Non-observed economy in Kyrgyz Republic The National Statistical Committee of Kyrgyz Republic Sultanaliev M.K. – Leading specialist of the Department of National Accounts Workshop on the Implementation of the 2008 SNA, Kiev, 29 November – 2 December 2011 Agenda item 6d

Content 1.Non-observed economy (NOE) by activities 2.Dynamics, structure and methods for estimation of NOE: production, expenditure, income 3.Applying the Eurostat Tabular Approach 4.Alternative surveys 5.Conclusions, proposals, issues 2

The presence of NOE is typical for any economy to some extent, but in many cases for transition economies its size became a national problem. NOE in the Kyrgyz Republic is an admitted fact as well. Taking into consideration the relevance of the issue the National Statistical Committee constantly improves the methodology and calculation methods of NOE. 3

In execution of Order № 38 “On Action Plan on Legalization of Shadow Economy” as of July 6, 2008, a Methodology for estimation of non- observed economy volumes 1 was developed and accepted by Order No. 30 by the Board of the National Statistical Committee as of May 25, Placed at National Statistical Committee web-site 4

Non-observed economy by activities: (data sources) Agriculture, hunting and forestry  Data from sample surveys of agricultural (farming) and own account production households.  It is reflected as an element of NOE only in the Eurostat Tabular Approach. 5

Industry  Tax Inspectorate data on patents granted  Data on average output per worker of small- size enterprises  Adjustment for own account production of flour and bread by households 6

7 Construction  Tax Inspectorate data on patents granted  Data from sample surveys on persons, carrying out construction and conversion of projects  Data from sample surveys on actual cost of a square meter of floor area in an expensive domestic house

Trade; hotels and restaurants  Tax Inspectorate data on patents granted  Data on industry average performance indicators obtained through one-time surveys and supplementary questionnaires and revisions  Data from regular sample surveys of all types of markets 8

Transport  State Transport Inspection data on the quantity of technically sound freight and light motor vehicles  Average mileage, freight and income from freight and passenger transportation  Data from specialized surveys of freights and passenger land transport 9

10 Financial services  Data of National Bank on the number of licensed exchange offices  Data on income, expenses and number of employed in legal entities

Real estate, renting and business services; education; health and social services; communal, social and personal services  Data on issued patents and specialized surveys  Data from sample surveys by types of services provided to the population  Income from rentals 11

12 Parameters of non-observed economy (excluding agriculture)

13 The structure of the NOE, 2009 in% of GDP (production method ) The manufacturing industry 2.3% Mining and quarrying 0% Construction 0.7 % Trade 13.3 % Transport 2.2 % Hotels and restaurants 0.2 % Real estate, renting and business activities 0.1% Education 0.1 % Financial services 0.1% Communal, social and personal services 0.1 % Kyrgyz Republic 19.8% Health 0.1 %

Official Estimates of Non-Observed Economics, 2009 (Production Method) 14

Official estimates of non-observed economy, 2009 (according to the expenditure method ) In addition to the calculation of NOE parameters on the production side there is an analysis of the structure of final consumption and capital formation of households in order to have an adequate idea of the level of their prosperity including the one coming from hidden or informal sources 15

Official estimates of non-observed economy, 2009 (according to the expenditure method ) Consistency with the production method: 1.Hidden turnover corresponds to household consumption from hidden sources 2.The correction to the value of residential private construction costs corresponds to the adjustment on the production side 3.The value of informal consumption of agricultural products corresponds to the production for own use 16

The NOE adjustments by expenditure component 17

18 NOE types in Kyrgyzstan N 1: Non-observed for statistical reasons: the lack of answers from respondents N 2: Non-observed for statistical reasons: old registers N 3: Non-observed for statistical reasons: units are not entered in the register or not examined N 4: Unobservable due to economic reasons: under-reporting of turnover / profit N 5: Unobservable due to economic reasons: the units are not registered consciously N 6: The informal sector (lack of registration, under- reporting)

19 Non-observed economy by types and methods of adjustment, 2009

20 (million soms) Total3640,12440,04968,44130,13575,95536,7 Agriculture, hunting and forestry193,167,769,477,299,3126,9 Industry1474,21323,73060, ,21774,2 Constructions128,971,483,9248,8416,8448,5 Trade794,243,959,1237,5362,4504,9 Hotels and restaurants10,027,936,338,843,157,7 Transport and communications158,7319,8463,7495,9634,5736,6 Financial activities183,5221,9389,7155,576,182,0 Real estate transactions270,7159, ,2536,4555,7 Other activities426,8203,8579,8528,2214,11250,2 Assessment of hidden wage

Alternative surveys in Kyrgyz Republic Shadow economy in Kyrgyz Republic: trends, estimates and policy variants 1. Sample (implicit) survey of enterprises: share of shadow economy– 53% (UNDP, 2004) 2.Survey via energy consumption method: share of shadow economy - 33% (UNDP, 2004) Sizes and development of shadow economy and shadow labor market…: What do we actually know? (Schneider Ph., 2003) – 41% 21

CONCLUSIONS and PROPOSALS Results of independent surveys carried out by scientific institutions, universities, public organizations and individual experts should be treated carefully. These surveys may contain useful information, but it should be applied after thorough check both of the methodology used and of the reliability of primary information. 22

ISSUES Quality of register: updating only of legal entities Frequent change of activity both in small and medium-size enterprises Big share of household sector Different accounting standards (the Republic has not changed over to IAS and IFRS completely) 23

24 Thank you!