The 2008 SNA - compilation in brief

A complement to the System of National Accounts 2008

World Bank

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Table of contents

Chapter 1: Facing up to limited resources.............................................................................................................................1A. Introduction ..........................................................................................................................................................1

B. Background information .......................................................................................................................................2

C. How much of the 2008 SNA is relevant for developing countries? ......................................................................3

D. Facing conflicting objectives ................................................................................................................................31. Accuracy vs. comprehensiveness ............................................................................................................52. Revisions ..................................................................................................................................................5

E. International standards and local needs ..............................................................................................................6

F. National accounts and senior managers..............................................................................................................61. National accounts and basic data .............................................................................................................7

Chapter 2: Allocating limited resources.................................................................................................................................9A. Introduction ..........................................................................................................................................................9

B. Section 1: Estimating GDP ..................................................................................................................................9

C. Section 2: How income gives rise to consumption and saving ..........................................................................10

D. Section 3: Building national wealth ....................................................................................................................10

E. Section 4: Practical matters ...............................................................................................................................11

F. In conclusion ......................................................................................................................................................11

Chapter 3: Collecting enterprise data...................................................................................................................................13A. Introduction ........................................................................................................................................................13

B. Data requirements .............................................................................................................................................13

C. Data validation ...................................................................................................................................................14

D. Types of enterprises ..........................................................................................................................................151. Medium sized enterprises.......................................................................................................................162. The informal sector ................................................................................................................................183. The use of administrative data ...............................................................................................................184. Enterprises and establishments ..............................................................................................................19

Chapter 4: The industry dimension ......................................................................................................................................21A. Introduction ........................................................................................................................................................21

B. Agriculture..........................................................................................................................................................22

C. Forestry and fishing ...........................................................................................................................................23

D. Mining and quarrying .........................................................................................................................................23

E. Manufacturing ...................................................................................................................................................23

F. Electricity and gas..............................................................................................................................................24

G. Water ................................................................................................................................................................24

H. Construction.......................................................................................................................................................24

I. General issues concerning service industries working on margins ..................................................................25

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The 2008 SNA - compilation in brief

J. Wholesale and retail trade .................................................................................................................................25

K. Sale and repair of motor vehicles.......................................................................................................................26

L. Transportation and storage ................................................................................................................................26

M. Accommodation and food service activities .......................................................................................................27

N. Other services ....................................................................................................................................................27

Chapter 5: Compiling the production account and the first measure of GDP..................................................................29A. Introduction ........................................................................................................................................................29

1. Valuation ................................................................................................................................................292. Inventories of work-in-progress .............................................................................................................30

B. Agriculture ..........................................................................................................................................................30

C. Forestry ..............................................................................................................................................................34

D. Fishing................................................................................................................................................................35

E. Manufacturing ....................................................................................................................................................35

F. Gas, electricity and water...................................................................................................................................36

G. Construction .......................................................................................................................................................36

H. Wholesale and retail trade .................................................................................................................................37

I. Transportation and storage ................................................................................................................................38

J. Information and communication .........................................................................................................................38

K. Hotels and restaurants .......................................................................................................................................39

L. Public services ...................................................................................................................................................39

M. Financial services...............................................................................................................................................391. Deposits and loans..................................................................................................................................402. Bonds and bills .......................................................................................................................................413. Shares and equity ...................................................................................................................................414. Accounts receivable/payable..................................................................................................................425. Monetary gold and SDRs .......................................................................................................................426. Summary of financial instruments and associated services ..................................................................427. Other explicit fees ..................................................................................................................................428. Insurance ................................................................................................................................................43

Non-life insurance.................................................................................................................................................. 43Life insurance......................................................................................................................................................... 43

9. The output of financial services .............................................................................................................43N. Owner-occupied dwellings .................................................................................................................................44

O. Domestic staff ....................................................................................................................................................45

P. Other private services ........................................................................................................................................45

Q. Intermediate consumption..................................................................................................................................451. The boundary between intermediate consumption and gross fixed capital formation...........................46

R. Value added .......................................................................................................................................................47

S. GDP measured from the production side...........................................................................................................47

Chapter 6: GDP from the income side ..................................................................................................................................51A. Introduction ........................................................................................................................................................51

B. Disaggregating value added ..............................................................................................................................51

C. Labour income ...................................................................................................................................................521. Labour force survey (LFS) data .............................................................................................................522. Other employment surveys.....................................................................................................................523. Household surveys .................................................................................................................................52

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4. Numbers in employment ........................................................................................................................53D. Gross operating surplus.....................................................................................................................................53

E. Taxes on production and imports.......................................................................................................................53

F. Subsidies ...........................................................................................................................................................57

Chapter 7: The expenditure estimate of GDP ......................................................................................................................61A. Introduction ........................................................................................................................................................61

B. Capital formation................................................................................................................................................611. Gross fixed capital formation.................................................................................................................62

C. Final consumption..............................................................................................................................................621. Final consumption expenditure of households ......................................................................................632. Example table.........................................................................................................................................64

Chapter 8: Reconciliation of GDP estimates in supply and use tables.............................................................................65A. Introduction ........................................................................................................................................................65

B. Total supply at basic prices................................................................................................................................65

C. Total supply at purchasers’ prices .....................................................................................................................661. Taxes less subsidies on products............................................................................................................67

D. Domestic use .....................................................................................................................................................671. Intermediate and final consumption.......................................................................................................682. Cross-checking capital formation ..........................................................................................................703. Cross-checking final consumption.........................................................................................................704. Cross-checking intermediate consumption ............................................................................................71

E. Balancing the table ............................................................................................................................................72

F. Is this the SNA? .................................................................................................................................................73

Chapter 9: Information in volume terms...............................................................................................................................75A. Introduction ........................................................................................................................................................75

B. Rebasing issues.................................................................................................................................................75

C. Production measures of goods ..........................................................................................................................761. Intermediate consumption in volume terms ..........................................................................................762. Double deflation.....................................................................................................................................773. Single indicator methods........................................................................................................................77

