African states need new economic models

REGIONAL blocs such as the East African Community (EAC)are facing pressure to upend their tools of analysing the performance of their economies in the wake of serious losses from the unpredictable patterns of climate change.

And experts warn that these uncertainties, including geopolitical incidents such as the Russian invasion of Ukraine and the Israel-Hamas war, mean central banks and treasuries must adjust their projections for a firm understanding of the real losses or gains.

A new report by the African Development Bank (AfDB) and its affiliate African Development Institute says African countries need to adjust their tools of assessing the economy.

Assessing the performance of economies helps planners understand each country’s output, interest rates, inflation and exchange rates as well as available balance of payments as cumulative assessment of determining economic growth.

The report, Benchmark Macroeconomic Models for Effective Policy Management in Africa, says some countries such as Kenya, Rwanda and Uganda already run on some kind of models that help their central banks project the flow of the economies.

But these models are externally designed, mostly by the International Monetary Fund, and “they are unable to capture the unique structures of many African economies fully and, to some extent, do not adequately address the needs of the policy makers.”

Economists need to improve the collection and management of macroeconomic data, and to build sustainable human and institutional capacity in Ministries of Finance and Economic Planning to develop, besides customising models suitable for local needs, it says.