Session 2: Overview of the Main Changes in the SNA 2008

1. Session 2: Overview of the Main Changes in the SNA 2008 Giovanni Savio and Majed Skaini, SD, UN-ESCWA Seminar on the implementation of SNA 2008 in ESCWA Region Muscat, 23 – 26 May 2010

2. Brief overview on SNA 2008 Main changes relevant for ESCWA region: Goods for Processing and Merchanting Informal Sector Military Weapons and sector delineation Non-Life Insurance Statistical Units and Institutional Sectors Institutional Sector Accounts Mineral Exploration and Evaluation Research and Development Financial Intermediary Services Indirectly Measured (FISIM) Consumption of fixed capital formation Assets Classification and Asset Boundary Plan of presentation

3. Overview • Adoption of Vol. 2, February 2009 • Retains the basic theoretical framework of its predecessor, the 1993 SNA • However, in line with the mandate of the UNSC, the 2008 SNA … • … introduces treatments for new macroeconomic aspects that have come into prominence, • … further strengthens on coherence, and … • … clarifies guidance on a wide range of issues • This is NOT the final step: MANY issues in the research agenda for the coming years (i.e. human capital, market/basic prices, definitions of income, central banks, BA vs. NA, etc.)

4. Processing and Merchanting • Imports and exports should be treated on a strict “change of ownership” basis, NOT based on physical movement • Two similar/mirror cases: in the first case there is physical movement without change of ownership, in the second the opposite • Processing: only the value of the processing service should be recorded (different treatment in 1993 SNA): same treatment for inter-establishment transactions of same enterprise in the same economy • Merchanting: should be recorded as negative exports on acquisition and positive exports on disposal • The difference between the two appears in exports of goods (consistent with the goal of a zero global balance on goods), but appears as the production of a service in the merchant’s economy, analogous to trade margins (not treated in 1993 SNA)

5. Informal Sector • New Chapter, 25, on Informal Sector and NOE • Definitions (based on ILO)

6. Informal Sector • Approaches to measuring • Household surveys • Establishment surveys • Mixed household-enterprise surveys

7. Military Weapons and Sector Delineation • Military weapons: Military weapon systems (vehicles and other equipment such as warships, submarines, military aircraft, tanks, missile carriers and launchers, etc. ) should be classified as fixed assets • Sector delineation of private/public/govern. Clarified through decision tree and more guidance on distinction between general government and (public) corporations

8. Sector Delineation Decision Tree

9. Non-Life Insurance • Non-life insurance services: • Relevant for catastrophic losses • Balance between premiums and claims extremely volatile • Approaches suggested: Expectation, Accounting and Cost approaches • Claims for large catastrophes recorded as capital rather than current transfer

10. Statistical Units and Institutional Sectors • If the activity of a unit undertaking purely ancillary activities is statistically observable, it should be recognised as a separate establishment, producing primary output, and classified according to its own principal activity • Statistically observable meaning: - separate accounts for the production it undertakes are readily available, or - it is located in a geographically different location from the est. served • The value of output should be derived on a sum of costs basis, including the costs of the capital used by the unit • The 1993 SNA treated a producer unit undertaking purely ancillary activities always as an integral part of the establishment it served

11. Institutional Sector Accounts • Definition of Household sector: All unincorporated non-government resident-owned institutions, excluding (i) non-resident owned quasi-corporate institutions and (ii) NPISHs. • All un-incorporated enterprises which are not considered quasi-corporate belong to the households sector. • Own-account production of housing services by owner-occupiers is included in the production of the households sector. • The income of the owners of household sector enterprises is treated as ‘mixed income’. • All quasi-corporations are treated as corporations and allocated either to the non-financial corporations or the financial corporation sector.

12. Mineral Exploration (1) • The expenditure on mineral exploration is to be treated as Capital formation and not Intermediate Consumption of mineral extraction industry • Mineral exploration, whether successful or not, is classified as GFCF and is treated as ‘produced asset’, whereas minerals resources themselves are treated as ‘non-produced assets’ • The value of mineral exploration is valued at market prices, if purchased; otherwise, it is evaluated ‘at cost’ plus a mark-up

13. Mineral Exploration (2) • If mineral exploration is outsourced to a foreign agency, the amount paid is the value of the asset, and shall be reported as income for the foreign agency • Extractor’s payment to the owner of mineral resources is treated as property income • Extractor’s payment to the exploration agency is treated as payment of service charges.