D. Production measures of services.......................................................................................................................77Retail and wholesale trade ...................................................................................................................................... 77Foreign exchange margins...................................................................................................................................... 78FISIM...................................................................................................................................................................... 78

1. Public services........................................................................................................................................782. Other private services.............................................................................................................................78

E. Taxes less subsidies in volume terms ...............................................................................................................79

F. Volume measures of the expenditure estimate of GDP.....................................................................................791. Final consumption expenditure by government and NPISHs ...............................................................792. Gross fixed capital formation ................................................................................................................793. Changes in inventories ..........................................................................................................................804. Exports and imports ..............................................................................................................................80

Chapter 10: Identifying sectors ............................................................................................................................................81A. Introduction ........................................................................................................................................................81

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B. Corporations.......................................................................................................................................................81

C. General government .........................................................................................................................................83

D. Households and other ........................................................................................................................................84

Chapter 11: The relationship with the rest of the world......................................................................................................85A. Introduction ........................................................................................................................................................85

B. Residence ..........................................................................................................................................................85

C. Change of ownership .........................................................................................................................................86

D. Foreign control of enterprises ............................................................................................................................86

E. The balance of payments accounts ...................................................................................................................871. GDP and GNI .........................................................................................................................................872. Transfers and disposable income ...........................................................................................................883. Capital and financial transactions ..........................................................................................................88

Chapter 12: Getting to gross national income.....................................................................................................................91A. Introduction ........................................................................................................................................................91

B. Allocating the income components of GDP to sectors .......................................................................................911. Gross operating surplus and gross mixed income..................................................................................922. Taxes on production ...............................................................................................................................923. Subsidies on production .........................................................................................................................924. Taxes on products...................................................................................................................................925. Subsidies on products.............................................................................................................................92

C. Property income .................................................................................................................................................93Bonds ..................................................................................................................................................................... 93Payable to non-residents ........................................................................................................................................ 93Receivable from non-residents .............................................................................................................................. 94Payable to resident banks....................................................................................................................................... 94Receivable from resident banks ............................................................................................................................. 94Money-lenders ....................................................................................................................................................... 94

1. Dividends ...............................................................................................................................................942. Rent ........................................................................................................................................................96

D. Gross National Income.......................................................................................................................................96

E. Is this the SNA? .................................................................................................................................................97

Chapter 13: Redistribution by government and consumption ..........................................................................................99A. Introduction ........................................................................................................................................................99

B. Current transfers ................................................................................................................................................991. Other transfers involving government..................................................................................................1002. Transfers involving NPISHs ................................................................................................................1013. Transfers involving households and non-residents ..............................................................................1014. Other transfers between residents ........................................................................................................102

C. Disposable income...........................................................................................................................................102

D. Final consumption ............................................................................................................................................103

E. Is this the SNA? ...............................................................................................................................................103

Chapter 14: Capital formation and natural resources.......................................................................................................105A. Introduction ......................................................................................................................................................105

B. The capital account ..........................................................................................................................................105

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1. Capital formation .................................................................................................................................106Fixed capital formation......................................................................................................................................... 106Changes in inventories.......................................................................................................................................... 106Valuables .............................................................................................................................................................. 106Non-produced assets ............................................................................................................................................. 106

2. Net lending or borrowing.....................................................................................................................107C. Consumption of fixed capital ............................................................................................................................107

1. The theory behind consumption of fixed capital .................................................................................108The simplest case.................................................................................................................................................. 108A more realistic case............................................................................................................................................. 109Inflation................................................................................................................................................................. 109

2. Estimating consumption of fixed capital .............................................................................................109D. The balance sheet ...........................................................................................................................................110

1. Fixed capital .........................................................................................................................................1102. Inventories............................................................................................................................................110

E. Other changes in the volume of assets............................................................................................................111

F. The revaluation account...................................................................................................................................111

G. Accumulation accounts by sectors...................................................................................................................111

H. Natural resources.............................................................................................................................................112

I. Is this the SNA? ...............................................................................................................................................113

Chapter 15: Financial assets and liabilities .......................................................................................................................115A. Introduction ......................................................................................................................................................115

B. Accumulation accounts ....................................................................................................................................115

C. The balance sheet ...........................................................................................................................................116

D. The flow accounts ............................................................................................................................................1181. Holding gains and losses......................................................................................................................118

Monetary gold and SDRs...................................................................................................................................... 118Shares.................................................................................................................................................................... 119Bonds .................................................................................................................................................................... 119

2. The financial account ...........................................................................................................................119Understanding the account ................................................................................................................................... 121

3. Example accounts ................................................................................................................................121E. Is this the SNA? ...............................................................................................................................................121

1. Asset backed securities – repackaging debt .........................................................................................1222. Financial derivatives ............................................................................................................................1223. Combining the instruments ..................................................................................................................1224. Impact on the output of financial institutions ......................................................................................123

Chapter 16: Presentation of the accounts..........................................................................................................................125A. Introduction ......................................................................................................................................................125

1. The national accounts tables and explanatory text...............................................................................1252. Satellite accounts..................................................................................................................................125

B. Links to other data sets....................................................................................................................................1261. Employment and population data ........................................................................................................1262. Household surveys ...............................................................................................................................1263. Prices ....................................................................................................................................................1264. Other data sets ......................................................................................................................................126

C. A set of national accounts................................................................................................................................1261. Tables showing GNI and the link between the national accounts and balance of payments...............1282. Tables showing sector accounts ...........................................................................................................128

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The 2008 SNA - compilation in brief

3. Links to the IMF data systems .............................................................................................................133D. Satellite accounts ............................................................................................................................................133

Chapter 17: Devising an immediate and a long term work programme ..........................................................................135E. Introduction ......................................................................................................................................................135

F. An initial work programme................................................................................................................................1351. Data coming from outside the national accounts unit ..........................................................................1352. Tasks for the national accounts unit .....................................................................................................136

Manufacturing industries ..................................................................................................................................... 136Other goods producing industries ........................................................................................................................ 136Particular industries ............................................................................................................................................. 136Government information...................................................................................................................................... 136Other services....................................................................................................................................................... 137Consumption of fixed capital .............................................................................................................................. 137

