1993 SNA update: towards SNA Rev.1

Lidia Bratanova

UNECE Statistical Division

Kiev,July 2007

Plan of the presentation

• The process for updating 1993 SNA• Situation to date• Selected recommendations• New chapter on Informal sector• Towards implementation of 1993 SNA Rev.1

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The process

• 2003 and 2004: Statistical Commission called for an update and approved the programme of work

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

assistance of an Advisory Expert Group (AEG)• Schedule

• Consolidated recommendations for March 2007• Draft of Rev. 1 for March 2008

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The process (cont’d)

• A number of TFs and WGs:hard work• Five meetings of AEG: recommendations• Broad consultation

- UNSD consults with all countries- UNECE ensures consultation in the region

Joint UNECE/OECD/Eurostat meeting on NA, April 2006, Geneva - consolidated set of provisional recommendations

- UNSD website available for comments

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The process (cont’d)

• March 2007:Statistical Commission adopted the set of recommendations

• SNA Rev.1 will be presented in 2 volumesVol.1 in March 2008: chapters that represent the SNA

frameworkVol.2 in March 2009: interpretations of the accounts and

extensions such as satellite accounts

• 2008: Strategy for implementation of SNA Rev.1• 2008: Formation of high-level group

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The issues reviewed concern

• 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)

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Situation to date

• Drafting the core set of chapters underway• Structure of SNA Rev.1

Basic structure not changedChapters on important new material

the role of capital services in the accounts the government and public sector informal sector

References to other publicationsTables in the text reformatted; data values reviewed

• 12 Chapters available for comments at website:http://unstats.un.org/unsd/sna1993/draftingPhase/ChapterIssueMatrix.asp

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Selected recommendations

• Focus on 3 recommendations: Research and development (R & D)Military expendituresCapital services

• Why discuss these recommendations?Likely to have the greatest impact on GDPAmong the most widely debatedShow that the SNA is evolving

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R & D

• The present 1993 SNA (§ 6.163-164) treats expenditures on R&D as intermediate consumption, not investmentIssue considered at the time of 1993 SNA, at the

last moment left for the research agendaContinuing interest in R&D as a source of

economic growthPractical experience with satellite accounts

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R & D (cont’d)

Recommendation• The recommendation on R&D adopted

Treat R&D expenditure as GFCF in SNA Rev.1Difficulties are to be overcome in order to implementRev.1 will describe and provide links to ongoing work ISWGNA will report to Statistical Commission

• Related issue: patented entities no longer feature as assets

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R & D (cont’d)

• Impact of R&D capitalization on GDP will vary from country to country

• OECD estimated that:On average GDP would probably increase of

about 2%But with little impact on the growth rate

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R & D (cont’d)

Draft text• Concerning R&D (draft chapter §10.100):

Definition based on Frascati ManualValue determined in terms of economic benefits

R&D is expected to provideBy convention is valued as sum of costs

• Concerning patents (draft chapter §10.100):Patent is not an asset but legal agreement about

terms of access to R&D

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R & D (cont’d)

• Implications for new data collectionsR&D surveys to be changed to serve the NA Improve estimates of trade of R&D servicesService lives of R&D assetsDerive price indices for R&D assistsQuarterly estimates

• OECD manual on methods of estimating intellectual assets is expected

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Military expenditures

• The 1993 SNA (§10.65-68) divides military expenditures into:Weapons and support systems – intermediate

consumption regardless of their length of lifeAll other durables: gross fixed capital formation

• Problems with the current treatmentDivision is hard to apply in practiceWeapons taken from stock and sold call for some

counter-intuitive accounting

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Military expenditures (cont’d)

Recommendation:• Military equipment that is used in production for

more than one year to be treated as assets• Bullets and bombs to be treated as materials and

supplies, that is inventories• Identify separate categories within fixed capital

formation - Weapon systems, and within inventories – Military inventories.

Draft chapter: §10.84 and §10.137

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Military expenditures (cont’d)

Impact• Purchase of weapons moved from

intermediate consumption of government to GFCF

• Consumption of fixed capital on existing stock of weapons systems, which will vary across countries, will be addition to GDP

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Military expenditures (cont’d)

Implications and source data• Source data are problematic

USA has already adopted the recommended treatment

• The new international public sector accounting standard uses the recommended treatment and requires depreciation over useful lives

• Greatest obstacle – the level of secrecy• Use the ‘rule of thumb’– for example estimate the GFCF on

weapons as % of total defense budget (based on shares of similar countries)

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Capital services

• 1993 SNA does not explicitly recognise the services provided by non-financial assetsAssets used in market production: capital services are

within operating surplusAssets used in non-market production: when output is

measured as sum of costs, only consumption of fixed capital (CFC) is counted

• However, estimates useful for productivity analysis• OECD Manual on Measuring capital, 2001, talks

about capital services

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Capital services (cont’d)

• Capital services figure in two separate issues that were under review:the general inclusion of the cost of capital

services in the SNA; the replacement of depreciation with the cost of

capital services when summing inputs to measure non-market output.

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Capital services (cont’d)

• Basic explanation of capital servicesFocus is on non-financial assets used in production Principle: such assets contribute more to the value of

output over the time they are used than their initial costLong standing view that operating surplus is the return

to capital used in productionPerpetual inventory method (or PIM) could be used to

derive estimates of all three capital-related measures: the asset value, a return on capital and CFC Detailed recommendations in an updated OECD Manual

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Capital services (cont’d)

• Recommendation for assets used in market production (issue 15)Estimates to be included in supplementary

tables rather than core accountsConfirmed that capital services and capital stock

measures should be complied in an integrated manner

Basic concepts to be presented in SNA

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Capital services (cont’d)

• Recommendation for assets used in non-market production (issue 16)Maintain the present treatmentUndertake more research:

Test as conclusively as possible the impact on GDP Take into account the differing degrees of data

availability around the world

ISWGNA to coordinate the research and report on progress to the Statistical Commission

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Capital services (cont’d)

• Impact on GDPAssets used in production – no impactAssets used in non-market production- if the

recommendation had been adopted, then non-market output, and thus GDP, would be higher by the amount of the estimated capital services

• Implications – no new data collections required, butNeed to develop systems for estimating capital stock and

CFC in order to generate estimate of capital services in integrated way

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New chapter: Informal sector

• 1993 SNAProvides just an extract from the ILO definitionResearch agenda noted need for continued collaboration

with ILO –lead agency for this work

• Continued calls for guidance given the importance of the informal sector (IS) in many countries

• Practical experience, e.g., in adapting survey methods, and conceptual progress (Delhi group)

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New chapter: Informal sector (cont’d)

Why a new chapter?• Need for clarifications

How well does the ILO definition fit into the SNA? How well do ILO terms match SNA terms?

Different uses of “informal sector”• One of several chapters that feature interpretation

and extension of the accounts• Targeted to be ready for 2009• Outline at http://unstats.un.org/unsd/sna1993/description.asp?ID=31 )

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Implementation of 1993 SNA Rev.1

• Implementation strategy to be discussed by the Statistical Commission in 2008

• ISWGNA is working on the strategy:Should focus on the institutional setting and availability

of source data –basic data collection strategySharpen and refocus

Meetings, training seminars, workshops (regional orientation) Technical assistance (shared curriculum across institutions,

design of surveys and institutional building) Manuals Applied research

Advocacy

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Conclusion

• The recommendations do not change the fundamental framework, so countries are encouraged to continue development in line with 1993 SNA

• Harmonization with BOP: IMF BOP Manual is being updated on a parallel track and this should be taken into account in plans for implementation

• Implementation plans already discussed • ESA-95 will also be revised

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