Download Capital services (cont`d)

1993 SNA update: towards
SNA Rev.1
Lidia Bratanova
UNECE Statistical Division
Kiev,July 2007
Plan of the presentation
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The process for updating 1993 SNA
Situation to date
Selected recommendations
New chapter on Informal sector
Towards implementation of 1993 SNA Rev.1
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The process
• 2003 and 2004: Statistical Commission called for an
update and approved the programme of work
• 44 issues approved for review
• ISWGNA to coordinate and manage with the
assistance of an Advisory Expert Group (AEG)
• Schedule
• Consolidated recommendations for March 2007
• Draft of Rev. 1 for March 2008
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The process (cont’d)
• A number of TFs and WGs:hard work
• Five meetings of AEG: recommendations
• Broad consultation
- UNSD consults with all countries
- UNECE ensures consultation in the region
 Joint UNECE/OECD/Eurostat meeting on NA, April
2006, Geneva - consolidated set of provisional
recommendations
- UNSD website available for comments
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The process (cont’d)
• March 2007:Statistical Commission adopted the set
of recommendations
• SNA Rev.1 will be presented in 2 volumes
 Vol.1 in March 2008: chapters that represent the SNA
framework
 Vol.2 in March 2009: interpretations of the accounts and
extensions such as satellite accounts
• 2008: Strategy for implementation of SNA Rev.1
• 2008: Formation of high-level group
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The issues reviewed concern
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Non-financial assets (22 issues)
Financial services (8)
Financial instruments (6)
Government and public sector (7)
The rest of the world (10)
Units (2)
Informal and illegal activities (2)
Other issues (1)
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Situation to date
• Drafting the core set of chapters underway
• Structure of SNA Rev.1
 Basic structure not changed
 Chapters on important new material
 the role of capital services in the accounts
 the government and public sector
 informal sector
 References to other publications
 Tables in the text reformatted; data values reviewed
• 12 Chapters available for comments at website:
http://unstats.un.org/unsd/sna1993/draftingPhase/ChapterIssueMatrix.asp
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Selected recommendations
• Focus on 3 recommendations:
Research and development (R & D)
Military expenditures
Capital services
• Why discuss these recommendations?
Likely to have the greatest impact on GDP
Among the most widely debated
Show that the SNA is evolving
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R&D
• The present 1993 SNA (§ 6.163-164) treats
expenditures on R&D as intermediate
consumption, not investment
Issue considered at the time of 1993 SNA, at the
last moment left for the research agenda
Continuing interest in R&D as a source of
economic growth
Practical experience with satellite accounts
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R & D (cont’d)
Recommendation
• The recommendation on R&D adopted
 Treat R&D expenditure as GFCF in SNA Rev.1
 Difficulties are to be overcome in order to implement
 Rev.1 will describe and provide links to ongoing work
 ISWGNA will report to Statistical Commission
• Related issue: patented entities no longer feature as
assets
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R & D (cont’d)
• Impact of R&D capitalization on GDP will vary
from country to country
• OECD estimated that:
On average GDP would probably increase of
about 2%
But with little impact on the growth rate
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R & D (cont’d)
Draft text
• Concerning R&D (draft chapter §10.100):
Definition based on Frascati Manual
Value determined in terms of economic benefits
R&D is expected to provide
By convention is valued as sum of costs
• Concerning patents (draft chapter §10.100):
Patent is not an asset but legal agreement about
terms of access to R&D
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R & D (cont’d)
• Implications for new data collections
R&D surveys to be changed to serve the NA
Improve estimates of trade of R&D services
Service lives of R&D assets
Derive price indices for R&D assists
Quarterly estimates
• OECD manual on methods of estimating
intellectual assets is expected
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Military expenditures
• The 1993 SNA (§10.65-68) divides military
expenditures into:
 Weapons and support systems – intermediate
consumption regardless of their length of life
 All other durables: gross fixed capital formation
• Problems with the current treatment
 Division is hard to apply in practice
 Weapons taken from stock and sold call for some
counter-intuitive accounting
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Military expenditures (cont’d)
Recommendation:
• Military equipment that is used in production for
more than one year to be treated as assets
• Bullets and bombs to be treated as materials and
supplies, that is inventories
• Identify separate categories within fixed capital
formation - Weapon systems, and within inventories
– Military inventories.
