Operational Material

2 Outline Topics to be covered Lessons learned from 2005 Comparability problems Data and Metadata System of National Accounts Exhaustiveness of GDP GDP expenditure aggregates valuation Comparison-resistant areas

Copyright 2011, The World Bank Group. All Rights Reserved 3 What is the ICP? Using PPPs instead of market exchange rates makes it possible to compare the output of economies and the welfare of their inhabitants in real terms. ICP is a worldwide statistical initiative to collect comparative price data and estimate purchasing power parities (PPPs) of the world’s economies. PPP Vs. Exchange Rate Main Objectives Provide international price and volume comparisons of Gross Domestic Product (GDP) and its component expenditures Measure the differences in price and volume levels of GDP and GDP per capita of various expenditure aggregates and sub-aggregates between countries within a region between countries in different regions Objectives

Copyright 2011, The World Bank Group. All Rights Reserved By Households By NPISHs Individual Consumption Expenditure 110 Price By Government Collective Consumption Gross Fixed Capital Formation Machinery & Equipment Construction & Civil Eng. Others Other Components Changes in inventories Net Exports Value From ICP Objective to N.A. in ICP Quantity Volume Ratio Value ratio PPP GDP Expenditure Values for 155 Basic Headings, for the reference year 2011 Prices for over 2000 representative products collected over one year in

Copyright 2011, The World Bank Group. All Rights Reserved Pressures caused by the need to develop new procedures to collect and validate data led to insufficient attention to the national accounts until late in the process 5 Identified issue Goals for 2011 ICP to focus on Improving the quality of real expenditures by collecting national accounts data earlier in the process Identifying the basic headings that are most likely to have a significant impact on the consistency between economies Lessons from the 2005 ICP

Copyright 2011, The World Bank Group. All Rights Reserved SNA The ICP requires national accounts estimates based on the 1993 SNA Exhaustiveness of GDP Various terms are used to describe parts of GDP that fall outside the scope of admin records and statistical surveys on which the national accounts are based ― underground economy, black economy, non-observed economy, informal economy All economic activities have to be included, whether legal and illegal Comparability Problems

Copyright 2011, The World Bank Group. All Rights Reserved 7 Observed Non-Observed Legal Illegal FormalInformal Terms do not always refer to the same thing across economies Informal economy and the non- observed economy may largely overlap It is likely that GDP in most economies includes some of the informal economy Subsistence production/consumption is a potential area of understatement The scope of economic surveys may exclude some businesses Comparability Problems [Cont’d]

Copyright 2011, The World Bank Group. All Rights Reserved 8 Major Aggregate Data Validated major aggregate data Metadata Population and exchange rate data Basic Heading Data Validated basic heading data Metadata Population and exchange rate data Latest Data Available between Final Data and Metadata 2011 Data Preliminary Data and Metadata Final Data and Metadata Data & Metadata

Copyright 2011, The World Bank Group. All Rights Reserved 9 Global Office recommends 5 approaches Direct estimation Extrapolation from a recent year or 2005 Borrowing a per capita volume related to a particular basic heading from an economy in the same cluster Borrowing from an economy in the same cluster a structure related to a class, sub-group or group related to a particular higher level heading Splitting a value using expert opinion Estimating basic headings expenditures

Copyright 2011, The World Bank Group. All Rights Reserved 10 A summary measure that captures the economic activities Gross Domestic Product System of National Accounts A comprehensive, integrated set of economic accounts, balance sheets, and other tables describing the economic processes taking place within a country and the associated stocks 1993 SNA 2008 SNA System of National Accounts

Copyright 2011, The World Bank Group. All Rights Reserved 11 The SNA provides the concepts, definitions, classifications, and accounting rules often used as standards for economic statistics in general. Household expenditures Government expenditures Investment International trade Wages Profits Industry: agriculture manufacturing construction. etc. System of National Accounts Production Income Consumption Capital formation Balance of payments Input-output (supply-use) Financial accounts (flow-of-funds) Balance sheets Volumes Institutional sectors: Households Nonprofit institutions serving households (NPISHs) Financial corporations Nonfinancial corporations General government Rest of the world Economic statistics collections National Accounts as a Framework

Copyright 2011, The World Bank Group. All Rights Reserved 12 Comprehensive Consistent Integrated All designated activities and the consequences for all agents in an economy are covered. Identical values are used to establish the consequences of a single action for all parties concerned using the same accounting rules. All the consequences of a single action by one agent are necessarily reflected in the resulting accounts, including the impact on the measurement of wealth captured in balance sheets. Bird’s-eye view of the economy Comparison across countries on the same ground Source: System of National Accounts Justification of the National Accounts

