system of national accounts clementina ivan-ungureanu training: essential sna: building the basics...

System of System of National AccountsNational Accounts

Clementina Ivan-UngureanuTraining: Essential SNA: Building the basics

Addis Ababa, 12-16 February 2012

Content of the training1. SNA- What is SNA- Towards the 2008 SNA

2. Basic concepts- Fundamentals- Main aggregates

3. Building the SNA- NSDS- SNA implementation strategy

Content of the training4. Infrastructure for NA- Business register- Classifications- Statistical data sources- Administrative sources5. Transition from administrative data to

national accounts concepts6. NOE: concept, content, estimation practices7. Informal sector: concept, content, estimation

practices

WHAT IS SNA

Content of the presentation

• What is SNA

• Need for SNA

• The 2008 SNA

Definition

SNA is the internationally agreed standard set of recommendations on how to compile measures of economic activity in accordance with established accounting conventions based on economic principles.

Definition• The recommendations are expressed in

terms of a set of concepts, definitions, classifications and accounting rules that comprise the internationally agreed standard for measuring such items as gross domestic product (GDP), the most frequently quoted indicator of economic performance.

• The accounting framework of the SNA allows economic data to be compiled and presented in a format that is designed for purposes of economic analysis, decision taking and policymaking

CharacteristicsThey are:- Internationally compatible- Harmonized with those in other social and

economic statistics- Well-established and fixed for a long period- Focused on describing the economic process

in monetary and readily observable terms- Flexible and multi-purpose

The economic circuit National economy circuit

Source: ESTP Course: Advanced national accounts, 2007

National economy Financial institutions

Consumers, Households

Producers, Enterprises

Government

Interests

Deposits

Interests Borrowing

Intermediate consumption

Investment

Production taxes

Subsidies

Salaries, dividends

Goods and services purchased

Social benefits

Social contributions Income taxes

Imports

Exports

Rest of the world

SNA –Main uses• Measure the structure and the evolution of the

economy• Establish a country’s economic and social policy:

they are used by policy makers to analyse the current situation, identify the major problems and find a common solution for development

• Is the framework used for economic forecasting.• International comparisons

SNA –Main uses ( cont)

• The SNA is the central statistical framework that must be used as the coordinating framework for all other statistics so as to obtain consistent definitions, and hence data.

NA for decision-making1. Target of public policy: - Supply of money should grow in line with the

nominal growth of GDP corrected for changes in the velocity of circulation (monetary policy target in order to avoid excessive inflation)

- Government expenditure on education as %of GDP

- Expenditure on R&D as %of GDP- Government expenditure < 60% of domestic

product- Contribution to military expenditure, - The burden of taxes and social security

contributions as a % of national income

NA for decision-making (cont)

2. Tax or aid measure for nations and regions.

- The contributions to the international organisations like UN, OECD and IMF and to supra-national economic and political unions, like the EU.

- Regions with a relatively low gross domestic product per region per capita receive funds

NA for decision-making (cont)

3. Automatic adjustment for price changes.- Government expenditures adjusted with the price-

change in GDP- Multi-annual contracts by local authorities and non-

profit institutions are adjusted with the price change in net material consumption

- The budget by local authorities and non-profit institutions can be determined by using for the various types of expenditure and for some sales and tariffs

indices from the national accounts.

Examples of uses of national accounts for economic policy

NATIONAL ACCOUNTS INDICATORS POLICY USES

Agricultural accounts with data on farmer income

Agriculture policy

Growth of particular types of manufacturing or service industries using the input-output tables or data on value added by type of activity

Industrial policies

Government deficit and debt as a percentage of GDP

Monetary policy and public finance

Economic growth, expenditure on Research and Development as percentage of GDP

Productivity and growth policy

Expenditure on defense as a percentage of GDP Defense policy

Social protection statistics closely linked to national accounts concepts

Social policy

Regional gross value added (GVA ) per capita; regional households consumption per capita

Regional policy for granting regional funds

GDP per capita Used to identify countries that need development funds and to establish measurements for poverty reduction

Satellite accounts: health, tourism, environments

Economic policy in the specific domain

Main users

• Administrative users

• Economic policymakers

• Economic modelers

• Masse media , public

• Other users (financial markets etc)

• International organizations

Promoting NA• NA and statistics are commonly not well

marketed ( monopolistic product)• NA is like a good and should be promoted• Marketing efforts:- stress the main purposes of NA- make the NA an attractive statistics• Point to the value added of NA to efficient

and democratic-decision-making.