Draft chapter: §10.84 and §10.137
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Military expenditures (cont’d)
Impact
• Purchase of weapons moved from
intermediate consumption of government to
GFCF
• Consumption of fixed capital on existing
stock of weapons systems, which will vary
across countries, will be addition to GDP
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Military expenditures (cont’d)
Implications and source data
• Source data are problematic
 USA has already adopted the recommended treatment
• The new international public sector accounting standard
uses the recommended treatment and requires depreciation
over useful lives
• Greatest obstacle – the level of secrecy
• Use the ‘rule of thumb’– for example estimate the GFCF on
weapons as % of total defense budget (based on shares of
similar countries)
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Capital services
• 1993 SNA does not explicitly recognise the services
provided by non-financial assets
 Assets used in market production: capital services are
within operating surplus
 Assets used in non-market production: when output is
measured as sum of costs, only consumption of fixed
capital (CFC) is counted
• However, estimates useful for productivity analysis
• OECD Manual on Measuring capital, 2001, talks
about capital services
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Capital services (cont’d)
• Capital services figure in two separate issues
that were under review:
the general inclusion of the cost of capital
services in the SNA;
the replacement of depreciation with the cost of
capital services when summing inputs to
measure non-market output.
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Capital services (cont’d)
• Basic explanation of capital services
 Focus is on non-financial assets used in production
 Principle: such assets contribute more to the value of
output over the time they are used than their initial cost
 Long standing view that operating surplus is the return
to capital used in production
 Perpetual inventory method (or PIM) could be used to
derive estimates of all three capital-related measures: the
asset value, a return on capital and CFC
 Detailed recommendations in an updated OECD Manual
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Capital services (cont’d)
• Recommendation for assets used in market
production (issue 15)
Estimates to be included in supplementary tables
rather than core accounts
Confirmed that capital services and capital stock
measures should be complied in an integrated
manner
Basic concepts to be presented in SNA
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Capital services (cont’d)
• Recommendation for assets used in nonmarket production (issue 16)
Maintain the present treatment
Undertake more research:
 Test as conclusively as possible the impact on GDP
 Take into account the differing degrees of data
availability around the world
ISWGNA to coordinate the research and report
on progress to the Statistical Commission
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Capital services (cont’d)
• Impact on GDP
 Assets used in production – no impact
 Assets used in non-market production- if the
recommendation had been adopted, then non-market
output, and thus GDP, would be higher by the amount of
the estimated capital services
• Implications – no new data collections required, but
 Need to develop systems for estimating capital stock and
CFC in order to generate estimate of capital services in
integrated way
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New chapter: Informal sector
• 1993 SNA
 Provides just an extract from the ILO definition
 Research agenda noted need for continued collaboration
with ILO –lead agency for this work
• Continued calls for guidance given the importance
of the informal sector (IS) in many countries
• Practical experience, e.g., in adapting survey
methods, and conceptual progress (Delhi group)
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New chapter: Informal sector (cont’d)
Why a new chapter?
• Need for clarifications
 How well does the ILO definition fit into the SNA? How
well do ILO terms match SNA terms?
 Different uses of “informal sector”
• One of several chapters that feature interpretation
and extension of the accounts
• Targeted to be ready for 2009
• Outline at http://unstats.un.org/unsd/sna1993/description.asp?ID=31 )
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Implementation of 1993 SNA Rev.1
• Implementation strategy to be discussed by the
Statistical Commission in 2008
• ISWGNA is working on the strategy:
 Should focus on the institutional setting and availability
of source data –basic data collection strategy
 Sharpen and refocus
 Meetings, training seminars, workshops (regional orientation)
 Technical assistance (shared curriculum across institutions,
design of surveys and institutional building)
 Manuals
 Applied research
 Advocacy
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Conclusion
• The recommendations do not change the
fundamental framework, so countries are
encouraged to continue development in line with
1993 SNA
• Harmonization with BOP: IMF BOP Manual is being
updated on a parallel track and this should be taken
into account in plans for implementation
• Implementation plans already discussed
• ESA-95 will also be revised
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