14. Research and Development (1) • Research and Development is defined as “creative work undertaken on a systematic basis to increase the stock of knowledge, and use this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of existing products, or discovering developing new or more efficient processes of production.” (FRASCATI Manual, 2002) • In 2008 SNA the activity of research and development is not treated as ancillary activity, and thus the output of Research and development is not treated as intermediate consumption. • A separate establishment should be distinguished for it when possible.

15. Reasons for including R&D under CF R&D is thought to be one of the principal drivers of output growth. It is important for productivity analysis across time and across countries that R&D data be fully integrated in the national accounts. From an economic theory point of view, all R&D expenditure qualifies as capital formation because consumption is foregone for the sake of future benefits. Research and Development (2)

16. The output of R&D is capitalized as ‘Intellectual Property product’ (which also includes computer software and databases; entertainment, literary or artistic originals; and other intellectual property products); In SNA’08, output of R&D is to be treated as intangible produced assets, and hence payment for users’ rights of the IP product is to be treated as service charges. The 1993 SNA by convention treated the output of R&D as intermediate consumption. Research and Development (3)

17. Valuation of R&D The 2008 SNA recommends that the output of the R&D should be valued at market price if purchased (outsourced) or sum of total production costs plus an appropriate mark-up if undertaken on own account Research and Development (4)

18. Financial Services • In SNA 2008, the definition of financial services has been enlarged to give due weight to the increase in financial services other than the financial intermediation, specifically financial risk management and liquidity transformation. • Sub-sectoring of the financial corporation sector revised to reflect new developments in financial services, markets and instrument • Central Bank • Deposit-taking corporations except the central bank, • Money market funds (MMFs), • Non-MMF investment funds, • Other financial intermediaries except insurance corporations and pension funds (ICPFs), • Financial auxiliaries, • Captive financial institutions and money lenders, • Insurance corporations (ICs) and • Pension funds (PFs).

19. FISIM in 2008 SNA • The 2008 SNA recommends that FISIM applies only to loans and deposits and only when those loans and deposits are provided by, or deposited with, financial institutions. • The 2008 SNA calculates the output of FISIM on loans (YL) and deposits (YD) only, using a reference rate (rr). Assuming that these loans and deposits attract interest rates of rL and rD respectively.

20. FISIM in 2008 SNA • For financial intermediaries, all loans and deposits are included, not just those made from intermediated funds. The reference rate should contain no service element and reflect the risk and maturity structure of deposits and loans. • The rate prevailing for inter-bank borrowing and lending may be a suitable choice as a reference rate. However, different reference rates may be needed for each currency in which loans and deposits are denominated, especially when a non-resident financial institution is involved. • For banks within the same economy, there is often little if any service provided in association with banks lending to and borrowing from other banks.

21. FISIM in 2008 SNA The 2008 SNA recommends that the consumption of FISIM should be allocated between users (lenders as well as borrowers) treating the allocated amounts either as intermediate consumption by enterprises or as final consumption or exports. 1993 SNA rev. 1 1993 SNA

22. FISIM in 2008 SNA The method for calculating FISIM has been refined in 2008 SNA: • Output of FISIM is now recommended to be calculated using ‘reference rate’. • Choice of ‘reference rate’ – inter-bank transaction rate. • Allocation of FISIM between user and beneficiary is now made essential whereas in SNA’93 the entire output of FISIM could be taken as IC of a notional industry – the practice followed in most of the member countries. • Data are required for allocating the output of FISIM into (i) intermediate consumption of the enterprises and (ii) final consumption or exports.

23. FISIM in 1993 SNA The 1993 SNA calculated FISIM as the difference between property income receivable and interest payable. The property income receivable excluded that part which was receivable from investment of own funds. The 1993 SNA recognized that in practice it may be difficult to find any method of allocating FISIM among different users and, therefore, accepted that some countries may prefer to continue to use the convention whereby the whole of the services are allocated to intermediate consumption of a notional industry. 1993 SNA

24. The Central Bank • The 2008 SNA recommends that the services produced by the central bank be identified in three broad groups: (i) financial intermediation – market production (ii) monetary policy services – non-market production (iii) supervisory services overseeing financial corporations - may be treated as market or non-market services depending on whether explicit fees are charged that are sufficient to cover the costs of providing such services. • Separate establishments should be identified for units of the CB undertaking production of these services

