Page 50 - Azerbaijan State University of Economics

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

economies, with lack of endowment resources, and Bangladesh is not an exception. In this case,

policy makers usually resort to adopting different policies and procedures, that need to be
adopted, to supplement national saving, and to finance the required investment programme.

These procedures, amongst others, should create the right environment to attract foreign direct
investment (FDI), issuing special stocks and bonds in the capital market and/or borrowing from

financial market (financial and banking institutions other than the central bank). With this in
mind, both equations; (42) and (43) have been structured and solved to shed a light on the status

of the indigenous resources to finance the required investment in the economy. While equation

(44) has dealt with likely changes in stocks. Nonetheless, the variable changes in stock would
normally consider a host of items. These for example; a) main input material that using in

production, b) output or commodities that are ready for marketing, and c) work in progress.

However, the changes in stock is determined by factors such as the flows and circulations of the
domestic supply which consist of domestic output and imports, sales forecasts and changes in

factors that determine the overall demand on goods and services. That said, the intensity of stock
accumulation depending on the economic systems in hand and its characteristics. Closed

economies with restricted trade flexibilities characterized by increasing stock accumulation to
prevent any negative impact on domestic production, supply and prices, while the stock

accumulations in more open and liberal economies are quite relaxed in these type economies.

The export component of the final demand as well as part of the external sector segment, has
been handled, being export of garment or other types of export, including export of services

[Service exports are defined to include shipping, insurance and transport received by Bangladesh companies and organizations
including the expenditures of foreign travelers (tourists) and government in Bangladesh. However, services exports, on this
occasion, are not related to the level of commodity exported by Bangladesh, rather it has been treated as exogenous, using a
different methodology that relaying on historical time trends], by equations (45-48). In addition, the imports

side of the external sector segment of the economy, being a total import and import of different
commodities into Bangladesh, have been quantified and identified by articulating and solving

equations (49-53) of the integrated macro-fiscal model. This is the case, given the fact that

imports into Bangladesh, are in general treated as supply factors rather than demand component,
and hence imports are used to complement a domestic supply and/or closing a supply gap(s)

within the national economy. Having said that, it is also imperative, and in order to achieve
higher forecasting accuracy, in this applied model, we have adopted, modelled and solved for

import requirements, not only for total import requirements rather this has been articulated on

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