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Finance Ministry’s New Software to Assess Policy Impact on Sectors

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L-R: Ministry of Finance's Moses Kabanda, Permanent Secretary Keith Muhakanizi, Commissioner for Macro Economic Policy Dr. Albert Musisi and FINMAP's Johnson Mukesigensi during the launch at Imperial Royals Hotel on Thursday

The Ministry of Finance has Thursday launched a system that will provide data based analysis to ease the assessment of policy impact on the different sectors of the economy.

The Integrated Macro Economic Model (IMEM) is a software that is designed to make forecasts on macro-economic growth and track how these changes affect sectors, poverty rates as well as the household incomes.

Based on the data generated, policy makers in government as well as other financial institutions will then be able to make informed economic policy decisions.

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Technocrats in the Ministry of Finance say that Uganda’s economy has evolved overtime and become more sophisticated which requires new analytical tools for new aspects like oil.

They believe that unlike the existing models, the IMEM software which took 6 years to complete will ensuring that key legislations and national plans are implemented on time.

Dr. Albert Musisi who is the Commissioner for Macro Economic Policy at the Ministry of Finance said the model uses a top to bottom approach through three components namely; the macroeconomic, computable general equilibrium and the micro economic analyses.

The findings at each of the three levels will be used to assess the possible impact of the variables in the lower level and determine which policy to adopt.

“This software is to really help policy decision making using robust analysis. To inform us on how different economic policies, shocks will impact households, growth or income inequality using clear data,” Musisi said during the event held at Imperial Royals Hotel.

Using a case where government effects a tax exemption in a sector such as the steel and iron, the IMEM will assess the impact of the exemption on other sectors, tax collection and the lower household level. By foreseeing the short and long term results on economic growth, government will ascertain which policy to undertake.

The Permanent Secretary in the Ministry of Finance, Keith Muhakanizi said the model comes at a time when the economy requires the right policy mix to steer GDP growth to 6% if Uganda is to hit it’s middle income target by 2020.

“This is a highly integrated model unlike the older one which only dealt with the macro aspect. It gives you a scenario of what is likely to happen. The model for example says most tax exemptions don’t necessarily translate into poverty reduction, but rather enhance inequality.”

“Therefore, if I was to advise from that angle I would say exemptions are not the best way to deal with poverty,” Muhakanizi added.

The Ministry of Finance has established an Economic Modelling Unit including technocrats from external institutions like Bank of Uganda, Uganda Bureau of Statistics, National Planning Authority, Uganda Revenue Authority and the Parliamentary Budget Office to ensure effective utilization of the IMEM tool.

Participants at the launch however asked that the data generated by Ministry of Finance be availed to the public especially the academia while others said the tool should be used to address the existing inequalities in income.

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