25. Consumption of fixed capital formation Estimation of consumption of fixed capital of all fixed assets including government buildings, roads, dams etc. is recommended to be done through Perpetual Inventory Method (PIM). NC(n) = NC(n – 1) + GFCF(n) – CFC(n) where CFC(n) = ΣiGFCF(n – i) • Ci

26. الأصول غير المالية المالية الأصول المنتجة الأصول غير المنتجة احتياطية، لا تقابلها التزامات مالية تقابلها التزامات مالية النفائس الملموسة المخزونات غير الملموسة الأصول الثابتة الملموسة غير الملموسة تصنيف الأصول حسب نظام 1993

27. الأصول غير المالية المالية الأصول المنتجة الأصول غير المنتجة احتياطية، لا تقابلها التزامات مالية تقابلها التزامات مالية النفائس الموارد الطبيعية المخزونات العقود، عقود الإيجار والتراخيص الأصول الثابتة تصنيف الأصول حسب نظام 2008 الشهرة التجارية والأصول التسويقية

28. الأصول غير المالية - المنتجة

29. الأصول غير المالية – غير المنتجة

30. الفروقات الأساسية في نظام 2008 التنقيب عن المعادن: التمييز بين عملية التنقيب عن المعادن (أصول منتجة) والموارد المعدنية نفسها (أصول غير منتجة) تغيير تسمية "التنقيب عن المعادن" لتصبح "التنقيب عن المعادن وتقييمها"، ويجب أن يتم التقييم بسعر السوق اذا كانت مشتراة أو في مجموع التكاليف بالاضافة الى علامة مناسبة اذا كان مضطلع بها في الحسابات الخاصة المدفوعات بواسطة مستخرج لمالك الموارد المعدنية تكون مثل دخل الملكية حتى لو كان وصفها كضرائب

31. الفروقات الأساسية في نظام 2008 (تابع) برامج الكمبيوتر: تم تعديلها عام 2008 لتشمل قواعد البيانات تحت اسم "برامج الكمبيوتر وقواعد البيانات" وهي تشمل قواعد البيانات المتوقع استخدامها أكثر من سنة الانشاءات والتجهيزات العسكرية ما عدا الأسلحة: يوصي نظام الحسابات القومية عام 2008 بأن نظم الأسلحة العسكرية يجب أن تصنف كأصول ثابتة باعتماد نفس معايير باقي الأصول الثابتة الادوات ذات الاستعمال الفردي مثل الذخيرة والقنابل... تُصنّف كمخزون عسكري

32. الفروقات الأساسية في نظام 2008 (تابع) تم إضافة بند “التحسينات على الأراضي” تحت فئة المباني والمنشآت، لتحل بدل “التحسينات الأساسية على الأصول الغير مالية الغير منتجة”، وتحتوي ضمنها على تكاليف تحويل ملكية الأراضي. تم إضافة “تكنولوجيا المعلومات والاتصالات” (ICT) كفئة جديدة ضمن “الآلات والمعدات” الأصول الثابتة الغير ملموسة اصبحت تُسمّى “منتجات حقوق الملكية الفكرية” وباقي الأصول الثابتة الغير ملموسة اصبحت تُسمّى “باقي منتجات حقوق الملكية الفكرية”

33. الفروقات الأساسية في نظام 2008 (تابع) الاصول المزروعة: اصبحت تسمى في نظام عام 2008 " الموارد المزروعة بيولوجياً" البحث والتطوير: اضيف في نظام عام 2008 الى فئة الاصول الثابتة: منتجات حقوق الملكية الفكرية بالنسبة للأصول الغير منتجة اصبحت كالتالي: تغيير تسمية "الاصول الغير منتجة الملموسة " لتصبح " الموارد الطبيعية" اضيفت الموارد الطبيعية الاخرى مثل "radio spectra"

34. الفروقات الأساسية في نظام 2008 (تابع) "الأصول الغير المنتجة الغير ملموسة" قسّمت الى فئتين فرعيتين : "العقود وعقود الايجار والتراخيص" و " الشهرة التجارية والأصول التسويقية” العقود وعقود الايجار والتراخيص قسمت الى 4 فئات: التأجير التشغيلي للتسويق أذونات لاستخدام الموارد الطبيعية أذونات للقيام بأنشطة محددة الحق في الحصول على سلع وخدمات مستقبلية على أساس حصري

35. Thank you