3. Getting to the first estimate of GDP.....................................................................................................1374. Deflation to volume terms....................................................................................................................1375. Documentation .....................................................................................................................................1386. Releasing the results.............................................................................................................................138

G. Matching tasks and people ..............................................................................................................................138

H. Moving beyond the simplest steps ...................................................................................................................1391. Commodity balancing and derivation of GDP at current values .........................................................1392. Sector accounts.....................................................................................................................................1393. Accumulation accounts ........................................................................................................................140

I. Longer term considerations..............................................................................................................................1401. One-off data sources.............................................................................................................................1402. One-off exercises..................................................................................................................................1403. Relaxing the simplifications in the system...........................................................................................140

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List of tablesTable 3.1: Distribution of establishments by size, Mexico and United Kingdom....................................................................... 15

Table 4.1: International Standard Industrial Classification (ISIC) - Section headings .............................................................. 21

Table 5.1. Basic, producers’ and purchasers’ prices ................................................................................................................... 30Table 5.2: Example of an account for a retailer........................................................................................................................... 37Table 5.3: GDP from the production side.................................................................................................................................... 48

Table 6.1: Allocation of taxes according to GFS codes to SNA categories ................................................................................ 56Table 6.2: GDP from the income side ......................................................................................................................................... 58

Table 7 1: GDP from the expenditure side .................................................................................................................................. 64

Table 8.1. Total supply at basic prices......................................................................................................................................... 66Table 8.2. Margins and taxes on total supply ............................................................................................................................. 67Table 8.3. Total domestic use ..................................................................................................................................................... 68Table 8.4. Shares of supply for domestic use to three categories of demand.............................................................................. 69Table 8.5. Proportions of household expenditure on food across a number of countries .......................................................... 70Table 8.6. The complete use table ............................................................................................................................................... 72Table 8.7. Industry output and product groups............................................................................................................................ 73

Table 9.1: Example of the impact of margins on prices .............................................................................................................. 77

Table 11 1: GDP and GNI ............................................................................................................................................................. 88Table 11 2: GNI and national disposable income.......................................................................................................................... 88

Table 12.1: Allocation of compensation of employees by sectors ................................................................................................ 91Table 12.2: Allocation of other components of GDP by sectors .................................................................................................. 92Table 12.3: Allocation by sector of interest flows......................................................................................................................... 93Table 12.4: Allocation by sector of dividends and rent................................................................................................................. 94Table 12.5: Derivation of Gross National Income......................................................................................................................... 95

Table 13.1: Deriving disposable income ..................................................................................................................................... 102Table 13.2: Derivation of saving by sector.................................................................................................................................. 102

Table 14.1: Deriving net borrowing/net lending ........................................................................................................................ 107Table 14.2: Estimates of consumption of fixed capital by asset type.......................................................................................... 109Table 14.3: Example of a set of accumulation accounts for non-financial assets ........................................................................111

Table 15.1: Schematic table for compiling a balance sheet......................................................................................................... 117Table 15.2: A set of integrated financial accumulation accounts ................................................................................................ 120

Table 16.1: Estimates of GDP using three approaches................................................................................................................ 127Table 16.2: GDP and GNI ........................................................................................................................................................... 128Table 16.3: Production by sector ................................................................................................................................................. 128Table 16.4: Primary income by sector ......................................................................................................................................... 129Table 16.5: Redistribution by means of transfers ........................................................................................................................ 130Table 16.6: Consumption expenditure and saving ...................................................................................................................... 130

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Table 16.7: Capital formation and net/lending/borrowing .......................................................................................................... 130Table 16.8: Capital formation by type of asset ............................................................................................................................ 131Table 16.9: Balance sheet information for non-financial assets .................................................................................................. 131Table 16.10: Balance sheet information for financial assets and liabilities................................................................................... 132Table 16.11: Information from the sector accounts relating to the rest of the world (balance of payments) ............................... 133Table 16.12: Information from the sector accounts relating to the general government sector (GFS) ......................................... 134

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Preface

The System of National Accounts (SNA) aims to cover all aspectsof all economies necessary to measure economic activitycomprehensively and in a manner that will be comparable overtime and across countries. This is ambitious and because large,complex economies must be covered as well as smaller and lesscomplex ones, the resulting manual is large and may seem dauntingto someone trying to determine how to approach the task ofcompiling the accounts for the first time. Further, some of the detailin the SNA is simply not applicable to all economies, in particularthe detailed treatment of complex financial instruments. Inaddition, when a staff member of a statistical office comes to thenational accounts for the first time, especially if there is littleexperience of compiling accounts in the office, the fact that theSNA concentrates on concepts with much less discussion ofpractical compilation problems, may be disappointing andfrustrating.

The System of National Accounts (SNA) was first adopted by theUN Statistical Commission (UNSC) as an international standard in1953. This version of the SNA included rudimentary sectoraccounts, which were considerably elaborated in the 1968 SNA.The development of balance sheets and their integration with therest of the system was proposed in a national accounting handbookin 1977 and fully integrated in the 1993 SNA, along with theintegration of measurement in constant price terms. The 2008 SNAtook consideration of the integration of various sectors of theeconomy and the role of assets further. Until the late 1980s,centrally planned economies used an alternative system, the Systemof Material Balances, but all countries in the world now accept theSNA standard.

However, not all countries have been able to implement the SNA inits entirety or incorporated the elaborations of later version of theSNA. In the early 1990’s, many developing countries were stillmainly using the guidance in the 1953 SNA. Thus these countrieswere implementing a very small subset of the whole system,basically just the various estimates of the GDP aggregate with littleif any information on income flows and capital accumulationrelating to the main sectors of the economy.

At various points the UNSC has considered why greater progress toimplement the whole system has not been made. Calls are regularlymade to provide more technical assistance and training materialsbut despite the positive response by many donors, the situation hasnot improved dramatically over the last two or three decades. In thenational accounts data base posted on the UN web site inNovember 2010, data for only 80 countries appears, of which onlyabout 25 are not members of the OECD, in Europe or were part ofthe former Soviet Union. Of these, only about a dozen, mostly inLatin America, provide information on income flows by sector.

