Assessment of National Accounts Practices in ESCWA Region Majed Skaini, UN-ESCWA Expert Group Meeting on National Accounts Cairo, May 2009

Questionnaire A questionnaire on “Sources and methodologies followed in compiling National Accounts Statistics in Western Asia countries” was sent to all ESCWA countries in the end of March 2009; The questionnaire covered the following topics: - General Questions on implementation status, classifications, and National Accounts Compilation; - Understanding of NA concepts and definitions; - Sources of data and methods of estimation; - Coverage of production and asset boundaries; - Compilation of institutional sector accounts; - Other related issues.

Objective of Questionnaire The responses to the questionnaire constitute the cornerstone for the overall assessment of the regional status of National Accounts compilation in ESCWA region; The assessment will form the basic input for a regional booklet on sources and methods of compiling National Accounts in the ESCWA region; The assessment will shape the implementation strategy plan of the ESCWA region.

Responses 13/14 countries responded to the questionnaire; Some questionnaires were partially answered; Most of the countries did not provide sufficient info on sources and methods used in production-side, expenditure-side and income side estimation; Some responses need to be clarified and validated; Missing responses and vague ones will be discussed in this meeting.

General status of SNA implementation in the ESCWA region

SNA followed There are differences between the ESCWA member countries in terms of application of many of the recommendations, definitions, concepts and calculations recommended by the System of National Accounts /13 reported that they already are following SNA SNA, but in the process of adopting 1993 SNA 1993 SNA Saudi, Syria, UAE, Sudan, Iraq, JordanEgypt, Yemen, Lebanon, Qatar, Bahrain, Palestine, Oman

ISIC and CPC Most of ESCWA countries (8/13)* are following ISIC Rev 3.1, and almost half (6/13)* are following CPC Ver. 1.1 Industrial Classification followed: Product Classification followed: ISIC Rev.2ISIC Rev. 3 ISIC Rev. 3.1 ISIC Rev 4Other Jordan*Sudan, Syria*, Jordan*, Yemen Qatar, Oman, Iraq, Saudi, Syria*, UAE, Bahrain, Egypt PalestineLebanon CPC Ver. 1CPC Ver. 1.1 CPC Ver. 2Other Jordan*, UAE, QatarBahrain, Jordan*, Saudi, Oman, Egypt, Yemen Lebanon, Palestine

COICOP and COFOG Only Lebanon and Qatar are not using Classification of Individual Consumption by Purpose (COICOP) to classify consumption; Lebanon, Palestine, Qatar and UAE are not using Classification of Functions of Government (COFOG) to classify government transactions.

Assessment in terms of … Concepts, definitions and methodology used

On Production… Theoretically, all the countries agree on the concept of production, but the practical application of the concept of production often varies from: - one activity to another, - one sector to another, and - one country to another. The main reason might be attributed to deficiencies in the available data and difficulties in measurement or accessibility

Barriers and variation In many ESCWA countries, social values and perceptions stand as barriers to the inclusion of illegal activities within the production boundary, and hence do not estimate the production of these illegal activities as they do not admit its existence Informal or statistically non-covered activities face many constraints in its calculation and inclusion within the production boundary Countries differ in the valuation of expenditure on research and development and its treatment whether it is undertaken under own-account or outsourced by specialized research units

Military expenditure presents a major weak point in the estimation of government expenditure and therefore of output and final consumption expenditure in most of ESCWA countries It appears that ESCWA member states that are still in the process of adopting SNA’93 are focusing on the concept of production and output and its components from the expenditure side, whereas countries that already started application and dissemination of data as per SNA’93 are trying to commit to the recommended concepts and definitions as much as possible, but still are facing many problems which they are addressing as a priority for improving their status of implementation of the NA system Barriers and variation (cont)

On Institutional sectors… 7/12 (excl. Yemen) of the countries reported that the household sector includes unincorporated businesses, while only Bahrain and Oman compile separate estimates of mixed income for unincorporated enterprises Only Bahrain, Jordan, Oman and Qatar distinguish quasi-corporate bodies from other household sector units None of the 13 countries treats the ‘Issue Department of Central Bank’ as producer of government services

On Household sector… YesNo Does the household sector include unincorporated businesses? Bahrain, Egypt, Iraq, Jordan, Oman, Saudi, UAE Lebanon, Palestine, Qatar, Sudan, Syria Are there any production activities reported under Household sector other than “Ownership of dwelling” and “Activities of private households as employers and undifferentiated production activities of private households”? Bahrain, Egypt, Qatar, YemenIraq, Jordan, Lebanon, Oman, Palestine, Saudi, Sudan, Syria Only Qatar reported that it includes some agriculture, transportation and construction activities under the household sector, other than ‘Ownership of dwelling’ or ‘private household employment’.

