1. 1993 SNA update: towards SNA Rev.1 Lidia Bratanova UNECE Statistical Division Kiev,July 2007

2. Plan of the presentation The process for updating 1993 SNA Situation to date Selected recommendations New chapter on Informal sector Towards implementation of 1993 SNA Rev.1 2

3. The process 2003 and 2004: Statistical Commission called for an update and approved the programme of work 44 issues approved for review ISWGNA to coordinate and manage with the assistance of an Advisory Expert Group (AEG) Schedule Consolidated recommendations for March 2007 Draft of Rev. 1 for March 2008 3

4. The process (cont’d) A number of TFs and WGs:hard work Five meetings of AEG: recommendations Broad consultation - UNSD consults with all countries - UNECE ensures consultation in the region Joint UNECE/OECD/Eurostat meeting on NA, April 2006, Geneva - consolidated set of provisional recommendations - UNSD website available for comments 4

5. The process (cont’d) March 2007:Statistical Commission adopted the set of recommendations SNA Rev.1 will be presented in 2 volumes Vol.1 in March 2008: chapters that represent the SNA framework Vol.2 in March 2009: interpretations of the accounts and extensions such as satellite accounts 2008: Strategy for implementation of SNA Rev.1 2008: Formation of high-level group 5

6. The issues reviewed concern Non-financial assets (22 issues) Financial services (8) Financial instruments (6) Government and public sector (7) The rest of the world (10) Units (2) Informal and illegal activities (2) Other issues (1) 6

7. Situation to date Drafting the core set of chapters underway Structure of SNA Rev.1 Basic structure not changed Chapters on important new material  the role of capital services in the accounts  the government and public sector  informal sector References to other publications Tables in the text reformatted; data values reviewed 12 Chapters available for comments at website: http://unstats.un.org/unsd/sna1993/draftingPhase/ChapterIssueMatrix.asp 7

8. Selected recommendations Focus on 3 recommendations: Research and development (R & D) Military expenditures Capital services Why discuss these recommendations? Likely to have the greatest impact on GDP Among the most widely debated Show that the SNA is evolving 8

9. R & D The present 1993 SNA (§ 6.163-164) treats expenditures on R&D as intermediate consumption, not investment Issue considered at the time of 1993 SNA, at the last moment left for the research agenda Continuing interest in R&D as a source of economic growth Practical experience with satellite accounts 9

10. R & D (cont’d) Recommendation The recommendation on R&D adopted Treat R&D expenditure as GFCF in SNA Rev.1 Difficulties are to be overcome in order to implement Rev.1 will describe and provide links to ongoing work ISWGNA will report to Statistical Commission Related issue: patented entities no longer feature as assets 10

11. R & D (cont’d) Impact of R&D capitalization on GDP will vary from country to country OECD estimated that : On average GDP would probably increase of about 2% But with little impact on the growth rate 11

12. R & D (cont’d) Draft text Concerning R&D (draft chapter §10.100): Definition based on Frascati Manual Value determined in terms of economic benefits R&D is expected to provide By convention is valued as sum of costs Concerning patents (draft chapter §10.100): Patent is not an asset but legal agreement about terms of access to R&D 12

13. R & D (cont’d) Implications for new data collections R&D surveys to be changed to serve the NA Improve estimates of trade of R&D services Service lives of R&D assets Derive price indices for R&D assists Quarterly estimates OECD manual on methods of estimating intellectual assets is expected 13

14. Military expenditures The 1993 SNA (§10.65-68) divides military expenditures into: Weapons and support systems – intermediate consumption regardless of their length of life All other durables: gross fixed capital formation Problems with the current treatment Division is hard to apply in practice Weapons taken from stock and sold call for some counter-intuitive accounting 14

15. Military expenditures (cont’d) Recommendation: Military equipment that is used in production for more than one year to be treated as assets Bullets and bombs to be treated as materials and supplies, that is inventories Identify separate categories within fixed capital formation - Weapon systems, and within inventories – Military inventories. Draft chapter: §10.84 and §10.137 15

