National Accounts Framework

1. National Accounts Framework • Operational Material

2. Outline • Topics to be covered • Lessons learned from 2005 • Comparability problems • Data and Metadata • System of National Accounts • Exhaustiveness of GDP • GDP expenditure aggregates valuation • Comparison-resistant areas

3. Objectives What is the ICP? ICP is a worldwide statistical initiative to collect comparative price data and estimate purchasing power parities (PPPs) of the world’s economies. PPP Vs. Exchange Rate Using PPPs instead of market exchange rates makes it possible to compare the output of economies and the welfare of their inhabitants in real terms. Main Objectives Provide international price and volume comparisons of Gross Domestic Product (GDP) and its component expenditures Measure the differences in price and volume levels of GDP and GDP per capita of various expenditure aggregates and sub-aggregates between countries within a region between countries in different regions

4. From ICP Objective to N.A. in ICP Value Quantity Price Value ratio PPP Volume Ratio Individual Consumption Expenditure By Households 110 By NPISHs GDP Expenditure Values for 155 Basic Headings, for the reference year 2011 Prices for over 2000 representative products collected over one year in 2011 By Government Collective Consumption By Government Machinery & Equipment Gross Fixed Capital Formation Construction & Civil Eng. Others Changes in inventories Other Components Net Exports

5. Lessons from the 2005 ICP Identified issue • Improving the quality of real expenditures by collecting national accounts data earlier in the process Goals for 2011 ICP to focus on • Identifying the basic headings that are most likely to have a significant impact on the consistency between economies Pressures caused by the need to develop new procedures to collect and validate data led to insufficient attention to the national accounts until late in the process

6. Comparability Problems 1993 SNA • The ICP requires national accounts estimates based on the 1993 SNA Exhaustiveness of GDP • All economic activities have to be included, whether legal and illegal • Various terms are used to describe parts of GDP that fall outside the scope of admin records and statistical surveys on which the national accounts are based • underground economy, black economy, non-observed economy, informal economy

7. Comparability Problems [Cont’d] • Terms do not always refer to the same thing across economies • Informal economy and the non-observed economy may largely overlap • It is likely that GDP in most economies includes some of the informal economy Legal Illegal Observed Non-Observed Informal Formal • Subsistence production/consumption is a potential area of understatement • The scope of economic surveys may exclude some businesses

8. Data & Metadata Latest Data Available between 2006-2009 Major Aggregate Data • Validated major aggregate data • Metadata • Population and exchange rate data Final Data and Metadata 2011 Data Basic Heading Data • Validated basic heading data • Metadata • Population and exchange rate data Preliminary Data and Metadata Final Data and Metadata

9. Estimating basic headings expenditures • Direct estimation • Extrapolation from a recent year or 2005 • Borrowing a per capita volume related to a particular basic heading from an economy in the same cluster • Borrowing from an economy in the same cluster a structure related to a class, sub-group or group related to a particular higher level heading • Splitting a value using expert opinion Global Office recommends 5 approaches

10. System of National Accounts Gross Domestic Product A summary measure that captures the economic activities System of National Accounts • A comprehensive, integrated set of economic accounts, balance sheets, and other tables describing the economic processes taking place within a country and the associated stocks 1993 SNA 2008 SNA

11. National Accounts as a Framework • The SNA provides the concepts, definitions, classifications, and accounting rules often used as standards for economic statistics in general. Household expenditures Government expenditures Investment International trade Wages Profits Industry: agriculture manufacturing construction. etc. Economic statistics collections System of National Accounts Institutional sectors: Households Nonprofit institutions serving households (NPISHs) Financial corporations Nonfinancial corporations General government Rest of the world Production Income Consumption Capital formation Balance of payments Input-output (supply-use) Financial accounts (flow-of-funds) Balance sheets Volumes

12. Justification of the National Accounts Comprehensive • All designated activities and the consequences for all agents in an economy are covered. Bird’s-eye view of the economy Consistent Identical values are used to establish the consequences of a single action for all parties concerned using the same accounting rules. Comparison across countries on the same ground Integrated All the consequences of a single action by one agent are necessarily reflected in the resulting accounts, including the impact on the measurement of wealth captured in balance sheets. Source: System of National Accounts 2008.