EducationThe general knowledge of data users and compilers

should be raised• Providing guidance to users: presentation of the

concepts, methods, clear tables with data• Courses for various groups of data users and at various

levels.• More prominent place in the research

Investments in education will reduce misinterpretation, will increase interaction between data compilers and data users .

In the long run, this will also improve the national accounts as a description and tool for analysis and policy

TOWARD THE 2008 SNA

Evolution

The roles and uses of the national accounts have developed over time and have been stimulated by major events, like the economic crisis in the thirties, the Second World War and European unification.

Historical questions• Production and/or distribution matters?• Does government produce?• Are services relevant?• What production and income arises from

financial activities?• How to show changes over time? How to

compare over nations?• Can national accounts say something about

wellbeing (environment, natural resources, sustainability…)?

Early estimates

Year Event 1660-1710 First national income estimates; in England by Petty, King and

Davenant in France by Boisguillebert and Vauban

1707 First index-numbers by Fleetwood 1760 Tableau économique by Quesnay: economic accounts used as a

primitive growth and general equilibrium model; precursor of input-output tables

1770 The concept of value added invented by Young 1790-1800 First national income estimates in Russia 1798-1804 First national income estimates in the Netherland 1805 First national income estimate in Germany 1823 First national income estimates in constant prices by Lowe 1843 First national income estimates in the USA 1886 First official national income estimates by the government

(Australia0

Early estimates1860-1900 First national income estimates in Austria, Australia, India and

Greece 1915 W.I. King (USA): one of the last national income estimates

combined with clear policy conclusions 1920 The economic consequences of the peace by Keynes: using

national accounts statistics to assess the dramatic economic consequences of a major political agreement

1920-1930 Private institutions start publishing national income studies, e.g. university institutes in Sweden and Norway, USA: Brookings Institutions, NBER, National Industrial Conference Board;

1925-1940 More official national income estimates (e.g. Greece, Canada, Soviet Russia, Germany, Netherlands, New Zealand, USA and Turkey)

Revolutionary decades (1930-1950)

• In the period 1930-1950, national accounting was drastically transformed. It was a revolution in terms of the use of the national accounts

Period 1930-1950Uses:• PPP: international comparison of real income• Systematic analysis of long term growth • Input-output analysis • Econometric modelling of national economies• Macro-economics development• Public finance in a macro-economic framework • Monetary policy linked to national income instead of

gold• Balance of payments in a macro-economic

framework

The era of the international guidelines

(1950- ...)

Year Event 1947 Technical report by the UN containing recommendations; including

the famous annex by Stone: the first detailed and fully worked national accounting system

1951-1953 First generation of international guidelines: OEEC guidelines of 1951 and 1952; UN guideline of 1953 (SNA53); very simple tables and accounts

1968-1970 Second generation of international guidelines: UN guideline of 1968 (SNA68), the European guideline of 1970 (ESA70) and the Material Product System of 1969 (MPS69) for communist countries

1993-1995 Third generation of international guidelines: joint guideline of 1993 by the international organizations (SNA93 by UN, IMF, World Bank, OECD and EC) and the European guideline of 1995 (ESA95)

2008-2010 Fourth generation of international guidelines: updates of the joint and European guidelines (SNA08 and ESA10)

The era of the international guidelines (1950- ...)

SNA53 Simple set of tables and accounts in current prices SNA68 Extended accounting system, including input-output

tables, general principles on prices and volumes and financial accounts

SNA93 Inclusion of balance sheets, employment and purchasing power parities More detailed accounting structure (more accounts, more sub-sectors and detailed supply and use tables) Separate chapters on satellite accounts and flexible adjustments for national circumstances Detailed discussion of general principles on prices and volumes (e.g. chaining and index formulae

SNA08 More detailed discussions of many topics, e.g. government accounts, the informal sector and capital services (important for productivity measurement) But no detailed discussion of price and volumes by industry/product and no separate chapters on quarterly national accounts and regional accounts (unlike ESA95 and its forthcoming update

Update - The process• 2003-2004: Statistical Commission called for

update• 44 issues for review• ISWGNA to coordinate and manage with the

assistance of an AEG (5 meetings)• TFs and WGs, broad consultation• March 2007:SC adopted recommendations • 2008 UNSC Bureau approved Vol. 1• 2009 UNSC Bureau approved Vol. 2

