METAC Workshop December 14-17, 2015 Beirut, Lebanon National Accounts Compilation Issues Session 2: 2008 SNA

Changes in 2008 SNA Reasons Mostly clarifications rather than changes – Statistical units and sectors – Scope of the transactions, including production boundary – Concepts of assets/liabilities Impact on GDP ISWGNA 2008 SNA implementation milestones – Minimum requirements

Reasons why New economic behavior/instruments/arrangements – Globalization Advances in methodological research Needs of users – Balance between timeliness and accuracy Harmonization with BPM6, also GFS and MFS Clarifications from 1993 SNA BUT no fundamental changes

Statistical units and sectors Ancillary activities – Unit undertaking purely ancillary activities to be recognized as separate establishment if: Statistically observable, in that separate accounts for the production it undertakes are readily available, or if it is located in a geographically different location from the establishments it serves. – Classified according to its principal activity – The value of output should be derived on a sum of costs basis, including the costs of the capital used by the unit – Output is allocated to the intermediate consumption of the units it serves – 1993 SNA: treated a producer unit undertaking purely ancillary activities always as an integral part of the establishment it served

Statistical units and sectors Artificial subsidiaries – Ancillary corporations of the 1993 SNA are renamed as artificial subsidiaries in the 2008 SNA – Subsidiary corporations wholly owned by the parent corporation – Created to provide services to the parent corporation, or other corporations in the same group, for example to avoid taxes, to minimize liabilities in the event of bankruptcy, or to secure other technical advantages under the tax or corporation legislation in force in a particular country – Not regarded as institutional unit unless resident in an economy different from that of its parent

Statistical units and sectors Special Purpose Entities – Description: no employees no non-financial assets little or no physical presence always related to another corporation, often as a subsidiary, and often resident in a territory other than the territory of residence of its parent – An SPE is treated as a separate institutional unit and classified allocated to sector and industry according to its principal activity with some exceptions (such as captive financial institutions, artificial subsidiaries, special units of government) – 1993 SNA: no explicit guidance for such units

Statistical units and sectors Holding companies – Hold the assets of subsidiary corporations – Do not undertake management activities – Thus, produce financial services and is allocated to the financial corporations sector – Classified as financial auxiliaries in the financial corporations sector. – 1993 SNA – institutional sector of the main activity of the group of subsidiaries

Statistical units and sectors Head offices – Oversees and manages other units of an enterprise – Undertakes planning and decision making activities for the enterprise – Exercises operational control, manages day-to-day operations – Allocated to the non-financial corporations sector unless all or most of its subsidiaries are financial corporations, in which case it is treated by convention as a financial auxiliary in the financial corporations sector – Produces nonfinancial or financial services depending on the type of output of its subsidiaries – No explicit guidance in 1993 SNA

Statistical units and sectors Sub-sectoring of financial corporations sector Further detail is recommended to reflect new developments in financial services, markets and instruments and to provide improved consistency with other statistics: – Central Bank – Deposit-taking corporations except the central bank – Money market funds (MMFs) – Non-MMF investment funds – Other financial intermediaries except insurance corporations and pension funds – Financial auxiliaries – Captive financial institutions and money lenders – Insurance corporations – Pension funds

Statistical units and sectors Subsector for non-profit institutions (NPI) introduced – Like the 1993 SNA, the 2008 SNA assigns NPIs to different institutional sectors, regardless of motivation, tax status, type of employees or the activity they are engaged in – The 2008 SNA recommends that NPIs within the corporate and government sectors be identified in distinct subsectors so that supplementary tables summarizing all NPI activities can be separately derived

Scope of transactions Research and Development – … systematically undertaken in order to increase the stock of knowledge, and enable this knowledge to be used to devise new applications – A separate establishment should be recognized wherever possible – Output of R&D is capitalized as “intellectual property products” except when it is clear that the activity does not entail any economic benefit to its producer (and hence owner) in which case it is treated as intermediate consumption. – Output of the R&D should be valued at market price if purchased (outsourced) or sum of total production costs if undertaken on own account – 1993 SNA by convention treated the output of R&D as intermediate consumption

Scope of transactions FISIM – 2008 SNA recommends that FISIM applies only to loans and deposits and only when those loans and deposits are provided by, or deposited with, financial institutions. – The 2008 SNA calculates the output of FISIM on loans (yL) and deposits (yD) only, using a reference rate (rr) – If these loans and deposits attract interest rates of rL and rD respectively, the output of FISIM should be calculated as: (rL - rr)* yL + (rr - rD)* yD – To be allocated among users (lenders and borrowers)

Scope of transactions Output of central bank – Services produced by the central bank are identified in three broad groups: financial intermediation, as market monetary policy services, as non- market supervisory services - overseeing financial corporations, as market or non- market depending on whether explicit fees are charged that are sufficient the costs of providing such services – Separate establishments to be identified (if significant activity) – Non-market activities shown as acquisition of collective services by general government, with a matching transfer from the central bank to the government (no net cost to government)

Scope of transactions Non- life insurance services – Catastrophic events generate massive claims on non- life insurance companies – In such cases the output of the insurance activity estimated using the balance of premiums and claims may be extremely volatile (even negative) – 2008 SNA recommends that the output of the non-life insurance activity should be calculated using the adjusted claims and adjusted premiums supplements so that output of insurance services equals actual premiums earned plus adjusted premium supplements less adjusted claims incurred

Scope of transactions Economic and legal ownership – Definition of ownership clarified to better reflect the underlying economic reality – Economic ownership – considers the entity that holds the risks and enjoys the benefits of ownership from use in production – Assets are recorded on the balance sheet of the economic owner Leasing – 2008 SNA recognizes distinction between the operating leasing and the financial leasing according to whether the lessee should be regarded as the economic owner of the asset or not.