13. Diagram of the Integrated Accounts Goods and services Transactions with rest of the world Production Output Intermediate consumption Exports and imports Value added Taxes less subsidies on production Distribution and use of income Final consumption expenditure Consumption of fixed capital Net saving Changes in inventories Accumulation Gross fixed capital Net acquisition of valuables ECONOMY

14. GDP Expenditure Aggregates Valuation Household final consumption expenditure Final consumption expenditure by NPISHs Government final consumption expenditure - Individual consumption expenditure by government - Collective consumption expenditure by government Gross fixed capital formation Change in inventories Net acquisitions of valuables Balance of exports and imports of goods and services General rule: Transactions are valued at the market prices (or purchasers’ prices).

15. Household Final Consumption Expenditure • Valuation • Recorded as the purchasers’ prices paid by households, including any taxes on products that may be payable at the time of purchase Market imperfections Price difference Deliberate price discrimination Price collectors need to consult with the national accountants.

16. Non Market Services • No market for collective services such as defense Nonmarket production • Differences between the types and quality of services provided when sold alongside the nonmarket services NPISHs Intermediate consumption Input-price approach Compensation of employees A sum of costs incurred in their production Government Consumption of fixed capital Other taxes, less subsidies, on production Productivity differences between countries need to be carefully factored in.

17. NPISHs • Valuation • Cannot be valued at the prices at which they sell their output because these prices are “not economically significant.” • Estimated as the sum of their costs of production Intermediate consumption Compensation of employees Input-price approach NPISHs Consumption of fixed capital A sum of costs incurred in their production Other taxes, less subsidies, on production Less any payments received from households for services provided

18. Government Final Consumption Expenditure • Individual consumption expenditure by government • Valuation 2. Collective consumption expenditure by government • Valuation • Valued at cost using cost components similar to those listed for NPISHs Production of services by government for the benefit of individual households Purchase by government, from other producers, of goods and services that are then passed on to households Valued at cost in the same way as for NPISHs Valued at purchasers’ prices —cost to government of buying the goods and services from other producers

19. Gross Fixed Capital Formation • Valuation • Valued at purchasers’ prices, including the cost of transport, the cost of installation, and any fees or taxes for transfer of ownership 1 Own-account production of fixed capital assets Valued at basic prices (equal to producers’ prices, minus product taxes) 2 The 1993 SNA does not include R&D expenditures. The 2008 SNA includes R&D expenditures as capital formation.

20. Changes in Inventories • Valuation Recording 1 Valued at the prices at which they can then be sold Valued at the prices at which they could have been sold when first produced Inventory Change in inventories 2 Valued at the average prices ruling during the year BVE=book values of inventories at the end of the year BVB=book values of inventories at the beginning of the year PE= price index of inventories at the end of the year PB= price index of inventories at the beginning of the year Pavg= price index of average inventory prices for the year

21. Acquisition of Valuables • Valuation • Participating countries are requested to report both the purchase (acquisitions) and sales (disposals) of valuables . • A reference PPP will be used for valuables in the 2011 ICP.

22. Net International Trade • Valuation Exporting country Importing country f.o.b price c.i.f. price • Only the total export (import) values for the ICP, so that valuation on either an f.o.b. or a c.i.f. basis does not affect the values • A reference PPP (exchange rates) will be used because of the different structure of exports and imports in countries.

23. Comparison-Resistant Areas Conceptually Comparison-Resistant Practically Comparison-Resistant Government services Own-produced goods Barter transactions Income in kind Rent of owner-occupiers FISIM Imputed expenditures Health and education Construction

24. Sources of References • ICP Web site • National Accounts Framework in ICP  • System of Accounts 1993 • System of Accounts 2008 Thank You