Theme based recommendations

1.Globalisation

2. Financial instruments and institutions

3. Government and the public sector

4. New economy and non-financial assets

5. Informal sector

6. Environment

Changes

1. Statistical units and issues of classification and sectoring

2. Production boundaries for output and intermediate consumption

3. Assets

4.Other changes

The issues reviewed• Non-financial assets (22 issues)• Financial services (8)• Financial instruments (6)• Government and public sector (7)• The rest of the world (10)• Units (2)• Informal and illegal activities (2)• Other issues (1)

Main recommendations with impact on GDP

- Research and development is not an ancillary activity

- Compilation of own account production by including return in capital

- FISIM estimation refined- Extension of the assets boundary and

government GFCF to include expenditure on weapons systems

- The asset category “computer software” modified to include databases

Changes related to statistical units and institutional sectoring.

Differences SNA2008 compared to SNA 93 (changes discussed in the text highlighted)

Where in SNA2008 Impact on GDP

A. Further specifications of statistical units and revisions in institutional sectoring

Not directly

1. Producer unit undertaking ancillary activities to be recognized as a separate establishment in certain cases

chapter 5, paragraphs 5.41to 5.42

2. Artificial subsidiaries not regarded as institutional units unless resident in an economy different from that of their parents

chapter 4, paragraphs 4.62 to 4.64

3. Branch of a non-resident unit recognized as an institutional unit

chapter 4, paragraph 4.47

4. Residence of multi-territory enterprises clarified chapter 4, paragraph 4.13

5. Special purpose entities recognized chapter 4, paragraphs 4.55 to 4.58; chapter 22, paragraphs 22.51 to 22.54

Changes related to statistical units and institutional sectoring –cont

6. Holding company allocated to the financial corporations sector


7. Head office to be allocated to the institutional sector of the majority of its subsidiaries


8. Subsector for non-profit institutions introduced chapter 4, paragraphs 4.35, 4.94, 4.103 and 4.128

9. Definition of financial services enlarged chapter 4, paragraph 4.98 and chapter 6, paragraph 6.158

10. Sub sectoring of the financial corporation sector revised to reflect new developments in financial services, markets and Instruments

chapter 4, paragraphs 4.98 to 4.116.

Changes related to the boundaries of output and intermediate consumption:

Differences SNA2008 compared to SNA 93 Where in SNA2008 Impact on GDP

B. Further specifications of the scope of transactions including the production boundary

1. Research and development is not an ancillary activity chapter 6, paragraph 6.207

Yes

2. Method for calculating financial intermediation services indirectly measured (FISIM) refined


Not directly

3. Output of central bank clarified chapter 6, paragraphs 6.151 to 6.156; chapter 7, paragraphs 7.122 to 7.126

No

4. Recording of the output of non-life insurance services improved

chapter 6, paragraphs 6.184 to 6.190 and 6.199; chapter 17, paragraphs 17.13 to 17.42

Not directly

5. Reinsurance similarly treated as direct insurance chapter 6, paragraph 6.200; chapter 17, paragraphs 17.56 to 17.65

Not directly

6. Valuation of output for own final use by households and corporations to include a return to capital


Yes

Changes related to assets and their boundaries


C. Extension and further specification of the concepts of assets, capital formation and consumption of fixed capital

1. Change of economic ownership introduced chapter 3, paragraphs 3.21, 3.26, 3.169; chapter 10, paragraph 10.5

Not directly

2. Asset boundary extended to include research and development


Yes

3. Revised classification of assets introduced chapter 3, paragraphs 3.5, 3.30 to 3.31, 3.37 to 3.39; chapter 10, paragraph 10.8

Yes, linked to extension

4. Extension of the assets boundary and government gross capital formation to include expenditure on weapons systems

chapter 10, paragraphs 10.87 and 10.144

Yes

5. The asset category “computer software” modified to include databases


Yes

Changes related to assets and their boundaries - cont


6. Originals and copies recognized as distinct products chapter 10, paragraphs 10.100 to 10.101

No

7. The concept of capital services introduced chapter 20 Not directly

8. Treatment of costs of ownership transfer elaborated chapter 10, paragraphs 10.48 to 10.52, paragraph 10.97 and paragraphs 10.158 to 10.162

No

9. Mineral exploration and evaluation chapter 10, paragraphs 10.106 to 10.108

No

10. Land improvements chapter 10, paragraphs 10.79 to 10.81

No

11. Goodwill and marketing assets chapter 10, paragraphs 10.196 to 10.199

No

12. Water resources treated as an asset in some cases chapter 10, paragraph 10.184

Yes

Changes related to assets and their boundaries – cont2

13. Consumption of fixed capital to be measured at the average prices of the period with respect to a constant-quality price index of the asset concerned


