GDP and INFORMAL SECTOR in Mongolia DEMBEREL Ayush Director, Statistical Research Department LKHAGVAJARGAL Baasantseren Senior Officer, Macro Economic Statistics Department National Statistical Office, Mongolia

Contents Gross Domestic Product Informal Sector Some issues/concerns Scope and Coverage Data and Indicators Informal Sector Conducted surveys Some issues/concerns

Gross Domestic Products What is the GDP? GDP (production) is the market value of all final goods and services produced within a country during a given time period. GDP (income) is sum of compensation of employees, consumption of fixed capital, net taxes on product and net operating surplus or mixed income. GDP (expenditure) approach is the value of final consumption expenditure, gross capital formation and net exports of goods and services.

Gross Domestic Products Total Output GDP (value added + net tax) Intermediate Consumption GDP, production approach GDP approaches Wage Profit Net tax Capital consumption GDP, income approach Statistical changes Consumption Capital consumption Net Export GDP, expenditure approach

Gross Domestic Products Production approach: GDP, by sectors, yearly, current and constant 2005 prices GDP, by sectors, quarterly, constant 2005 price GDP, by aimags and sectors, current price GDP, by type of owner and sectors, current price Expenditure approach: GDP, yearly, current price Income approach: GDP, yearly, current price WB Atlas approach, GDP per capita, US dollar

Gross Domestic Products Classifications and frame International Standard Industrial Classification (ISIC) Classification of Individual Consumption of Purpose (COICOP) Classification of Function of Government (COFOG) Harmonized systems (HS) Business Register Classifications and frame

Gross Domestic Products Methods of data collection: Census (Livestock) Fully Covered Survey for large and medium sized enterprises (Industry, construction, transportation and communication etc) Sample survey (industry, whole and retail trade and restaurant etc) Data sources: Annual balance sheet of enterprises Result of sample survey Administrative statistical information

Gross Domestic Products GDP estimation Year Quarter Production approach: GDP, current and constant 2005 prices 1990-2008 2000-2008 Expenditure approach: GDP, current price 1995-2008 - Income approach: GDP, current price Aimag GDP, current price GDP per capita (WB approach) 1991-2008

Gross Domestic Products

Gross Domestic Products

Gross Domestic Products

Gross Domestic Products

INFORMAL SECTOR Definitions for Non-observed economy: “Activities which should be included in GDP but are not covered in statistical surveys or administrative records used in National Account compilation” Non-observed economy handbook of OECD (2002) Total economy Non market and Statistical Shadow economy Official economy Non-observed economy

INFORMAL SECTOR Shadow economy is called as follows: Shadow economy Non observed economy Hidden economy Irregular economy Unofficial economy Parallel economy

INFORMAL SECTOR Non-observed economy consists of 5 subgroups1: Underground Illegal Shadow Economy Informal Do-It-Yourself Statistical 1 – OECD (2002), Measuring the Non-Observed Economy, a hand book

5(1) of the 15th ICLS Resolution INFORMAL SECTOR 5(1) of the 15th ICLS Resolution “The informal sector may be broadly characterized as consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned. These units typically operate at a low level of organization, with little or no division between labor and capital as factors of production and on a small scale. Labor relations – where they exist – are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees.”

INFORMAL SECTOR The Methods of Estimating the Size of the Shadow Economy Direct 1. Sample survey 2. Other source (tax auditing…) Indirect 1. SNA approaches (Discrepancy between expenditure and income measurements of GDP and IOT ) 2. Labour method

INFORMAL SECTOR 3. Monetary method a. Transaction method b. Currency method 4. Physical input method a. Kaufman-Kaliberda method b. Lacko method 5. MIMIC method

Informal Sector and Informal Employment Conductor Year Results, % of GDP Survey units 1 James H. Anderson 1997 5 % 770 units 2 Bill Bikales, Chimed Khurelbaatar 1999 13 % 4042 units 3 NSO of Mongolia 2003-2004 10.5 % 1000 units 4 Establishment census 2006 8 % - 5 Informal Sector and Informal Employment 2007-2008 1558 households Conducted Surveys in Mongolia

2. The Mongolian Informal INFORMAL SECTOR Period: 1999 Sample technique: three-stage stratified cluster Variables: average revenue per month, purchases of goods for resale per week, various purchased services and employment Survey frame: “economic units under single ownership engaged in one kind of economic activity at a fixed place of business” – a total of 25282 units, and for taxi service (16320 vehicles) Sample size: 6 regions for 17 activities, 4042 economic entities or 9.7 percent of the population of 41602 Survey result: total value added of 117,255.3 mln.tog and total employment 60283 workers. 2. The Mongolian Informal Sector 1999, Bill Bikales

3. “Informal Sector Survey, 2003”, NSO Period: 2003-2004 Sample technique: sample survey by region Variables: revenue, operating expenses and number of employees Survey frame: for trade sector: “patent” business – a total of 29296 units; for transportation: procedure similar to to 1999 survey, and number of vehicles for taxi service (28000 vehicles) Sample size: all regions, for trade 700 units (of 21496), for transportation 300 units of the population of 28000 3. “Informal Sector Survey, 2003”, NSO

4. “Enterprise Census, 2006”, NSO INFORMAL SECTOR Period: 2006 Sample technique: census Variables: gross income, number of employed workers Survey frame: unincorporated businesses “with indeterminate income” under the taxation legislation (patents) Survey result: according to the result of this census VA of informal sector was about 8 percent of GDP. 4. “Enterprise Census, 2006”, NSO

5. Informal Sector and Informal Employment With the support of UNESCAP, Informal employment data is collected, using and informal employment module in Labor Force Survey in two phases: - In phase 1: Informal employment data is collected, using Labor Force Survey. - In phase 2: Informal sector enterprise data is collected . Out of 7008 households selected in the Labour Force Survey, 1558 households that met criteria has used for HUEM Survey. Survey period: Data covers the period from July 2007 to June 2008. 5. Informal Sector and Informal Employment

INFORMAL SECTOR Before 2006 we estimated VA of informal sector only in retail trade, restaurants (cafeteria) and transport sectors. For estimation of informal sector we used result of “Informal sector survey” which conducted on 1998/1999. Survey result shows output and intermediate consumption of unincorporated enterprises. In 2006, NSO provide “Enterprises census” which also collect data on unincorporated enterprices.

INFORMAL SECTOR In 2007, the share of informal sector to the GDP was about 7.5 percent. NSO is not finish yet the compiling of GDP for 2008. In Mongolia indirect methods are used for Time series data Compare with other countries’ informal economy Compare with other indirect methods’ results Two reports are published about indirect methods of NOE (informal economy)

SOME ISSUES/CONCERNS In the future, it is possible to conduct this survey as a module of LFS in every 3 years, estimations can be made based on LFS survey results. In order to conduct the survey, a financial assistance from international organization will be needed. Apply the estimation of informal sector by some model approaches (MIMIC method)

Thank you for your attention Web page : www.nso.mn E-Mail : nso@magicnet.mn Global financial crisis: US financial crisis is affecting the global economy by creating liquidity shortages on world financial markets, a decline in global foreign investment flows and a reduced global demand leading to a global economic slowdown. 27