Overview of the 2008 SNA a nd the GFSM Update

1. Overview of the 2008 SNA and the GFSM Update IMF Statistics Department Reproductions of this material or any parts of it should refer to the IMF Statistics Department as the source

2. What is the SNA? Definition, the System of National Accounts (SNA) is: • An agreed set of international standards to measure economic activity, which implies strict accounting conventions based on economic principles. • SNA comprises comprehensive, consistent, and integrated set of accounts that record economic activities within given period and the levels of an economy’s assets and liabilities at particular points of time.

3. SNA: General Principles • Comprehensive - all designated activities, and their consequences for all agents in the economy, are covered; • Consistent - the same values are used for recording all sides of a single action; • Integrated - all the consequences of a single action are captured in the accounts and balance sheets, in such a way thattogether they constitute a closed system: Opening balance sheet + Transactions + Changes due to revaluation + Other changes in the volume of assets = Closing balance sheet

4. Observation of Economic Phenomena Basic Economic Statistics Manufacturing , Balance of payments, Construction, Price Money & banking, and statistics etc. Government financial statistics The System of National Accounts Production, Income, Consumption, Capital formation, International trade, IO-analysis, Employment, Integrated sector accounts, ROW/BOP, Financial transactions, Balance sheets, Flow of funds Economic Model Building, Developments and Testing of Economic Theories Macro and Meso Economic Analysis Political and Private Decision Making SNA: A Coordinating Framework for Economic Statistics and Analysis

5. Institutional Unit and Sectors An institutional unit is an economic unit that is: • Capable of owning goods and assets • Incurring liabilities • Engaging in economic activities and transactions with other units in its own right = legal responsibility.

6. Institutional Unit and Sectors • Institutional units may be: • Legal entities • Corporations • Non-profit institutions • Government units • Households • Institutional unit are grouped together to form institutional sectors, on the basis of their principal functions, behaviour and/or objectives = five institutional sectors

7. Institutional Unit and Sectors Non-financial corporations: production of market goods and non-financial services Financial corporations: production of financial services General Government: economic regulation, political responsibilities, production of services for individual or collective consumption (non-market basis), redistribution of income and wealth Households: supply of labour, final consumption, production of goods and services (unincorporated enterprises) Non-Profit Institutions Serving Households: production of non-market services for households or the community at large

8. Basic Information to be Addressed in Accounts Who ? • Institutional units grouped into sectors, establishments Does what? • Three economic activities (production, consumption, accumulation) • Transactions/other flows (during period of time) Concerning what? • Products • Assets/Liabilities With whom? • Counterparts For what purpose? • Function/purpose When? • Time of recording How to measure? • Valuation, accounts in volume terms How does this affect stocks? • Non-financial assets, financial assets/liabilities (at a point in time) • Are recorded on the balance sheets

9. Diagram: Integrated Accounts

10. 2008 SNA and 1993 SNA • 2008 SNA: an update of the 1993 SNA • No fundamental changes • Same structure of accounts • Same accounting rules • Few changes in some concepts • However, some of the changes affect the level of GDP

11. Reasons for an Update of SNA • Need for closer consistency with other statistical manuals. • Evolution of economic environment. • Development of improved methods as result of recent research. • Further elaboration on prominent issues and need of clarifications.

12. Main Changes Introduced in 2008 Update • Assets • The financial sector • Globalization • General government and public sector • Informal sector

13. Main Changes Introduced in 2008 Update • Assets • New classification • Expenditures on research are now treated as capital formation and not as intermediate consumption • Weapons systems are classified as capital formation • The concept of capital services is introduced • Refinement of the treatment of financial instruments

14. Main Changes Introduced in 2008 Update • The financial sector • More detailed classification of the financial sector • Measurement of non-life insurance services • Calculation of FISIM • Recording of pension entitlements

15. Main changes introduced in 2008 update • Globalization • The principle of changes in ownership is made universal: • Goods sent abroad for processing • Merchanting • Special purpose units

16. Main Changes Introduced in 2008 Update • The general government and public sectors • Boundary between private /public/government sectors clarified • Treatment of public-private partnerships • Treatment of restructuring agencies • Transactions between general government and public corporations • Treatment of taxes and permits • Treatment of loan guarantees

17. Main Changes Introduced in 2008 Update • Boundary between private /public /government sectors clarified • Powers, motivation and functions of government are different from those of other sectors • Guidance for the distinction between general government, private, and public corporations (decision tree)

18. The Public Sector Public Sector General government Public Corporations Central government Financial Nonfinancial Central bank State governments Public deposit-taking corporations except the central bank Local governments Other public financial corporations Government Finance Division, IMF Statistics Department

19. Government Finance Division, IMF Statistics Department A Decision Tree Resident entity Determine institutional unit that controls it Institutional unit? No Yes Controlled by government? No Domestic private unit Yes Public entity

