Statistics for policy use Seminar on Developing a Programme on Integrated Statistics in support of the Implementation of the SNA for CARICOM countries 3-5 February 2014, Castries, Saint Lucia United Nations Statistics Division

 Introduction  System of National Accounts  Economic indicators approach to macroeconomic analysis 2 Outline of Presentation

To establish an enabling macroeconomic policy framework for equitable and sustainable development Requires a clear understanding of the underlying factors that drive national income growth, including: growth in capital accumulation, changes in employment rate, labour and capital productivity, changes in the terms of trade and linkages between macroeconomic policies and industrial and sectoral policies. 3 Macroeconomic framework

 This gives rise to the need, not only to monitor progress but also to evaluate whether or not goals are being achieved.  To obtain this overview of the economic processes data need to be organised in a framework that integrates and reconciles the data. 4 The need to be informed

 Requires data of sufficient scope, detail and timeliness to analyse: the external and internal economic and financial vulnerabilities, the interconnectedness of the global production and the global financial system; the causes of changes in economic growth and employment patterns; and to inform about the trade-offs between fiscal, monetary and debt reform and initiatives to increase growth, employment and equity. 5 The need to be informed

System of National Accounts  SNA describes a coherent, consistent and integrated set of macroeconomic accounts that provides an overview of economic processes, recording how: production is distributed among consumers, businesses, government and foreign nations. income originating in production, modified by taxes and transfers, flows to these groups and they allocate these flows to consumption, saving and investment. The latest version of the SNA is the 2008 SNA pdf pdf 6

 The SNA embodies basic distinctions as required by economic theory such as: production (supply) and use (demand) with prices factors of production such as labour, capital, technology transactions such as income, consumption, investment, exports, imports, transfers, financial assets and liabilities balance sheets with positions of assets and liabilities (institutional) sectors such as household sector, corporate sector, monetary sector, government sector, external sector 7 System of National Accounts

 The national accounts support macroeconomic and sectoral policies including those related to employment, inflation, international trade, and finance growth and productivity of the economy  Consequently, the national accounts provide an overarching framework for macroeconomic statistics to facilitate economic analysis and policy formulation 8

SNA and Intermediate Accounts for Policy Analysis Indicators Accounts Basic data and statistics 9 ECONOMIC THEORY ECONOMIC ISSUES SYSTEM OF NATIONAL ACCOUNTS Concepts and definitions Policies and perspectives

10 Economic indicators approach to macroeconomic analysis  A set of national accounts data is generally too large and conceptually too complex for users to handle in analysis.  Users require that the data set be summarized into a smaller set of indicators that could be used to assess economic conditions and development of a country.  Indicator analysis – generally indicator ratios are used.  The reason for using ratios between data rather than the data themselves is that data generally provide little information, unless they are related to other data.

11  Example:  GDP figure becomes only meaningful  if its growth over time is analysed, a per capita figure is derived that makes it possible to compare the data between countries, or a  percentage breakdown by expenditures or activities is presented.  Similarly, data about the level of imports are not very informative unless  they are related to exports or  to domestic output, or  a breakdown by products is shown. Economic indicators approach to macroeconomic analysis

 Aggregates, such as GDP and GDP per capita, are widely used as summary indicators of economic activity and welfare.  While useful in their own right, they are not the most suitable measures of people’s material conditions.  The GDP as the single most important measure of economic performance and social progress does not reflect ordinary people’s perceptions of their economic conditions.  The GDP also don’t reflect the link between environmental sustainability and economy performance. 12 Economic indicators approach to macroeconomic analysis

 National accounts provides valuable information on household material conditions at the macro level, such as: measures of household disposable income; social transfers in kind; consumption expenditure; investment; and assets and liabilities. Economic indicators approach to macroeconomic analysis 13

 By combining these macro level aggregates with micro sources (surveys, administrative records, and censuses), it would be possible to derive measures across household groups of their distribution of income, consumption and wealth Economic indicators approach to macroeconomic analysis 14

15  Indicator ratios are roughly grouped by types that describe economic conditions and development of the economy and/or policies aimed at influencing developments  First - describe the total economy and its relations with the ROW aggregates per capita and per worker, prices and BOP  Second - describing production by industries and sectors Production, behaviour and participation of corporations in the economy  Third - elements of fiscal policies and the impact of those on other sectors behaviour and participation of Government in the economy, taxes Economic indicators approach to macroeconomic analysis

16  By linking the indicators to macro-economic framework, it would be possible to identify not only the issues but also the underlying variables that could measure the impact of policies addressing the issues.  As a macro accounts framework is generally used to address policy issues within a country, the development of indicators based thereon would stimulate the use of those indicators by national Governments in their assessment of national conditions and developments, in addition to the present use of indicators by international agencies. Economic indicators approach to macroeconomic analysis

17 Advantages of economic indicators approach  Simple and understandable economic constructs that summarize the development of the economy and the economic and financial vulnerabilities over time.  Economic indicators within a balanced system of national accounts are mutually consistent.  Economic indicators use the real and financial interconnectedness within sectors, between sectors and their counterparties in the rest of the world.  Economic indicator analysis improve the use of national accounts and its quality and reveal data gaps