Not directly

14. Definition of cultivated biological resources made symmetric to uncultivated resources


No

15. Intellectual property products introduced


No

16. Concept of resource lease for natural resources introduced


No

17. Changes in the items appearing in the other changes in the volume of assets account introduced

chapter 12

No

D. Further refinement of the treatment and definition of financial instruments and assets

No

1. Treatment of securities repurchase agreement clarified chapter 11, paragraphs 11.74 to 11.77

2. Treatment of employee stock options described chapter 11, paragraph 11.124; chapter 17, paragraphs 17.384 to 17.398

3. Treatment of non-performing loans elaborated

chapter 11, paragraph 11.129; chapter 13, paragraphs 13.66 to 13.68

4. Treatment of guarantees elaborated chapter 17, paragraphs 17.207 to 17.224

5. Treatment of index-linked debt securities elaborated chapter 17, paragraph 17.274 to 17.282

6. Treatment of debt instruments indexed to a foreign currency revised


7. Flexibility on valuation of unlisted equity chapter 13, paragraphs 13.69 to 13.70

D. Further refinement of the treatment and definition of financial instruments and assets-cont

8. Unallocated gold accounts treated as financial assets and liabilities


9. Definition of monetary gold and gold bullion revised chapter 11, paragraph 11.45 and 11.46

10. Liability in special drawing rights recognized chapter 11, paragraphs 11.47 to 11.49

11. Distinction made between deposits and loans chapter 11, paragraph 11.56

12. Fees payable on securities lending and gold loans chapter 17, paragraph 17.254

13. Financial asset classification chapter 11 14. Distinction between financial leasing and operating leasing based on economic ownership

chapter 17, paragraphs 17. 301 to 17.309

15. Changes in recommendations for recording pension entitlements

chapter 17, paragraphs 17. 116 to 17.206

Example – military expenditures

Treatment of GFCF

The SNA/ESA draws a distinction between two types of durable goods used by the military:

-those “that are used in much the same way as in any other type of production,” are treated as GFCF;

- “destructive military weapons designed for combat” as rockets, missiles and their warheads and, by extension, warships, submarines, fighter aircraft and bombers, and tanks are considered destructive and are not treated as fixed assets, but IC of government

Problematic issues

This treatment is problematic for several reasons :- It fails to recognize that weapon systems provide a

nation with economic benefits by protecting the liberty and property of its citizens

- It fails to recognize the role of capital in the production of defence services.

- It fails to recognize that existing military equipment have value and can be sold.

Problematic issues

- The distinction between destructive equipment and non-destructive equipment that can be used for peaceful purposes is difficult to make in practice.

- The treatment of military equipment used by the military is inconsistent with the treatment of the same equipment (for example, armoured vehicles) used by internal police.

- The treatment is inconsistent with the latest international public sector financial accounting standards.

Main reasons to change

a. The distinction between military equipment that can be used for civilian purposes and the equipment that cannot is difficult to make in practice and may lead to inconsistencies between countries

Main reasons to change - contb. The weapons have value in global resale

markets; consequently, their exclusion from the asset boundary implies that the balance sheets understate the market value of the assets held by governments.

c. Destructive military equipment provides a nation with real economic benefits by protecting its citizens and their property – provide a defensive service .

Main reasons to change - cont

d. Adoption of new standards of accounting

The specialist military equipment is classified as property, plant, and equipment and require to be depreciated over their useful lives.

International Federation of Accountants recommends that NA recognise that military equipment can provide economic benefits to the economy in the form of defence services, in more than one period

Recommended changes of the 2008 SNA

• Classification of the military weapon system as fixed assets based on the same criteria than the other assets

• GFCF includes the military weapon system, including vehicles, other equipment (warships, submarines, military aircraft, tanks, missile carriers and launchers, etc ) used continuously in the production of defence services.

Single-use items, such as ammunition, missiles, rockets, bombs, etc., delivered by weapons or weapons systems are treated as military inventories

Recommended changes of the 2008 SNA

The destruction of the weapon systems classified as fixed assets should be recorded in the “other changes in volume of assets account,” the same treatment as for other fixed assets that are destroyed in war.

If the single-use items, which are classified as inventories, are expended, whether in combat or in training exercises, their use should be classified as intermediate consumption by general government, with an reduction in inventories.