From time to time the idea of devising a simplified SNA has beenfloated for developing countries. This has not been pursued becausethe range of developing countries is extensive; some are close ineconomic sophistication and statistical resources to many OECDcountries, possibly further advanced than some of these. At theother end of the range, however, are very many countries with

relatively small populations, economies that are still concentratedin a few areas and with a limited number of skilled professionals.

With this background the World Bank has undertaken thepreparation of two handbooks to help extend the implementation ofthe SNA in countries such as these. The proposition here is that theproblem is not that the SNA is too complex for developingcountries or that staff in developing countries are unaware of theguidelines it contains. Rather it is that statistical offices do not havethe resources available to both collect and analyse all the datarequired for an exhaustive implementation of the system and thatsome of the recommendations in the SNA have marginalconsequences for many small countries without sophisticatedfinancial markets.

One of the new handbooks is described as Concepts in Brief. It isnot only strictly consistent with the full text of the 2008 SNA, butuses that text. However, by setting aside some aspects of limited (orpossibly no) relevance to many small developing countries, such asa description of sophisticated financial instruments and somepossible elaboration of links to other systems, the 600 pages of thefull text of the 2008 SNA is reduced to one third of this. Thedocument carefully enumerates what has been omitted so that thereader is aware of these and able to turn to the more extendedvolume if required.

The second of the World Bank handbooks, described asCompilation in Brief, suggests that the way to extend the range ofimplementation of the whole system, however, is not asimplification of the basic theory of the SNA but a simplification ofcompilation practices. Ideally this should be a first step towards amore extensive coverage of the accounts but even the simplifiedaccounts should serve to make users aware of the potential of thewhole system and give the compilers courage to build on these firststeps.

Countries with abundant resources (of both staff and data) produceannual accounts consisting of:

Estimates of GDP from three perspectives in value and volumeterms,

Supply and use tables (and possibly an input-output table)detailing which goods and services are used to produce othergoods and services,

Sets of accounts for the four major domestic sectors and the restof the world,

Balance sheets of financial and non-financial assets for thesame sectors

In addition they will produce quarterly accounts of the threeestimates of GDP.

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The 2008 SNA - concepts in brief

The simplifications suggested in Compilation in Brief are to reducethe detail underlying the supply and use tables, not to proceed tocalculate an input-output table, and to simplify the demarcation ofsectors. Input-output tables were a key feature of the 1968 SNA andreflected the policy interest at the time in trying to mimic thetechnology of production within a statistical table. Although thetechnological applications have diminished since the 1970s, supplyand use tables are still a very powerful tool with which to assess thequality of the statistics emerging from the national accounts tables.However, working with a relatively small table and abandoning theattempt to identify technology-based establishments necessary forformal input-output tables preserves the quality control aspects atvery greatly reduced resource cost.

Sector accounts show the different roles of enterprises, governmentand households in the economy. Who benefits from governmentspending and the payment of benefits? How are these financed bytax revenue and borrowing? Are households living within theirmeans or on credit? Are enterprises sufficiently profitable to beable to afford new investment? These are the questions on everycommentator’s mind but most developing countries can give noanswers from their national accounts. In all economies theborderline between small enterprises and household activity isfuzzy and difficult to draw in strict statistical terms. It is arguablythe difficulty of drawing this line that has inhibited thedevelopment of sector accounts in many countries. The proposalmade here is to concentrate in the first instance on large companieswhich are small in number but account for the overwhelmingmajority of corporate activity. This makes the borderline withhouseholds fuzzier but enables the process of drawing up accounts

to start. Once some figures are available the compiler gainsconfidence to go further and the analyst sees what is available andlearns how to use these more elaborate accounts to answer thequestions of the moment

With these two steps, it is argued, it is possible for even a countrywith limited resources to produce a set of accounts that isrecognisable as portraying the whole economy in the sort of detailenvisaged in the SNA. Obviously, in an ideal world with unlimitedresources neither of these approximations would be desirable but itis close to half a century since many African countries and Pacificislands achieved independence and not only have plentifulresources still not become available but they do not appear to be onthe horizon. These publications suggest an alternative strategywhereby staff in developing countries can themselves take theinitiative to redirect limited resources towards a slimmed down butcomplete implementation of the SNA that is still able to producemore policy-relevant statistics than existing approaches.

This publication is intended as a complement not only to the fullversion of the 2008 SNA but also to the many handbooks andguidelines that have been developed over many years givingcomprehensive advice on data collection and compilation practicesin many areas of economic statistics. Many of these are referred toat various places in the text.

This document and the companion one were prepared for the WorldBank by the editor of the 2008 SNA, Anne Harrison.

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List of abbreviations and acronyms

BOP Balance of paymentsBPM Balance of Payments and International Investment

Position Manual

CIF Cost, insurance and freightCOFOG Classification of the Functions of GovernmentCOICOP Classification of Individual Consumption by

PurposeCOPNI Classification of the Purposes of Non-profit

Institutions Serving HouseholdsCOPP Classification of Outlays of Producers by PurposeCPC Central Product ClassificationCPI Consumer price index

DBMS Database management system

FDI Foreign direct investmentFISIM Financial intermediation services indirectly

measuredFOB Free on boardFP Fisher price indexFQ Fisher volume index

GDI Gross domestic incomeGDP Gross domestic productGFS Government finance statisticsGFSM Government Finance Statistics ManualGNI Gross national income

IC Insurance corporationICLS International Conference of Labour StatisticiansICPF Insurance corporations and pension fundsICT Information, communication and

telecommunicationsIIP International investment positionILO International Labour OrganizationIMF International Monetary FundIMTS International Merchandise Trade Statistics:

