IX. An Exercise in Financial Programming: The Program Scenario
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John R. Karlik
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Mr. Michael W. Bell
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M. Martin https://isni.org/isni/0000000404811396 International Monetary Fund

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S. Rajcoomar https://isni.org/isni/0000000404811396 International Monetary Fund

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Charles Adair Sisson
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Abstract

Prepare a hypothetical financial program for Sri Lanka for the year 1991. Assume that the program is being prepared in early January 1991 based on data through the end of 1990. Prepare the program following the procedures described in Chapter III.

An Exercise in Financial Programming: The Program Scenario

Prepare a hypothetical financial program for Sri Lanka for the year 1991. Assume that the program is being prepared in early January 1991 based on data through the end of 1990. Prepare the program following the procedures described in Chapter III.

Before embarking on the formulation of the program, “revisit” the projections of the individual sectoral accounts made in the preceding workshops (Chapters IV to VIII) to ensure the consistency—in both accounting and economic terms—of the baseline scenario that has been formulated.1 Although in principle this scenario assumes that policies will remain unchanged, circumstances may require analysts to make some subjective judgments. For this reason, baseline scenarios prepared by different analysts or working groups may result in markedly different projections.

For the program scenario, prepare a consistent set of projections based on the objectives for the program period, an assessment of exogenous factors, and a quantification of the policy measures that are needed to address the macroeconomic and structural problems. Supplement your projections for the program period with the following:

  • A description of the program objectives;

  • The rationale for and the expected effects of the policy measures proposed for the program period (1991);

  • A “skeleton” policy matrix prepared along the lines of the matrix presented in the Appendix to Chapter III (although more abbreviated) that identifies the key areas of structural reform.

  • A medium-term scenario that reflects the effects of both the program for 1991 and the structural policies outlined in the policy matrix.

In preparing the program, consider the following issues or questions:

  • a. What were the main macroeconomic and structural problems facing Sri Lanka at the end of 1990? Refer to the checklist of macroeconomic and structural problems and the possible responses prepared in each of the sectoral workshops.

  • b. What should be the policy objectives for 1991 and for the medium term? Among the targets to consider are those relating to income and output (growth), prices (inflation), and external accounts. In formulating these objectives, take into account structural goals such as reducing unemployment, shifting the distribution of income, and balancing urban and rural growth. You may also want to consider the trade-offs among these objectives, especially in the medium term.

  • c. After reviewing all the available policy instruments, choose an appropriate mix of policies for 1991. Assess the quantitative impact of these policies on pertinent macroeconomic aggregates.

  • d. Develop a set of consistent sectoral forecasts and a simple medium-term scenario based on the policy package you have identified. Your presentation should, at a minimum, include the following tables:

Summary

  • Table 9.1. Sri Lanka: Economic Indicators, 1986–91

Output and expenditure

  • Table 9.4. Sri Lanka: Gross Domestic Product by Expenditure, 1986–91 (At constant 1982 prices)

  • Table 9.5. Sri Lanka: Gross Domestic Product by Expenditure, 1986–91 (At current prices)

External sector

  • Table 9.6. Sri Lanka: Balance of Payments, 1986–91

Fiscal accounts

  • Table 9.12. Sri Lanka: Summary of Central Government Operations, 1986–91

Monetary accounts

  • Table 9.15. Sri Lanka: Monetary Survey, 1986–91

  • Table 9.16. Sri Lanka: Balance Sheet of the Central Bank of Sri Lanka, 1986–91

Flow of funds

Medium-term projections

  • Table 9.18. Sri Lanka: Balance of Payments Projections, 1990–95

  • Table 9.19. Sri Lanka: Projections of Central Government Operations, 1990–95

  • Table 9.20. Sri Lanka: Saving and Investment, 1986–95

  • Table 9.21. Sri Lanka: Monetary Survey, 1990–95

You may use other selected tables to supplement your presentations. For ease of reference, Table 9.21, which contains background information and assumptions, is also reproduced in this chapter. However, you will need to refer to tables and other information used in earlier workshops.

Table 9.1.

Sri Lanka: Economic Indicators, 1986–91

article image
Source: IMF Institute database.

Based on 1982 market prices.

Colombo index.

Colombo index; December over December.

Effective rates based on IMF Information Notice System; a negative change indicates depreciation.

End-December to end-December.

Revenue and grants minus current expenditure and capital transfers.

Including interest payments on short–term debt and IMF charges and repurchases.

Including IMF credit, and short–term debt.

Table 9.2.

Sri Lanka: Gross Domestic Product by Industrial Origin at Constant Prices, 1986–91

(In millions of Sri Lanka rupees at 1982 factor cost)

article image
Source: IMF Institute database.

Provisional.

Including forestry and fishing.

Tea, rubber, and coconuts.

Table 9.3.

Sri Lanka: National Income and Product Accounts by Industrial Origin at Current Prices, 1986–91

(In millions of Sri Lanka rupees)

article image
Source: IMF Institute database.

Provisional.

Including forestry and fishing.

Tea, rubber, and coconuts.

Table 9.4.

Sri Lanka: Gross Domestic Product by Expenditure, 1986–91

(At constant 1982 market prices)

article image
Source: IMF Institute database.

Provisional.

Includes autonomous public corporations and the Mahaweli Authority.

Central government capital expenditure less capital transfers to corporations, plus local government investment.

Table 9.5.

Sri Lanka: Gross Domestic Product by Expenditure, 1986–91

(At current market prices)

article image
Source: IMF Institute database.

Provisional.

Includes autonomous public corporations and the Mahaweli Authority.

Central government capital expenditure less capital transfers to corporations, plus local government investment.

Table 9.6.

Sri Lanka: Balance of Payments, 1986–91

article image
Source: IMF Institute database.

Excludes petroleum exports.

Consists of public corporations and private companies.

Consists of trade credits, short-term borrowings of public corporations and private corporations, and liabilities to the FCBUs.

Total debt, including use of Fund credit, private sector debt, and short–term debt, as a percent of exports of goods and nonfactor services.

Table 9.7.

Sri Lanka: Exports by Commodity, 1986–91

article image
Source: IMF Institute database.

Consists of tea, rubber, coconuts, and coconut products.

Excludes petroleum products.

Table 9.8.

Sri Lanka: Imports by Commodity, 1986–91

article image
Source: IMF Institute database.

Includes fertilizer.

Table 9.9.

Sri Lanka: Services, 1986–91

article image
Source: IMF Institute database.