Freeing forecasts from fettered interests

Forecasts, such as those on the impact of unpegging the prices of monopoly products like gasoline, are often inaccurate
More than ever now, economic forecasts need to be objective and made without deference to politics, writes Nguyen Minh Phong of the Hanoi Institute of Economic and Social Development.

In Vietnam, economic forecasts seem to have become a tool to illustrate, repeat and reassure government officials in their efforts to achieve more or less subjective economic goals, rather than being a barometer of market fluctuations.

An example is the forecast for price levels and inflation by the government’s Price Management Committee.

When it comes to predicting the consumer price index, the committee seems to be hesitant to give too pessimistic a figure.

Its estimates have often been widely different from final performance.

Yet, there have been cases when relatively accurate forecasts were not heeded by authorities simply because they did not fit their expectations.

Vested interests

Forecasts tend to be one-sided. We have paid and are continuing to pay dearly for forecasts colored by our protectionist view towards the local manufacturing industry, especially the auto industry.

Our forecasts on the impact of unpegging the prices of monopoly products like electricity, gasoline and oil products are also one-sided.

The premises on which these forecasts rested are not convincing since letting prices float while not allowing market competition would only give monopolies a double benefit.

Additionally, these forecasts were conducted either by the monopolies themselves or by others authorized by them - like in the case of electricity last year, or coal this year.

Public feedback and forecasts by professional and independent researchers have not been given consideration.

It is, therefore, an urgent need for the government to set up economic forecasting and policy research agencies to provide balanced and objective research.

Standardizing data collection, management

Unsystematic collection and management of economic data and information is another challenge to researchers.

More importantly, information is not often accessible to the public who would have to spend much time and money to acquire the data they need.

So it is time the government develops data collecting managing systems at all levels and ensure data can be easily accessed.

The importance of good data collection and management can not be overestimated.

Systematic data collection and management itself has inherent forecast values.

Need for selectivity

Economic forecasts should not be entrusted to agencies lacking knowledge, human resources, infrastructure or professional tools.

It is a complicated task that requires the cooperation of different government agencies, and combination of different analytical tools and methods, especially for the collection and deduction processes.

Complete reliance on computers is not advisable, nor would a forecast be adequate without taking into account non-economic factors.

Close cooperation is particularly needed between forecast agencies and those charged with managing the economy.

Need for social context

The dynamic interaction between forecasts and policies cannot be reiterated enough.

Government policies, the legal framework and other elements of the social context that are changing quickly in this period of renovation and integration determine the accuracy of forecasts, especially short- and medium-term.

For instance, a speech or decision by a senior official may have an unexpected impact on the markets, particularly the financial markets, rendering previous forecasts inaccurate.

Failing to take into consideration the intricate web of social factors will make forecasts inaccurate, irrelevant and especially a waste of time and money.