Concepts and DefinitionsIPSASB International Public Sector Accounting Standards

BoardISIC International Standard Industrial Classification of

All Economic ActivitiesISP Internet service provider

KAU Kind-of-activity unitKLEMS Capital-labour-energy-materials-service inputs

LP Laspeyres price indexLQ Laspeyres volume indexLFS Labour force statistics

MFSM Monetary and Financial Statistics ManualMMF Money market fundMNE Multinational enterpriseMPI Import price index

n.e.c. Not elsewhere classifiedNDP Net domestic productn.i.e. not included elsewhereNNDI Net national disposable incomeNNI Net national incomeNOE Non-Observed EconomyNPI Non-profit institutionNPISH Non-profit institution serving householdsNPV Net present value

OECD Organisation for Economic Cooperation and Development

OEEC Organisation for European Economic Cooperation

PAYE Pay-as-you-earnPF Pension fundPFI Private finance initiativePIM Perpetual inventory methodPIM Perpetual inventory modelPP Paasche price indexPPI Producer price indexPPP Public/private partnershipPPP Purchasing power parityPQ Paasche volume index

R&D Research and development

SAM Social accounting matrixSDR Special drawing rightSEEA System of Environmental and Economic AccountsSITC Standard Industrial Trade ClassificationSNA System of National AccountsSPE Special purpose entity

TSA Tourism satellite account

UNSC United Nations Statistical Commission

VAT Value Added Tax

WHO World Health Organization

XMPI Export and import price indicesXPI Export price index

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The 2008 SNA - concepts in brief

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Chapter 1: Facing up to limited resources

A. Introduction

1.1 This document is intended as a complement to “The 2008SNA Concepts in brief”. It is written with the needs of astatistical office in a developing country with limitedresources in mind. If others find useful information here,that is welcome, but the main focus is on a country still inthe relatively early stages of development and a statisticaloffice facing demands for an increasing range of statisticsso that very few staff can be allocated to the production ofnational accounts, The intent is to show that acceptablenational accounts can be produced with relatively fewresources if a few basic principles are kept firmly in mind.These principles are described in this chapter and it ishoped that managers as well as the national accountspractitioner will benefit from the suggestions made.

1.2 The importance of national accounts and of havingestimates of gross domestic product (GDP) for a country ishardly, if ever, questioned. Having such estimates is seenalmost as a vindication of the country’s independence.Those in statistical offices responsible for devising aprogramme of work accept that this is a task that must bedone and to which they must be seen to be giving priority.Policymakers outside the statistical office use estimates ofGDP to monitor whether their policies are successful or notand international agencies such as the World Bank andInternational Monetary Fund regularly begin theirassessments of the economic prospects for a country byconsidering the estimates of GDP.

1.3 Nevertheless, heads of statistical offices are oftenextremely uncomfortable with these demands. There is awidespread perception that compiling national accounts isdifficult and so resource intensive as to lie beyond thecapacities of many countries with small statistical officesand limited staff resources. Over many years there havebeen calls in the United Nations Statistical Commission tosimplify the System of National Accounts (SNA) and atdifferent times enquiries have been launched to find outhow far the SNA has been implemented and to discoverwhy in many countries implementation is at best partial andoften does not progress beyond the initial milestones laidout for a full implementation of the system.

1.4 As explained in the preface, this book is aimed primarily atcountries with limited resources, both in terms of staff anddata, typically small countries still in the early stages ofdevelopment. It assumes that the starting point is one whereeither national accounts have never been developed beyonda simple estimation of GDP or where circumstances haveled to earlier processes being suspended, sometimes for aconsiderable period, pending the availability of extra

resources which have not eventuated. If staff in othercountries find useful suggestions in this book, that is to bewelcomed but the simplifications suggested should beconsidered carefully to see how far adopting them wouldseriously impair the quality of the resulting accounts.

1.5 The present document therefore considers how a memberof staff in a statistical office in a small country with limitedstatistical resources may still manage within a fairly shortspace of time to compile most of the system of nationalaccounts up to a reasonable level of quality and in areasonably timely manner.

1.6 Success in this goal depends on a couple of premises. Oneis that the best is often the enemy of the good. Trying toperfect one part of the accounts before moving on to otherstages may well be doomed to failure. No country in theworld has perfect national accounts but an increasingnumber have accounts that are good enough for thepurposes of local and international policymakers. Applyingthe precept that it is possible to do 80 per cent of the workwith 20 per cent of the effort means that it is possible toestablish a robust working framework in a relatively shortperiod of time. Once the framework is in place it is possibleto elaborate the detail and improve the quality. Once theframework is in place and users can see the benefit of it, itbecomes easier to find the resources that allow theextensions of the system. Once the framework is in place,those responsible for its construction and maintenance willdevelop their abilities and self-confidence that also lead toimprovements in the system.

1.7 The objective of compiling a set of national accounts needsto be kept clearly in mind. It is to portray in numeric termsa picture of how the economy is operating and how it ischanging over time. The statistician facing a daunting taskmay be tempted to focus simply on how to update previouscalculations and forget this end objective. This publicationaims to illustrate how and where the ultimate goal may bebetter served by introducing new techniques and datasources. Because the nature of an economy changes overtime, the ways of measuring it may need to change also.

1.8 Before starting to consider how to implement the SNA, it isuseful to explore a number of other issues.

a. What background information is necessary to assess thecomprehensiveness of a set of national accounts? Canan outside expert match the background understanding

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The 2008 SNA - compilation in brief

of the nature and characteristics of the country of alocal staff member?

b. How is the guidance in the system of national accountsto be taken? Is it meant to provide instructions thatmust be followed to the last detail before it is possibleto say the SNA has been implemented or is it meant toprovide answers to questions not all of which may berelevant to all countries and at all times?

c. How should the national accountant address the con-flicting goals of timeliness, comprehensiveness andaccuracy?

d. How should the national accountant reconcile adheringto international statistical standards with local needs?

e. How can a statistical office find the resources to imple-ment the SNA in full given budget constraints and otherstatistical priorities? How much do senior managers inthe statistical office need to know about the way inwhich national accounts are compiled to determine theresources necessary and to assess whether these arebeing used in the most effective way?

Each of these areas is explored in a little more detail belowto encourage a more flexible approach towards providing aset of national accounts that is robust, timely and analyti-cally useful.