20. Government Finance Division, IMF Statistics Department A Decision Tree Public entity Can a separate market producer be identified? Sell all or most of its output at economically significant prices? No Yes – possibly a quasi-corporation Yes No Public corporation General government

21. Government Finance Division, IMF Statistics Department A Decision Tree Public corporation Financial services? Public nonfinancial corporation No Yes Public financial corporation

22. Main Changes Introduced in 2008 Update • Treatment of public-private partnerships • PPPs are long-term contracts between two units • A private (or public) unit acquires or builds an asset, operates it for period and then hands it over to a unit in the public sector • Guidance to determine whether the private or public partner is the economic owner of the asset

23. Main Changes Introduced in 2008 Update • Transactions between general government and public corporation • Exceptional payments from public corporations should be recorded as withdrawals from equity (vs. dividends) • Exceptional payments from government to public quasi-corporations should be recorded as capital transfers (vs. additions to equity)

24. Main Changes Introduced in 2008 Update • Treatment of taxes • Taxes are recorded on an accrual basis (confirmed) BUT: care must be taken NOT include taxes unlikely ever to be collected • Tax credits are recorded on a gross basis (≠ GFSM2001 and Revenue Statistics…) • Taxes on holding gains = current taxes on income and wealth (even though holding gains are not an income)

25. Main Changes Introduced in 2008 Update • Treatment of permits • Permits issued by governments: • If does not involve an government owned asset = tax • Notwithstanding, if the license is transferable to a third party = must be classified as an asset (“contracts, leases and licenses”) • When the license is to make use of a natural resource = asset or rent

26. IMF Statistics Department GDP: Production Approach vs. Expenditure Approach • GDP = ΣVA + Taxes less subsidies on products • GDP = Final consumption + Gross Capital Formation + (Exportations – Importations)

27. IMF Statistics Department GDPe: Government Final Consumption Expenditure • Consumption expenditure = • Value of all types of output of general government • Less the value of output for own account capital formation • Less the value of sales of goods and services • At economically insignificant prices • At economically non significant prices • Plus the value of goods and services purchased from market producers for delivery to households free or at economically insignificant prices

28. IMF Statistics Department GDPe: Government Final Consumption Expenditure • Government consumption expenditure is classified into: • Individual consumption expenditure: expenditure whose recipient are individual persons or individual households (health services, education services, social security and welfare, sports, recreation, culture, etc.) • Collective consumption expenditure: expenditure for general population -public goods- (public administration, defence, law and order-police, statistics, economic development, R&D, etc.)

29. IMF Statistics Department GDPe: Capital Formation • Gross fixed capital formation (GFCF) • Changes in inventories • Acquisitions less disposals of valuables • GFCF is measured by the total value of a producer’s acquisitions, less disposals, of fixed assets during the accounting period plus certain specified expenditure on services that adds to the value of non-produced assets

30. IMF Statistics Department GDPe: Fixed Assets • Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year • The distinguishing feature of a fixed asset is not that it is durable in some physical sense, but that it may be used repeatedly or continuously in production over a long period of time, which is taken to be more than one year.

31. IMF Statistics Department GDPe: Fixed Assets • Fixed assets can be bought and sold • When assets are bought and sold there are often associated costs – costs of ownership transfer • Professional charges • Trade and transport costs • Installation (and de-installation) costs • Taxes • Terminal costs

32. IMF Statistics Department GDPe: Costs of Ownership Transfer • Treated as fixed assets • Benefits from using the assets have to cover this cost as well as cost of the asset • Are subject to consumption of fixed capital • For fixed assets, include costs in value of the asset

33. IMF Statistics Department Fixed Assets by Type of Asset • Dwellings • Other buildings and structures • Buildings other than dwellings • Other structures • Land improvements • Machinery and equipment • Transport equipment • ICT equipment • Other machinery and equipment

34. IMF Statistics Department Fixed Assets by Type of Asset (cont.) • Weapons systems • Cultivated biological resources • Animal resources yielding repeat products • Tree, crop and plant resources yielding repeat products • Cost of ownership transfer on non-produced assets • Intellectual property products

35. IMF Statistics Department STOCKS F L O W S STOCKS OPENING BALANCE SHEET NET WORTH TRANSACTIONS OTHER ECONOMIC FLOWS CLOSING BALANCE SHEET NET WORTH Holding Gains and Losses Other Changes in Volume of Assets Revenue minus Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Expense = NET OPERATING BALANCE CHANGE IN NET WORTH (HG) CHANGE IN NET WORTH (OVC) minus Financial Assets • Financial • Assets • cash • other financial assets Financial Assets Financial Assets Financial Assets = NET LENDING / BORROWING minus Liabilities Liabilities Liabilities Liabilities Liabilities Changes in Net Worth