Short overview of institutional sectors accounts

1. Short overview of institutional sectors accounts EN/ADM/2014/Pres/09 Clementina Ivan-Ungureanu Expert Group Meeting on the Use of Administrative Data in National Accounts 23-27 June 2014 Kigali, Rwanda

2. SNA • The SNA is a system of macroeconomic accounts based on a set of concepts, definitions, classifications and registration rules. It provides a framework within which economic data can be collected and analyzed to assist decision-makers and provide guidance on economic policies.

3. SNA answers • Who takes action in the economy? • What do they do? • Why do they take action? • How are the actions known?

5. WHO? Institutional units and sectors • Classification by industry, called ‘functional classification’ represents the production process and the flows experienced by goods and services produced in the economy. • Classification by institutional sector where the units are defined according to their economic behavior, economic function and economic objectives.

6. WHO? Institutional units and sectors Definition: An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities.

7. WHO? Institutional units and sectors Characteristics • It is entitled to own goods or assets in its own right; it is therefore able to exchange ownership of goods or assets in transactions with other institutional units; • It is able to take economic decisions and engage in economic activities for which it is itself held directly responsible and accountable at law; • It is able to incur liabilities on its own behalf, to take on other obligations or future commitments and to enter into contracts; • It has a complete set of accounts, including a balance sheet of assets and liabilities, or it would be possible and meaningful, from an economic viewpoint, to compile a complete set of accounts if required

8. WHO? Types of institutional units There are 2 main types of institutional units: 1. Persons or a household A household is defined as a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.

9. WHO? Types of institutional units 2. Legal or social entities A legal or social entity is one whose existence is recognized by law or society independently of the persons or other entities that may own or control it.

10. WHO? : Categories of units Includes: • Corporations (financial and non-financial)=covers legally constituted corporations and also cooperatives, limited liability partnerships, notional resident units and quasi-corporations; • Non-profit institutions (NPIs) =legal or social entities created for the purpose of producing goods and services but whose status does not permit them to be a source of income, profit or other financial gain for the units that establish, control or finance them.

11. WHO? : Categories of units • Government units = Government units are unique kinds of legal entities established by political processes that have legislative, judicial or executive authority over other institutional units within a given area.

12. WHO? : Categories of units Classified in institutional sectors based on: • Type of producers • The principal activity and function.

14. Who ?: Institutional sectors The SNA includes five main institutional sectors: • Non-financial corporations; • Financial corporations; • General government; • Households; • Non-profit institutions serving households (NPISHs).

15. Who ?: Institutional sectors-cont • Each sector can be divided in subsectors: S11 Non-financial corporations - Public non-financial corporations -National private non-financial corporations - Foreign controlled non-financial corporations

16. Who ?: Institutional sectors-cont S12 Financial corporations: • Central bank – S121 • Deposit-taken corporations – S122 • Money market funds – S123 • Non-MMF investment funds – S124 • Other financial intermediaries , except insurance corporation and pension funds- S125 • Financial auxiliaries – S126 • Captive financial institutions and money lenders –S127 • Insurance corporations – S128 • Pension funds – S129

17. Who ?: Institutional sectors-cont S13 General Government • Central government – S1311 • State government – S1312 • Local government – S1313 • General government social security –S 1314

18. Who ?: Institutional sectors-cont S14 Households • Employers –S 141 • Own account workers – S142 • Employees – S 143 • Receipts of property and transfer income- S144 S15 Non-profit institutions serving households S2 Rest of the world

19. WHO? : Institutional sectors The allocation of a unit to an institutional sector is based on the following questions: • Is the unit resident? • Is it a household, institutional household (ex. a hospital) or a legal unit? • Is the unit a non-market or market producer? • Is the unit controlled by the government? • Does the unit provide financial services? • Is the unit foreign-controlled?

21. Accounts • The sequence of accounts describes how income is generated, distributed, redistributed and used for consumption or the acquisition of assets and when assets are disposed of, or a liability is incurred, in order to acquire other assets or undertake more consumption than current income permits.

23. Accounts • Value Added = Output - Intermediate consumption

24. Accounts • Production account with the rest of the world

25. Accounts • Identities: Account totals on the uses side = Account totals on the resources side

26. Accounts • Generation of income account • After the production account, the next account in the sequence shows how gross value added is distributed to labor, capital, government and, where necessary, flows to and from ROW. This distribution process is called the primary distribution of income and includes:  - Generation of income account - Allocation of primary income account

27. Generation of income account

28. Accounts • The allocation of primary income account shows the remaining part of the primary distribution of income. • Contains: • Resources side: operating surplus / mixed income and other forms of income on the resources side: compensation of employees, net taxes and incomes received from sources other than production (property income) • Uses side: property income paid The balance for this account is called primary income.

29. Allocation of primary income account • Property income: income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to or putting the tangible non-produced asset at the disposal of, another institutional unit; it consists of: • Interest; • Distributed income of corporations (i.e. dividends); • Reinvested earnings on direct foreign investment; • Property income attributed to insurance policy holders; • Rent.

30. Allocation of primary income account

31. Secondary distribution of income account The secondary distribution of income account follows the conversion of primary income into disposable income, which is the income available for final consumption.

32. Secondary distribution of income account Includes: -Current taxes on income, wealth; - Net social contributions; -Social benefits other than social transfers in kind - Other current transfers; these consist of the following: • Net premiums and claims for non-life insurance; • Current transfers between different kinds of government units; • Current transfers such as those between different households

33. Secondary distribution of income account

34. Accounts • Use of disposable income account shows how the available disposable income is used up, mainly on final consumption expenditures. • These include expenditures by households and by government.

35. Use of disposable income account

36. Accounts • Transactions in non-financial assets are recorded the capital account, the first accumulation account. • The capital account records transactions linked to: - Acquisitions of non-financial assets; - Capital transfers involving the redistribution of wealth.

37. Capital transfers • Capital transfers are transactions, either in cash or in kind, in which the ownership of an asset (other than cash and inventories) is transferred from one institutional unit to another, or in which cash is transferred to enable the recipient to acquire another asset, or in which the funds realized by the disposal of another asset are transferred. There can be capital transfers to and from ROW.

38. Capital transfers • Capital transfers can be divided into: - Capital taxes; - Investment grants; - Other capital transfers.

39. Capital account

40. Macroeconomic Aggregates • Gross Domestic Product (GDP) • Gross National Income (GNI); • Gross National Disposable Income; • Gross Saving.

41. GDP- production approach

42. GDP- expenditure approach

43. GDP- income approach

44. GNI GNI includes products and services produced by enterprises owned by a country's citizens. • GNI adjusts GDP for two transactions with ROW, coming from the allocation of primary income account: - Compensation of employees payable to / receivable from ROW; - Property income payable to / receivable from ROW.

45. GNI

46. Gross National Disposable Income • Gross National Disposable Income is based on transactions from the secondary distribution of income account. The flows with ROW are: - Current taxes on income, wealth, etc.; - Current transfers receivable / payable.

47. Gross National Disposable Income