B. Background information

1.9 All national accounts give a picture of an economy but it isimpossible to interpret the picture the accounts tell, or evento recognize the picture, without some backgroundknowledge about the physical, historical and culturalbackground of the economy being portrayed.

1.10 The first topic to consider concerns the physicalcharacteristics of the country. Is it large or small? Is it in thetropics or in colder latitudes? Is it landlocked or a series ofislands? This information leads immediately to anindication of how easy it is for people in the country tocommunicate with the rest of the world. Are there landborders through which goods may enter and leave thecountry or must everything come by sea or air? Is theclimate so harsh that special measures have to be taken tocombat either extreme heat or extreme cold? Are naturalevents such as cyclones a more or less regular occurrence?Quite apart from environmental accounting, the role ofnature in the country may have a significant effect oneconomic activity.

1.11 The next item to consider concerns people. What is thepopulation of the country and how is it distributed? Arepeople spread throughout the country so that the density ofpopulation is fairly similar everywhere or are theyconcentrated in particular areas, for example away fromdeserts or very mountainous regions? How many largecities are there and what size are these? Are the largestcities continually increasing in size as people leave ruralareas to look for greater economic opportunity in the urbanareas? Does this mean that there are large shanty towns onthe outskirts of large cities? Is the capital city the largest, orone of the largest, cities in the country or is it anadministrative capital separate from the main commercialcentre. The answer to these questions, showing knowledgeabout population distribution and movement, already tellsus something about whether we would expect to observerapid changes in the type of economic activity, for exampleout of agriculture and into particular types of small-scalecommercial activity in towns.

1.12 What is the age distribution of the population? How manypeople are under the age of 15 and how many are over 60and how are these proportions changing? If the populationof the country is growing, one would expect economicactivity to grow also but GDP per capita cannot growunless GDP grows faster than population growth. A feelingfor whether people are getting worse off or better off, and ifso by how much, combined with a knowledge about howthe population is changing already gives some indication ofhow one would expect GDP to change.

1.13 What is the cultural and historical background of thepopulation? Have there been large movements ofimmigrants at some stage in the past making for adiversified population? If so, is there a tradition of somegroups of people carrying out some particular activities ornot carrying out others? Such factors may affect theeconomic mobility of parts of the population. Doeseverybody speak, or at least understand, a single language?What is the level of literacy among the populationespecially the younger age ranges? More complicatedtasks, often those that are more economically rewarding,are likely to be reserved to those with greater language andliteracy skills. In the global economy where increasinglymany tasks may be outsourced to less developed countries,an educated labour force is likely to be a great advantage.

1.14 What is the employment situation in the country? Do mostadults of working age expect to be in paid employment?Does the country measure and worry about the size of theunemployed working age population or is the concentrationrather on the number of people who are employed? Howmany government employees are permanent staff and howmany are casual or occasional workers? Are there manyorganisations outside government who offer jobs seen to bepermanent and bringing with them a range of socialbenefits including perhaps housing and pensions? Whoprovides health and education services? Is it thegovernment only? Are there significantly large charitableorganisations involved? Is there a well-developed privatesector in either or both fields?

2

Facing up to limited resources

1.15 Questions like this may seem simple-minded. The answersare so familiar to those living in the country that they maytend to forget that they already have a set of criteria againstwhich to judge the plausibility of any estimates that they

make. In contrast, an external consultant or analyst has tolearn these facts consciously and bring them to bear ontheir assessment of the situation in a way that will be muchless intuitive than for local staff.

C. How much of the 2008 SNA is relevant for developing countries?

1.16 In the earliest stages of the revision of the SNA leading upto the 1993 edition, there was discussion about whetherthere should be a simplified version for developingcountries. Participants from the developing countries wereunanimously opposed to such an idea. It was pointed outthat there can be as big a difference between somedeveloping countries as between some developing andsome developed countries. Despite this, however, almost20 years after the 1993 SNA was published, manydeveloping countries are still implementing only a verysmall part of it. As an aid to assessing the progress onimplementation, a series of milestones were determined,essentially following the order of the chapters in the SNA.Those who only got as far as chapter 6, the productionaccount, achieved milestone one. Those who made it tochapter 11 on the financial account reached milestone five.Those who got to chapter 13, the balance sheet, reached thelast milestone, number six. According to this way ofreckoning, very many countries have still not made it pastthe first one or two milestones. Was the original rejectionof a special version of the SNA for developing countrywrong? If not why has progress being so slow?

1.17 Most of us have had the experience of starting to read along book, getting bogged down after 100 pages or so andnot making it to the end. The 2008 SNA is a long book,some 600 pages, and probably comparatively few peoplehave conscientiously read it from beginning to end. Not allthe topics covered in the 2008 SNA are relevant for allcountries. For this reason a companion volume to thepresent one, entitled The 2008 SNA – concepts in brief, has

been prepared. This contains text from the 2008 SNA butnot all of the text. Topics thought less relevant to smalldeveloping countries are omitted. In particular, most of thediscussion on how to treat complex financial instrumentsand how to record the intricacies of different pensionschemes are excluded as well as some alternative versionsof the main accounts. The result is a volume of about 200pages that should be less daunting to the new nationalaccountant but still covers all the main aspects of thesystem. Once the principles in the shorter volume arefamiliar, the full volume can be consulted for morecomplex areas.

1.18 The present volume addresses how the parts of the 2008SNA covered in Concepts in brief can be implemented. Thebasic position is that, once the complexities relating mainlyto large sophisticated economies are set aside, it is bothdesirable and practical for all countries to aim for muchfuller implementation of the SNA than just a production-based estimate of GDP.

1.19 In subsequent chapters sections headed “Is this the SNA?”are included. The intent of these is to show which parts ofthe 2008 SNA are probably of sufficiently little importancein a developing country to ignore, or, sometimes, where theresources required to deal with them would be so great thatthe benefit of including them would not be cost effective.On a regular basis, however, these assumptions should bechecked and, if necessary, the simplifications should bereplaced by more appropriate approaches.

D. Facing conflicting objectives

1.20 It is natural in any task to aim to produce results that arecomplete, accurate and timely. The lesson of the last 20years is clearly that the resources available to statisticaloffices in developing countries are not sufficient to meet allthree of these goals at the same time. The questiontherefore is how to reach a compromise between the threeof them.

