The treatment of financial variables in social accounting matrix-based short-term forecasting models created by Jean K. Thisen

Several attempts have been made in recent years to analyse the structure of the developing economies within the framework of a social accounting matrix (SAM). Case studies in Iran, Malaysia and Sri Lanka have shown that this tool is flexible and can be adapted to other developing countries. In Africa, SAM has been used to integrate and analyse the distributional dimension in ways that reflect the mutual relationship between employment, income and the structure of production. Income inequality is more often exaggerated in developing countries than in developed ones because of the prevalence of corporate forms of organization in the latter than in the former. However, this requires the incorporation of financial variables in the SAM structure to facilitate the smooth functioning of the markets where the private enterprise plays a prominent role. The paper offers a methodological framework of such inclusion and argues that the financial SAM structure can help government policymakers and development analysts to programme and monitor the implications of policy changes and to adjust accordingly. The SAM-based forecasting model has been operational in Congo, Rwanda and Mauritius.