On FISIM… 5/13* of ESCWA countries have started to address the financial intermediation services indirectly measured according to the recommendations of the SNA’93, by allocating it to the users of these services as intermediate consumption to industries and as final consumption to final users, whereas the remaining countries are still dealing with FISIM on an aggregate basis as a notional industry; Countries where financial intermediation services indirectly measured (FISIM) are allocated to the users of these services (as IC and FC) Palestine, Lebanon, Egypt, Yemen, Jordan

On CFC… ESCWA countries differ in the approach used to estimate the Consumption of Fixed Capital; Most of the countries estimate CFC based on data on reported depreciation; Only Bahrain, Jordan and Oman follow Perpetual Inventory Method in estimating CFC. The approach followed for estimating consumption of fixed capital (CFC) PIM Based on data on reported depreciationOther method Bahrain, Jordan, OmanEgypt, Iraq, Palestine, Saudi, Sudan, Syria, UAELebanon, Qatar, Yemen

Compilation of GDP aggregates (1) All 13 ESCWA countries compile GVA by type of economic activity at both current and constant prices; Whereas all 13* compile GDP main expenditure aggregates at current prices, only Iraq, Jordan and Yemen do not compile it at constant prices; Whereas all 13* compile GDP main income aggregates at current prices, only Bahrain, Oman and Palestine compile it at constant prices**; Only Lebanon and Syria do not compile current price expenditure at the disaggregated level of NPISHs; Only Egypt and Syria do not do valuation of output and value added at basic prices. *Egypt and UAE did not reply **Qatar and Syria compile GNI only

Compilation of GDP aggregates (2) GDP aggregates that are compiled at presentYes AggregatesAt Current Prices At Constant Prices Gross value added by type of economic activity 1312 Private final consumption expenditure (PFCE) 138 of which Household Final Consumption Expenditure (HFCE) 116 of which Final Consumption Expenditure of NPISHs 116 Government Final Consumption Expenditure (GFCE) 138 Gross Fixed Capital Formation (GFCF) 138 Change in Inventory138 Gross National Income 135 Gross National Disposable Income 133 Gross Saving 133

Assessment in terms of … Coverage

On Production Boundary… Whereas only 3 countries reported that they do not include ‘non-market agricultural crops’ under their production boundary, 6 countries in the region do not include ‘other household production for own final use’; Included in Production Boundary Not included in Production Boundary Partly included Non-market agricultural cropsEgypt, Iraq, Jordan, Lebanon, Oman, Saudi, Syria, UAE, Yemen Bahrain, Palestine, QatarSudan Other household production for own final use Egypt, Iraq, Jordan, Lebanon, Oman, UAE, Yemen Bahrain, Palestine, Qatar, Saudi, Sudan, Syria

Informal Production… Results of the questionnaire show that there are problems in establishing production coverage especially in the scope of unregistered businesses, informal sector activities or illegal activities. Most countries are posting these issues at the center of attention as a priority; Only 5 countries reported that their production boundary covers informal activities and hence include informal production; Included in Production Boundary Not included in Production Boundary Partly included Informal productionEgypt, Iraq, Lebanon, Oman, UAE Bahrain, Palestine, Qatar, Saudi, Sudan, Syria Jordan, Yemen

Own account servicing… 3/13 ESCWA countries do not include ‘services of owner-occupied dwellings’ under their production boundary; Only 6 countries include ‘domestic services produced by employed staff’ under their production boundary; 7 countries include ‘own-account fixed capital formation’ within production coverage; Included in Production Boundary Not included in Production Boundary Partly included Own-account production of housing services by owner-occupiers Egypt, Iraq, Jordan, Lebanon, Oman, Qatar, Saudi, Syria, UAE, Yemen Bahrain, Palestine, Sudan Production of domestic and personal services by employing paid domestic staff for own use*/** Egypt, Iraq, Oman, Qatar, Saudi, UAE Bahrain, Lebanon, Palestine, Sudan, Syria Own-account fixed capital formation** Egypt, Iraq, Jordan, Lebanon, Oman, Saudi, UAE Bahrain, Palestine, Qatar, Sudan Syria * Jordan did not answer ** Yemen did not answer