1.21 The guidance in the SNA is conceptual. It does not addressthe question of how time-consuming it might be to followthe advice given nor does it give advice about when someaspects may be unduly complex, or too resource-intensive,for some economies. Suppose we consider a diagram withthree axes, one of which relates to accuracy, one tocomprehensiveness and one to timeless. Diagram 1 shows asituation that is common in a lot of countries. The accuracy

is fairly high but the comprehensiveness and timelinessrather low. In response to demands to increase thetimeliness diagram 2 may be reached. Here the accuracy isreduced and the timeliness is increased but thecomprehensiveness has not altered. In the third diagram wecan see what might happen under the pressure to increasethe comprehensiveness without sacrificing timeliness.Again it is accuracy that suffers, possibly to a dangerouslevel.

1.22 Consider what these three situations mean for the analysts.Information underlying diagram 1 is not only incompletebut out of date and therefore of little use. The situationunderlying diagram 2 is better in that the accounts are moretimely and there may still be reasonably accurate but havegained nothing in comprehensiveness. Under diagram 3

3

The 2008 SNA - compilation in brief

however the accuracy of the data has suffered to the pointwhere even though the results are timely andcomprehensive, they are so unreliable that any analysisbased on them may be misleading, but the analyst is notnecessarily in a position to know how far accuracy has beencompromised.

1.23 It is suggested that a better approach is to aim thesomething like the picture in diagram 4. None of accuracy,comprehensiveness or timeliness is as desirable as possiblebut none of them is in a minimal position as shown in thefirst three diagrams. Working with a framework like this itis possible to think more explicitly about the trade-offsbetween the three goals and consider how far it is possibleto push the plane representing the outcomes along one orall of the axes without compromising the others too far.This trade-off will be referred to frequently throughout thispublication.

1.24 Another aspect of a more extensive implementation of theSNA will also be referred to in the context of timelinessversus accuracy and comprehensiveness. The very firstparagraph of the 2008 SNA stresses that the system is notonly comprehensive but also consistent and integrated. Oneadvantage of going beyond the production-based estimateof GDP is to be able to use the consistency and integrationconstraints to improve the estimates. A modest amount oftime spent on implementing these constraints can have amuch more significant effect on accuracy and timelinessthen repeated examining of data reported in statisticalquestionnaires.

1. Accuracy vs. timeliness

1.25 Let us begin with an obvious constraint, that of time. Ifnational accounts are to be prepared every year, a systemthat takes more than 12 months to complete is obviouslydestined to failure. Any accounts produced by such asystem will become increasingly less relevant simplybecause they are less timely. Absolutely accurate accountsfor a country (even if they were possible, which they arenot) that existed only five years after the year to which theyrelate would be of interest only to economic historians.They would provide no information at all to those needingto make policy decisions in the current period or those whowish to analyse how the economy has developed over thelast two or three years. All statisticians are faced with a

continuing dilemma about whether to have figures that areaccurate or timely and there is a perpetual trade-offbetween the two.

1.26 Giving more attention to timeliness usually meanscompromising on accuracy. A case in point is thedifference between quarterly and annual national accounts.The former can be produced more quickly, indeed must beproduced within three months rather than twelve to beuseful, but here the range of data used is less extensive andso the results are less accurate. In the limit, excessiveattention to timeliness over accuracy can lead to a decisionto simply stop producing annual series. There are examplesof countries in Africa in particular where the efforts toproduce timely annual national accounts have failed and thedecision has been made to discontinue such series. Onereason for this may be an increasing demand for quarterlyseries to the point where almost all resources are devoted toproducing quarterly accounts.

1.27 One lesson that can be drawn from this is not just aquestion timeliness over accuracy. Suppose that for manyyears a methodology for producing annual nationalaccounts existed but not for quarterly accounts. Derivingquarterly accounts is necessarily somewhat easier andquicker to implement. Instead of considering a choicebetween the traditional method of developing annualnational accounts and a new methodology for quarterlyaccounts, perhaps it might have been possible to say whatparts of the new quarterly methodology could also beapplied to simplify, streamline and accelerate thepublication of the annual accounts. This might have meantdismantling or radically changing the previous computerprograms and statistical collections but might have led to amuch better outcome. At some time, attention needs to begiven to data available only annually which can be used tobenchmark and improve the quality of the series. Too greata concentration on quarterly series only may lead to thisvery important exercise being unnecessarily postponed. Itis possible of course that decisions are made to postpone ortemporarily suspend a system perhaps because of staffvacancies. Temporary expedients often become the norm,however. In the United Kingdom, income tax wasintroduced in 1798 as a strictly temporary measure. Incometax is still a regular way of life in the United Kingdom morethan 200 years later.

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Diagram 2

Accuracy Timeliness

Comprehensiveness

Diagram 1

Accuracy Timeliness

Comprehensiveness

Facing up to limited resources

2. Accuracy vs. comprehensiveness

1.28 Another approach that is sometimes adopted mistakenly isto try to eliminate part of the economy that is difficult tomeasure and measure the remainder accurately. There aretwo problems with this approach. One is that it is almostimpossible to eliminate accurately all implications or aparticular sort of activity. Given the identity between theoutput, expenditure and income estimates of GDP,eliminating a production activity means eliminating theexpenditure on that activity but what happens to the incomeearned by those engaged in the activity and the purchasesthey make with this income? For example if one tries toeliminate the sale of drugs one needs to eliminate thepurchase of drugs. How then do the purchases made onother items by those individuals that sell the drugs fit intothe accounts if they receive no income? The other reasonwhy this approach is mistaken is that in a country such asColombia, for example, a measure of the economy thatignored drugs would be of little practical use to anyonestudying the country. This is not to deny the difficulty oftrying to capture all the effects of drug production and drugdealing. However it is vitally important to remember that itis more useful to measure the right thing approximatelythan the wrong thing exactly. Ignoring an entry in theaccounts because measurement is “too difficult” is in factto make an estimate of zero.