Copyright 2011, The World Bank Group. All Rights Reserved Final consumption expenditure Taxes less subsidies on production Net saving Consumption of fixed capital Intermediate consumption Output Changes in inventories Gross fixed capital Net acquisition of valuables Value added Exports and imports 13 Goods and services Transactions with rest of the world Accumulation Production Distribution and use of income ECONOMY Diagram of the Integrated Accounts

Copyright 2011, The World Bank Group. All Rights Reserved 14 Household final consumption expenditure Final consumption expenditure by NPISHs Government final consumption expenditure - Individual consumption expenditure by government - Collective consumption expenditure by government Gross fixed capital formation Change in inventories Net acquisitions of valuables Balance of exports and imports of goods and services General rule: Transactions are valued at the market prices (or purchasers’ prices). GDP Expenditure Aggregates Valuation

Copyright 2011, The World Bank Group. All Rights Reserved Valuation – Recorded as the purchasers’ prices paid by households, including any taxes on products that may be payable at the time of purchase 15 Price difference Market imperfections Deliberate price discrimination Price collectors need to consult with the national accountants. Household Final Consumption Expenditure

Copyright 2011, The World Bank Group. All Rights Reserved 16 NPISHs Intermediate consumption Government Compensation of employees Consumption of fixed capital Other taxes, less subsidies, on production A sum of costs incurred in their production Input-price approach Nonmarket production No market for collective services such as defense Differences between the types and quality of services provided when sold alongside the nonmarket services Productivity differences between countries need to be carefully factored in. Non Market Services

Copyright 2011, The World Bank Group. All Rights Reserved Valuation – Cannot be valued at the prices at which they sell their output because these prices are “not economically significant.” – Estimated as the sum of their costs of production 17 Intermediate consumption NPISHs Compensation of employees Consumption of fixed capital Other taxes, less subsidies, on production A sum of costs incurred in their production Less any payments received from households for services provided Input-price approach NPISHs

Copyright 2011, The World Bank Group. All Rights Reserved 1.Individual consumption expenditure by government Valuation 2. Collective consumption expenditure by government Valuation – Valued at cost using cost components similar to those listed for NPISHs 18 Production of services by government for the benefit of individual households Purchase by government, from other producers, of goods and services that are then passed on to households Valued at cost in the same way as for NPISHs Valued at purchasers’ prices — cost to government of buying the goods and services from other producers Government Final Consumption Expenditure

Copyright 2011, The World Bank Group. All Rights Reserved Valuation – Valued at purchasers’ prices, including the cost of transport, the cost of installation, and any fees or taxes for transfer of ownership Own-account production of fixed capital assets Valued at basic prices (equal to producers’ prices, minus product taxes) The 1993 SNA does not include R&D expenditures. The 2008 SNA includes R&D expenditures as capital formation. Gross Fixed Capital Formation

Copyright 2011, The World Bank Group. All Rights Reserved Valuation Inventory Valued at the prices at which they could have been sold when first produced Valued at the prices at which they can then be sold Recording Change in inventories Valued at the average prices ruling during the year BV E =book values of inventories at the end of the year BV B =book values of inventories at the beginning of the year P E = price index of inventories at the end of the year P B = price index of inventories at the beginning of the year P avg = price index of average inventory prices for the year Changes in Inventories

Copyright 2011, The World Bank Group. All Rights Reserved Valuation – Participating countries are requested to report both the purchase (acquisitions) and sales (disposals) of valuables. – A reference PPP will be used for valuables in the 2011 ICP. 21 Acquisition of Valuables

Copyright 2011, The World Bank Group. All Rights Reserved Valuation 22 Exporting country Importing country f.o.b price c.i.f. price – Only the total export (import) values for the ICP, so that valuation on either an f.o.b. or a c.i.f. basis does not affect the values – A reference PPP (exchange rates) will be used because of the different structure of exports and imports in countries. Net International Trade

Copyright 2011, The World Bank Group. All Rights Reserved 23 Government services Conceptually Comparison-ResistantPractically Comparison-Resistant Own-produced goods Barter transactions Income in kind Rent of owner-occupiers FISIM Health and education Construction Imputed expenditures Comparison-Resistant Areas

Copyright 2011, The World Bank Group. All Rights Reserved 24 ICP Web site National Accounts Framework in ICP System of Accounts 1993 System of Accounts 2008 Sources of References Thank You