Bureau
National Accounts Institute
Positive
Economic Budget
(Short term)
Economics
Federaal Planbureau
Bureau fédéral du Plan
Study Committee on Ageing
Economic Outlook
(Medium term)
Report on Ageing
(Long term)
Federal Planning Bureau
National Accounts Institute
Positive
Economic Budget
(Short term)
Economics
Study Committee on Ageing
Economic Outlook
(Medium term)
High Council of Finance
Normative
Economics
Recommendations
about fiscal targets
Federaal Planbureau
Bureau fédéral du Plan
Report on Ageing
(Long term)
Positive
Economics
Normative
Economics
Economic Budget
(Short term)
Economic Outlook
(Medium term)
Report on Ageing
(Long term)
Recommendations
about fiscal targets
Governments
DecisionMaking
Budget
Federaal Planbureau
Bureau fédéral du Plan
Stability
Programme
2. Independence and usefulness of Fiscal Councils

Why independent forecasts?

How is it guaranteed in Belgium?

Is the government obliged to use the forecasts?

Do the governments follow HCF recommendations?
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WHY INDEPENDENT FORECASTS?

Virtuous circle: independence,
unbiased forecasts, credibility
of the forecasting agency

“Unbiased” forecasts, also an
elegant word for saying “not
politically decided or bargained”

Absence of political
interventions is an incentive to
invest more in forecasting tools
Independence
Credibility
of the
forecasting body
Unbiased forecasts
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How is independence of forecasts guaranteed in
Belgium?

Legal status (public agency) of institutions involved (NAI, FPB)

Economic budget approved by NAI-board; Report on Ageing
approved by Study Committee

Legal basis for producing independent forecasts : used to compute
transfers between the federal level and Regions & Communities

Limited to positive economics

Transparent: methods, figures and post-mortem are published
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Is the government obliged to use the forecasts?

Legal basis: The NAI makes up the short-term economic forecasts
that are required for the preparation of the Federal Government’s
Revenue and Expenditure Budget (Law of December 1994)

Formal obligation?

De facto: always followed (reputation cost for the government)

Government can include safety margins in periods of high
uncertainty
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Do governments follow HCF recommendations?

Remarkably well followed by Regions and Communities

Remarkably well followed by federal government until the
beginning of this decade

Since 2001, consensus on strategy aimed at pursuing
sustainability by accumulating large fiscal surpluses

But, difficulty to implement recommendations during long periods
of slow growth

More important role played by EU Council : EU and HCF must
support each other
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3. Lessons drawn from the Belgian experience in the
framework of the SGP

Revise the Commission forecast calendar
 Recommendations of the Council on the governance of the Pact :
 In their macroeconomic and budgetary projections MS should use the
“common external assumptions” if provided by the Commission in due
time. Divergences between the national and the Commission forecasts
should be explained in some detail. This explanation will serve as a
reference when assessing a posteriori forecast errors.
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3. Lessons drawn from the Belgian experience in the
framework of the SGP
The Council considers that domestic governance arrangements should
complement the EU framework. National institutions could play a
more prominent role in budgetary surveillance to strengthen national
ownership, enhance enforcement through national public opinion and
complement the economic and policy analysis at EU level.
 Positive and Normative parts have to be separated
 The Belgian experience shows us that sharing responsibility
between several independent institutions has been beneficial
 Better mutual recognition and support of EU level and national
institutions would be very helpful
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Real GDP growth: quality of short-term forecasts
5
4
3
2
1
0
-1
-2
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Forecast errors (4 to 6 quarters ahead)
Actual outcomes
• Accuracy: forecast errors are on average well within acceptable margins
• Forecasts are unbiased (not systematically too optimistic or pessimistic)
• First-round forecasts (4 to 6 quarters ahead) are too conservative
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Sources of GDP forecast errors
(first- and second-round short-term forecasts errors, 1994-2004, in %-point)
GDP forecast error
2.5
2
1.5
1
0.5
0
-0.5
-1
-1.5
-2
-8
-6
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-4
-2
0
2
4
6
8
Error in foreign export market assumption
TIMING
Belgium
EC
May
Long- and Mediumterm projections
Forecast
June
HCF report
Integrated
guidelines
July
Provisional shortterm forecast
Eurosystem
Forecast
August
September
Economic budget
October
Budget, NRP
November
Stability
Programme
Forecast
December
Forecast
January
Examination of
SGP and NRP
February
Economic budget
updated
March
Budgetary control
April
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