1.29 Here is a supposed anecdote recounted in the FinancialTimes some years ago. A man went up in a hot air balloonin England, crossed the Channel and came down in a fieldsomewhere in northern Europe but he did not know exactlywhere. Soon, however, another man walked past the fieldwhere the balloon was. The man in the balloon called outand asked the passer-by where he was. The passer-by said“you are in a balloon in a field”. “Ah”, said the man in aballoon “I can tell you are an accountant”. “Yes” said thepasser-by, “how did you know that?” “Well”, said that manin the balloon “your information is precisely accurate andabsolutely useless.” The goal of this publication is to assistnational accountants to know how to balance the desire foraccuracy against the more pressing demands of relevance,both in terms of timeliness and comprehensiveness,international standards and local needs.

3. Revisions

1.30 Many economic and social statistics are preparedrepeatedly on a regular basis, whether monthly as for priceindices or trade figures, annually as for governmentaccounts or every ten years as for many populationcensuses. Usually, though not invariably, the less frequentthe survey, the more comprehensive the basis for theresults. Timely accounts, and in particular quarterlyaccounts, are likely to be very dependent on data that isitself available monthly or quarterly. A question arises,therefore, about what to do with annual data when itbecomes available.

1.31 Best practice is to undertake an annual benchmark to bringthe quarterly estimates into line with data, based on theinformation available only annually, assuming that this ismore reliable than the quarterly information alone. Theunderlying judgement is that the quarterly or monthly dataare good indicators of the changes taking place in theeconomy but the annual data are better indicators of levels.If pressure of time leads to ignoring the annualbenchmarking process, over time the accuracy of the seriesmay become a serious problem. Any error in the first periodbased on quarterly data only becomes magnified as the timesince the figures were benchmarked increases.

1.32 Incorporating the impact of an annual benchmarking willalmost inevitably lead to changing the earlier estimates forthe quarters. Users are not always happy to see that figureshave been revised so it is important to produce anexplanation of the reasons for the changes along with thenew data. Such an explanation will involve describing theinherent conflict between making a timely estimate beforeall the basic data-sets are available and waiting to make anyestimate until all the possible data-sets are available.

1.33 Another potential cause of revisions is due to the need forthe national accounts to be comprehensive. Statisticiansworking in a particular field, such as an industry orhousehold survey have a luxury not allowed to the nationalaccountant in that they can decide that some aspects aresimply too hard to cover well and so omit them. For manyyears, coverage of activity undertaken by informalenterprises was one such instance. In some cases, particularregions of a country may not be regularly coveredstatistically for reasons of cost or other consideration.When no basic data are available, the national accountantmust make an estimate for the missing item. Suppose the

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Diagram 4

Accuracy Timeliness

Comprehensiveness

Diagram 3

Accuracy Timeliness

Comprehensiveness

The 2008 SNA - compilation in brief

estimate is 10 per cent of the measured total but in time,this missing area is covered but results show that theestimate should have been 20 per cent of the previouslymeasured total. The previous estimate of 10 per cent isbetter than an estimate of zero, but not as good as the newinformation suggests. Leaving the old estimate of 10 percent unadjusted would imply a sudden growth that is notappropriate and so the appearance of new data, even of thesame periodicity as before, can also lead to the ned to makerevisions to past data.

1.34 There is no need to be apologetic about revisions whenthese are due to the incorporation of new information,whether this is because of better information coming fromless frequent surveys or from more comprehensiveunderlying data. Having the confidence to make revisionsin such circumstances should be seen as a sign of strength,not a sign of weakness. While much attention is oftenfocussed on only the last one or two data points, for indepth analysis of the working of the economy, long timeseries are essential. It is important that changes over timecan be attributed to economic factors and are not simply theresult of changes in the statistical sources used.

E. International standards and local needs

1.35 It is crucially important that if a statistical office is to besuccessful, staff have to spend a significant effortinteracting with the users of their statistics in othergovernment departments and beyond. Interacting withother statisticians both at home and abroad is easy andcomforting in that other statisticians are familiar with thesame technical and practical issues. Such interaction can beextremely beneficial but it is not a substitute for interactionwith the users of the statistics.

1.36 Economics is about supply and demand. A successfulenterprise is one that finds out what customers want andcomes up with products that meet these wants. Anenterprise that produces goods, however technicallyadvanced and however well manufactured that do notappeal to customers will not be successful. For many yearsstatistical offices have produced statistics according to whathas been produced in the past or what it is possible toproduce with the information currently in existing surveysor maybe what is specified in international economicclassifications. But these statistics may not respondparticularly to the needs or an individual country. In someinstances, because the statistical office does not have thereputation of producing the necessary statistics, users maycease to ask for the data and in some cases will producetheir own estimates, estimates that typically are much lessgood than those that the statistical office can produce.

1.37 This is not to say that a statistical office should ignoreinternational statistical standards in an attempt to providewhatever statistics the users demand. However, some usershave little idea about what is already available, what mightbe made available, and what is simply impossible tocompile in any reasonable way at reasonable cost and on areasonable timescale. International statistical standardshave been developed over many years drawing on theexperience of many countries. This pedigree meansinternational standards are likely to set the broadframework appropriate for most if not all countries.However it will often be the case that some adaptation maybe beneficial in particular circumstances. One example isthe International Statistical Industrial Classification (ISIC)where some expansion of agriculture and some aggregationof manufacturing industry may produce headings ofapproximately equal importance in a country where arigorous pattern of the two or three digit heading levels ofthe classification does not. It is interesting to note thatalthough the United States of America, Canada andAustralia all implement all parts of the SNA, each of thesecountries introduces some variations in specificrecommendations in order to suit local circumstances.Using the guidance in the SNA as the basic framework forthe national accounts and interaction with users todetermine where the variations in coverage and emphasismay be useful should be seen as a positive way ofimplementing the system rather than a divergence from it.

F. National accounts and senior managers

1. Finding resources

1.38 The previous section discussed the need to consult localusers about how the national accounts should be presentedto be most useful analytically. Engaging with users isbeneficial in another important aspect also. It