16. Military expenditures (cont’d) Impact Purchase of weapons moved from intermediate consumption of government to GFCF Consumption of fixed capital on existing stock of weapons systems, which will vary across countries, will be addition to GDP 16

17. Military expenditures (cont’d) Implications and source data Source data are problematic USA has already adopted the recommended treatment The new international public sector accounting standard uses the recommended treatment and requires depreciation over useful lives Greatest obstacle – the level of secrecy Use the ‘rule of thumb’– for example estimate the GFCF on weapons as % of total defense budget (based on shares of similar countries) 17

18. Capital services 1993 SNA does not explicitly recognise the services provided by non-financial assets Assets used in market production: capital services are within operating surplus Assets used in non-market production: when output is measured as sum of costs, only consumption of fixed capital (CFC) is counted However, estimates useful for productivity analysis OECD Manual on Measuring capital, 2001, talks about capital services 18

19. Capital services (cont’d) Capital services figure in two separate issues that were under review: the general inclusion of the cost of capital services in the SNA; the replacement of depreciation with the cost of capital services when summing inputs to measure non-market output. 19

20. Capital services (cont’d) Basic explanation of capital services Focus is on non-financial assets used in production Principle: such assets contribute more to the value of output over the time they are used than their initial cost Long standing view that operating surplus is the return to capital used in production Perpetual inventory method (or PIM) could be used to derive estimates of all three capital-related measures: the asset value, a return on capital and CFC  Detailed recommendations in an updated OECD Manual 20

21. Capital services (cont’d) Recommendation for assets used in market production (issue 15) Estimates to be included in supplementary tables rather than core accounts Confirmed that capital services and capital stock measures should be complied in an integrated manner Basic concepts to be presented in SNA 21

22. Capital services (cont’d) Recommendation for assets used in non- market production (issue 16) Maintain the present treatment Undertake more research:  Test as conclusively as possible the impact on GDP  Take into account the differing degrees of data availability around the world ISWGNA to coordinate the research and report on progress to the Statistical Commission 22

23. Capital services (cont’d) Impact on GDP Assets used in production – no impact Assets used in non-market production- if the recommendation had been adopted, then non-market output, and thus GDP, would be higher by the amount of the estimated capital services Implications – no new data collections required, but Need to develop systems for estimating capital stock and CFC in order to generate estimate of capital services in integrated way 23

24. New chapter: Informal sector 1993 SNA Provides just an extract from the ILO definition Research agenda noted need for continued collaboration with ILO –lead agency for this work Continued calls for guidance given the importance of the informal sector (IS) in many countries Practical experience, e.g., in adapting survey methods, and conceptual progress (Delhi group) 24

25. New chapter: Informal sector (cont’d) Why a new chapter? Need for clarifications How well does the ILO definition fit into the SNA? How well do ILO terms match SNA terms? Different uses of “informal sector ” One of several chapters that feature interpretation and extension of the accounts Targeted to be ready for 2009 Outline at http://unstats.un.org/unsd/sna1993/description.asp?ID=31 ) 25

26. Implementation of 1993 SNA Rev.1 Implementation strategy to be discussed by the Statistical Commission in 2008 ISWGNA is working on the strategy: Should focus on the institutional setting and availability of source data –basic data collection strategy Sharpen and refocus  Meetings, training seminars, workshops (regional orientation)  Technical assistance (shared curriculum across institutions, design of surveys and institutional building)  Manuals  Applied research Advocacy 26

27. Conclusion The recommendations do not change the fundamental framework, so countries are encouraged to continue development in line with 1993 SNA Harmonization with BOP: IMF BOP Manual is being updated on a parallel track and this should be taken into account in plans for implementation Implementation plans already discussed ESA-95 will also be revised 27