Performance Indicators for Industrial Statistics  Performance indicators make it possible to evaluate performance of producer units and the industrial sector.  Objectives of industrial performance indicators As a policy-relevant statistic, provide a summary of the performance of a unit or the sector. Simplified means of summarizing and communicating complex information to decision makers. Help policy makers monitor and evaluate industrial activity and inform strategic decision making. Help businesses to assess business environment in which they operate Assist researchers and academicians for making comparisons across countries and industries over time. 18

Types of Performance Indicators  3 broad types Growth rates Ratio indicators Share indicators  Most have comparative dimension or a reference point allowing for time series evaluation.  Used to measure overall performance of the industrial sector, so not desirable to sacrifice this goal for achieving detailed compilation on indicators of minor performance requiring much detailed data. 19

Performance Indicators: Growth Rates  Value added growth Expressed as (Y t /Y t-1 )-1 Y and t denote the value added and time period, respectively.  Growth of employment in the industrial sector Annual (monthly or quarterly) percentage change of persons employed. Can be compiled by economic activities, by gender, and by size class of establishments. 20

Performance Indicators: Ratio Indicators  Output per person employed Useful for tracing labor requirement per unit output Reflects the change of the input coefficient of labor by industry  Output per hour worked: total output/hours worked  Value added per person employed: popular method for estimating trends in labor productivity  Ratio of orders to shipment: useful for monitoring sub annual trends New orders received Unfilled orders at the end of inquiry period 21

Performance Indicators: Ratio Indicators (II)  Intensity of energy consumption by activity Quantity of energy consumed in terajoules per unit of value added Declining trends indicate improvements in energy efficiency  Water-use intensity by economic activity Volumes of water (in cubic meters) per unit of value added. Volume consists of the sum of a) quantity of water abstracted from the environment, plus b) the quantity of water purchased, minus c) quantity of water sold. Indicates extent of pressure of the economy on water resources  Ratio of environmental protection expenditure to value added Measures the efforts of an industry to protect the environment 22

Performance Indicators: Share Indicators  Share of industrial activity value added in total value added Depicts the structural composition of the economy Shows the contribution of individual economic activities to GDP  Employment in industrial activity as a share of total employment Useful tool to assess segmentation and trends of the labor market Ratio of total number of persons employed in industrial activity to total number of person employed in the economy. 23

24 Links between statistics, macro accounts, indicators, projections and policies Projections of future development Policy analysis and formulations Selection and compilation of indicators measuring past trends Macro accounts design and compilation Statistics and statistical development [b] [a] [c] [d] [e] [h] [f] [g]

25  Indicators and macro accounts play a central role in statistical development and policy formulation.  Policy formulation could be based on the use of indicators measuring past and present trends [a]  May also take into account future developments that are based on alternative values of the indicators in the future [b].  The use of indicators in projections is reflected in a direct link with the indicators measuring past trends [c]. Links between statistics, macro accounts, indicators, projections and policies

26  In order to define statistical development that would support policy formulation, links are needed to translate policy formulation into indicators [d]. indicators into the design and compilation of macro accounts [e] and macro accounts into statistical development [f].  The derivation of values of indicators are represented by the reverse links between statistics and the compilation of macro accounts [g], and between the macro accounts data and the derivation of indicator values [h]. Links between statistics, macro accounts, indicators, projections and policies

27 Scope of Macro-economic Analysis by Milestones and Minimum Required Data Set (MRDS)  Milestone 1.GDP by Industry and Expenditure in current and volumes  Growth analysis  Milestone 2. GNI of Total Economy and Balance of Payments (current, capital and financial accounts) and GFS transaction accounts  Relations with the rest of the world (BoP) analysis  Milestone 3. Production and generation of income accounts for institutional sectors and for GG income distribution accs (including IIP for BoP and GFS transactions and stock in assets and liabilities)  Productivity analysis and fiscal analysis  Milestone 4. Production, generation, distribution, redistribution and use of income accounts and capital accounts for all institutional sectors (up to net lending)  Income distribution analysis  Minimum required macroeconomic data set, annual institutional sector accounts up to net lending and quarterly GDP and quarterly BoP

28  Milestone 5. Production, income and use accounts, capital accounts and financial accounts for institutional sectors  Growth analysis, BOP analysis, productivity analysis, fiscal, income distribution analysis and investment- financing analysis  Milestone 6. All transaction and flows accounts plus balance sheets  Financing-debt analysis (Flow of funds) and vulnerability analysis (currency mismatches, maturity mismatches (roll-over of debt), capital structure (equity vs debt), solvency (assets over liabilities) Scope of Macro-economic Analysis by Milestones and Minimum Required Data Set (MRDS)

29 Reference

31 Point for discussion  Does the present scope, detail and quality of National Accounts of your country meet present policy demands in an interconnected economic and financial domestic and global economy ?

Thank You 32