Scope of transactions Goods for processing – Goods that are processed by an entity that does not own them – Record actual change of ownership – no imputation of change of ownership even when between related enterprises – Implications for domestic production, and for balance of payments (both imports and exports of goods are lower, but there is a processing fee that is included as an import of the owner and an export of the processor) and for supply and use tables

Concepts of assets Capital services – Introduced in 2008 SNA – Important for productivity measures – Include a return to capital in the valuation of the output of goods and services produced for own final use by households and corporations if using a sum of costs approach as it better approximates market prices

Concepts of assets Asset boundary – Change of economic ownership – Output of the R&D is capitalized as “intellectual property products” – All databases holding data with a useful life of more than one year are included as fixed assets – Extension of the asset boundary and government GCF to include expenditure on military weapon systems Single-use items, such as ammunition, missiles, rockets, bombs, etc., delivered by weapons or weapons systems are generally treated as military inventories 1993 SNA: only expenditure of military on fixed assets of a kind that could be used for civilian purposes of production treated as GFCF

Concepts of assets Changes for Produced assets – Land improvements – Information, computer, and telecommunications – Weapons systems – Intangible fixed assets replaced by intellectual property products (which now includes R&D) – Computer software modified to include databases – Mineral exploration renamed as mineral exploration and evaluation (as for international accounting standards)

Concepts of assets Changes for non-produced assets – Tangible non-produced assets are renamed natural resources – Other natural resources such as radio spectra has been added as a sub-category – Water resources treated as an asset in some cases – Clarification of definition and coverage of cultivated biological resources – Intangible non-produced assets has been split into contracts, leases and licences goodwill and marketing assets – Goodwill and marketing assets now includes marketing assets that may be sold individually and separately from the whole corporation

Concepts of assets Employee stock options – Compensation of employees in kind – Grant date is when the option is offered – Vesting date is first opportunity for the employee to take up the option – Exercise period follows the vesting date and is the period during which the option is taken up (or it lapses) – Ideally recording is spread over the period between grant and vesting dates, but can be recoded at vesting date – Valuation using strike price (price at grant date) or pricing model – No guidance in 1993 SNA

Concepts of assets Employers’ pension schemes – In SNA 1993, promises to pay future benefits are not liabilities of social security schemes (old age pensions) or unfunded employer schemes – In SNA 2008, there is a supplementary table showing liabilities of unfunded schemes, estimated using standard actuarial methods. These “may” be incorporated in the core accounts.

Introduction of ISIC Rev 4 (Substantial) changes to the structure … will require: – Reclassification of all units on the business register – Maintaining two classifications for some linking period – Sampling and weighting of surveys will require updating – Construction of back series using new classification

Impact on GDP Capitalization of research and development (R&D) Valuation of output for own final use by households and corporations to include a return to capital (capital services) Capitalization of expenditure on weapon systems Treatment of employee stock options Refined Method for calculating financial intermediation services indirectly measured (FISIM) Changes in recording of pension entitlements Introduction of ISIC Rev. 4

Impact on GDP Capitalization of R & D – Move R&D from intermediate consumption to gross capital formation. – Require adding consumption of R&D fixed capital stock to non-market output: increase GDP Output for own final use by households and corporations – Valuation of market production only – Output valued by cost increases by an imputed value of return of capital: GDP increases by the same amount of imputed value

Impact on GDP Military expenditure – Move expenditure on military equipment from final consumption to gross capital formation: does not change GDP – Require adding consumption of military fixed capital stock to government output: increase GDP Employee stock options – … treated as compensation of employees in kind – Increase compensation of employees of corporations – Reduce operating surplus of corporations – Does not change GDP but changes household income

Impact on GDP New way of measurement of FISIM – Depends on the structure of financial instruments, but tends to increase output of FISIM. For example, loans of own funds and other forms of equity will only generate high output as interest payable is nil. – Money lenders output recognized, increases GDP Unfunded pension funds – Changes compensation of employees of market and non- market producers – Changes value added of non-market producers, and thus GDP

Impact on GDP ISIC Rev. 4 changes the allocation of GDP among ISIC groups, but does not change the total nor the sector allocation

ISWGNA required data sets Developed three data sets to assess the scope of national accounts implementation – minimum requirement data set, MRDS – recommended data set – desired data set

ISWGNA, Scope of the implementation of 2008 SNA - Data sets GDP, Value added and employment

ISWGNA, Scope of the implementation of 2008 SNA - Data sets Integrated accounts and tables, including integrated satellite accounts

ISWGNA, Scope of the implementation of 2008 SNA - Data sets Purpose classification of expenditures

ISWGNA, Scope of the implementation of 2008 SNA - Data sets Institutional sector accounts (until net lending)

ISWGNA, Scope of the implementation of 2008 SNA - Data sets Financial accounts, Balance sheets and other changes in asset accounts

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