On Asset Boundary… Many of the region’s countries estimate the value of gross fixed capital formation as an aggregate without disaggregating at the level of asset industrial type (Buildings/ machinery/ etc.) or engaging in the classification at the level of economic activity or beneficiary sector; 8 countries include expenditures on mineral exploration under capital formation, whereas only 3 countries treat expenditure on R&D as capital formation; Included under Capital Formation Not included under Capital Formation Expenditures on mineral explorationOman, Iraq, Bahrain, Qatar, UAE, Syria, Egypt, Saudi Sudan, Palestine, Lebanon, Yemen, Jordan Expenditure on research & development activity – both for market and own use UAE, Egypt, SaudiOman, Iraq, Sudan, Palestine, Bahrain, Qatar, Syria, Lebanon, Yemen, Jordan Own-account fixed capital formationOman, Iraq, Bahrain, Qatar, UAE, Lebanon, Egypt, Saudi Sudan, Palestine, Syria, Yemen, Jordan

Justifications! Why are some activities not covered? What is needed to ensure coverage of these activities? What is needed to get estimates and compile statistics for these activities? How much time is needed?

Assessment in terms of … Sequencing of Accounts

Inquiry on Compilation status… All 13 ESCWA countries were requested to fill in the following table, specifying which of the following institutional sector accounts are being compiled at present. Responses confirming compilation out of 13 countries were as such: Yes Accounts Whole Economy Financial Corporations Non- financial Corporations General Government HouseholdsNPISHRest of the World Production account Generation of income account Allocation of primary income account Secondary distribution of income account Use of disposable income account Capital account External transactions of Goods & Services 7

Institutional Sector Accounts… Sudan, Syria and UAE do not compile a sequence of accounts for any of the institutional sectors; Palestine compiles a full sequence of accounts for whole economy only while Bahrain compiles for Financial Corporations and General Government; Lebanon compiles a full sequence of accounts for whole economy, General Government and ROW; All the rest (7/13 countries) compile full sequence of accounts for all institutional sectors, except for Qatar which does not compile for ROW.

Assessment in terms of … General Challenges and Drawbacks

On transactions… Problems in estimating gross and net values due to the lack of reliable estimates of the consumption of fixed assets; The estimation of some transactions as residuals as is the case with treating ‘Change in inventory’ in most of the countries; (Worth mentioning that 6/13 countries reported that they do attempt to balance GDP estimates from demand, supply and income sides; how is it done?) The estimation of GFCF as an aggregate without trying to estimate its components at the lower level. Non separation of NPISH as a separate sector and non differentiation between private sector under local/foreign authority.

Possible obstacles… Non availability of recurrent statistical data covering all economic activities in all sectors; Ignorance of the importance of the use of National Accounts Statistics for economic and social analysis and its significance for policy making; Lack of capacity building and storage of national and international expertise at the National Accounts departments within countries due to frequent turnover of staff and the lack of practical training capabilities; Confidentiality restrictions on many important sets of statistical data such as oil and gas, military expenditure, infrastructure, etc…

More obstacles… Lack of strict statistical laws obliging the various units to provide the statistical bureau with the requested data; Lack of technology and the know-how to use advanced software for compiling sequential accounts and input/output tables; Difficulties in understanding certain recommended definitions and concepts;

Missing Questionnaire Information

Economic activity Current PricesConstant Prices (ISIC 3.1) sourcesmethodssourcesmethods Cat. A: Agriculture: Main field crops Cat. A: Other crops Cat. A: Livestock products Cat. B: Fishing Cat. C: Mining and quarrying: Extraction of Crude Oil and gas Cat. C: Others under mining and quarrying Cat. D: Manufacturing Cat. E: Electricity, Gas and Water Supply Cat. F: Construction Cat. G: Wholesale and retail trade; repair of goods Cat. H: Hotels and restaurants Cat. I: Transport & storage Cat. I: Communication Cat. J: Financial Intermediation Cat. K: Owner-ship of dwellings Cat. K: others under real estate, renting and business activities Cat. L: Public administration and defense; compulsory social security Cat. M: Education Cat. N: Health social work Cat. O: Other community, social and personal service activities Cat. P: Activities of private households as employers & other Cat. Q: Extraterritorial organizations and bodies Production side estimation…

Expenditure and Income side estimation… Expenditure-side aggregates Current PricesConstant Prices sourcesmethodssourcesmethods PFCE of which, HFCE of which, NPISHs’ consumption GFCE GFCF Agriculture Machinery & equipment Transport equipment Construction: residence Construction: others Others Changes in inventories Exports & Imports Income-side aggregates Current PricesConstant Prices sourcesmethodssourcesmethods Compensation of employees Operating surplus Mixed income Taxes & subsidies

Majed Skaini, UN-ESCWA Expert Group Meeting on National Accounts Cairo, May 2009 Thank you