Treatment in national accounts - weapon systemWeapon system- in the 93SNA/ESA95

Weapon systems are treated as intermediate consumption by general government.

ExampleRoW Total

economy

Gen Government

NFC Transactions NFC Gen Government

Total economy

RoW

1 P6 export of goods and services

P7 Imports of

Goods and ser

3

11 11 P1 Output 9 11 20

11 11 P2 Intermediate consumption

11 11 P3.Final consumption expenditures

Treatment in national accounts - weapon system• Weapon system- in the 2008SNA

weapon systems are treated as GFCF

RoW

Total

econ

Gen

gov

NFC Transactions NFC Gen

gov

Total

econ

RoW

1 P6 export of goods and services

P7 Imports of Goods and services

3

Production accounts

P1 Output9 8 17

P2 Intermediate consumption

8 8 K1 CFC

8 8 Use of disposable income account

P3Final consumption expenditure

11 11 Capital account

P51 GFCF

-8 -8 K1 CFC

Major implications

• General government value added and GDP would be higher by an amount equal to the consumption of fixed capital on weapon systems (8 in this example)

• General government net saving would be higher (lower) by the difference between gross fixed capital formation and consumption of fixed capital (11 – 8 = 3 in the example)

Issues of implementation

• Affect other international tranzactions

Transfers of military equipment from one country to another would need to be reclassified as capital transfers rather than current transfers, a change presented in the Balance of Payments Manual. The Government Finance Statistics manual would also clearly need to be changed to reflect this set of recommendations.

Issues of implementation

• Some obstacle for implementation

- Secret of the data

- Luck of data concerning munitions to include in the inventory

The 2008 SNA implementation

strategy

Background of the 2008 SNA implementation

The 39th session of UNSC in 2008 requested the ISWGNA to come up with an implementation strategy

Long term development of SNA and the its implementation strategy

International Conference on International Outreach and Coordination in National Accounts for Sustainable Growth and Development, 6-8 May 2008, Luxembourg

High Level Forum for the Long-Term Development of the SNA, 17-18 Nov 2008, Washington DC

Inputs from these events considered by ISWGNA for formulating the 2008 SNA implementation strategy

Luxembourg recommendations

Luxembourg conference was attended by developing countries, development partners

It is recognized that availability of the good quality basic economic statistics in a sustainable manner is key for implementation of international standards on NAs and economic statistics

Direction guiding the LRs can be characterized as global coordination regional implementation to strengthen the national statistical capacity for the

compilation and reporting of national accounts and related basic statistics.

Luxembourg recommendations

1. Strategic Planning Frameworks (SPF)

2. Coordination, monitoring and reporting

3. Global Governance

4. National Statistical Capacity Building

5. SNA Knowledge Platform: statistics, information technology and management

SNA implementation- problem

Insufficient staff and training. Coverage of economic activities – data collection

mechanism and supporting infrastructure need to be improved

Quality and policy relevance of basic economic and macroeconomic statistics are not well promoted

Lack of modern management, ICT infrastructure Lack of coordination between TAs providing

country, regional and international agencies Reference manuals and compilation guidance not

easily accessible

Implementation strategy

Objectives Promoting international coordination among

development partners;

Implementing regional programmes, guidelines and procedures for coordination, monitoring and reporting on performance;

Strengthening national statistical capacity for national accounts and related basic statistics;

Advocating the use of NA and statistics in general for policy purposes

Implementation programme The Implementation Programme for the

2008 SNA and supporting statistics represents a global statistical initiative

Objectives:- Make the conceptual change over from the

1993 SNA to the 2008 SNA- Improve the scope, detail and quality of

the national accounts and supporting economic statistics

Principles of the global statistical initiative

strategic planningcoordination, monitoring and reportingimproving statistical systems

Actions to put in practice the global statistical initiative

1. Use of National Strategies for the Development of Statistics (NSDS) as the strategic planning framework

2. The programme information structure built around the statistical production process, scope and compliance for the national accounts and supporting economic statistics

3. The modalities of statistical capacity building through training and technical cooperation, publication of manuals and handbooks, research and advocacy

4. The stages of implementation leading to the change over to the 2008 SNA

Implementation stages1. Review: Review of strategic framework and detailing of

national and regional implementation programmes

2. AdaptationAdaptation of classification frameworks, business

registers and frames, surveys, administrative data sources and information technology infrastructure

3. ApplicationApplication of adapted frameworks and source data,

backcasting and change over to 2008 SNA.

system of national accounts clementina ivan-ungureanu training: essential sna: building the basics...

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