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SNA News and Notes
SNA News and Notes
Issue 16, April 2003
Recommendations by the Statistical Commission on the Update of the
1993 SNA
By Magdolna Csizmadia, UNSD
At its 34th session in March 2003, the United
Nations Statistical Commission adopted the proposed procedure for the
updating of the 1993 SNA. The Commission's review of the proposal was
based on the report by the Task Force on national accounts (document E/CN.3/2003/9)
and several room documents that are all available at http://unstats.un.org/unsd/statcom/sc2003.htm.
After a discussion in which 24 countries and international organizations
participated, the Commission reached the following main conclusions:
a. Endorsed the scope of the updating process supporting the view that
there is currently no need for fundamental or comprehensive changes to
the System as such changes would impede the process of its implementation,
which in many countries has not yet been achieved.
b. Emphasized the need for maintaining consistency with related manuals,
such as the Balance of Payments Manual, the Government Finance
Statistics Manual and the Monetary and Financial Statistics Manual.
c. Recommended that the updating process should focus on a number of
specific
issues. It supported the following criteria for identifying issues for
updating:
i. Issues that are emerging in the new economic environment;
ii. Old issues that have been discussed and rejected before in the
1993 revision process but may need a further look in the new economic
environment due either to their economic significance and/or to the
advancement in methodological research that may justify a different
treatment of the issues;
iii. Old issues that have been discussed and rejected before in the
1993 revision process should not be candidates for updating if no changes
in the economic environment or progress in methodology research warrant
their consideration for updating;
iv. Address user needs;
v. Take into account the feasibility or adequacy of the planned changes.
d. Endorsed the list of issues currently under review (see table overleaf)
and recommended that it be an open-ended list to include additional items
e.g. treatment of military equipment, return on capital assets of general
government and other topics.
e. Agreed that the managing and coordinating role of the ISWGNA should
continue with the assistance from the Advisory Group on National Accounts.
The Commission welcomed that the updating process will also be supported
by the Canberra II Group on Non-Financial Assets after having the terms
of reference of the Group reviewed in one of the room documents.
f. At the request of the Commission, a detailed project document will
be prepared to describe the updating of the
1993 SNA including its agenda, work programme, timetable, governance,
resource implications and decision-making process and the delineation
of the role of the Advisory Group.
g. Recognized the necessity of ensuring that issues and possible solutions
that require an interpretation or a change in the SNA will be circulated
as widely as possible for discussions and seeking solutions in a spirit
of compromise. The need to widen the participation of member states in
the updating process was emphasized.
h. Approved the targeted publication date of 2008 for the updated System
of National Accounts. It suggested mid-2006 as the deadline for submitting
the proposals for consideration to the Statistical Commission. All updated
issues will be implemented as soon as they are approved by the Commission.
All approved updates will be integrated into the re-issued 1993 SNA.
The draft of the detailed project plan for the SNA update will be ready
by May 2003 to be sent to countries for comments. The first meeting of
the Advisory Group on national accounts is tentatively planned for November
2003.
List of issues currently under review
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Topics
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| Treatment of repurchase agreement |
| Treatment of interest under conditions of high inflation |
| Pension schemes (employer, social security and social assistance
schemes) |
| Employee stock option plan |
| Treatment of non-performing loans |
| Insurance/reinsurance |
| Financial services |
| FISIM |
| Patented entities |
| R&D expenditure |
| Trade marks, brand-names and franchises |
| Leases and other transferable contracts, licenses to use intangible
fixed assets |
| Asset boundary for non-produced intangible assets |
| Purchased goodwill |
| Other intangible fixed assets |
| Calculation of consumption of fixed capital for intangible non-produced
assets |
| Valuation of consumption of fixed capital for intangible produced
assets |
| Borderline between rent and sale |
| Cost of ownership transfer |
| Treatment of BOOT |
| Capital input in production account for productivity analysis |
| Other issues relating to measuring of capital stocks and consumption
of fixed capital |
| Consumer durables |
| Capital gain taxes |
| Capitalization of military equipment |
Note: Detailed description of the issues, the responsible organizations
and deadlines for the above topics are available in the List of issues
currently under review in Annex II of document E/CN.3/2003/9
Allocation of Financial Intermediation
Services Indirectly Measured (FISIM) in the European Union Countries
By Christian Ravets, Eurostat
From year 2005, all Member States of the European Union will allocate
Financial Intermediation Services Indirectly Measured (FISIM) in their
national accounts.
Initially, the European System of Accounts (ESA 95), which is the EU
version of the 1993 SNA, did not require countries to allocate FISIM because
of doubts about how to make the allocation in practice and the reliability
of the calculations.
EU Council Regulation 448/98 of 16 February 1998 presented trial methods
of calculating and allocating FISIM which were to be tested by Member
States for the years 1995 to 2002.
The main results of the trial exercise were the following:
- Allocating FISIM is recognized as an improvement of the national accounts
methodology as more accurate GDP levels could be obtained: GDP would include
the entire value added generated by financial intermediaries, and not
just the part corresponding to commissions and fees invoiced to customers.
- The impact of allocating FISIM on GDP (and GNI) would correspond, on
average, to an increase of 1,3%. The results are similar among Member
States, and quite stable through years.
- Despite the lack of direct sources for some data, a sufficient level
of quality has already been obtained. The main problems met were the calculation
of imports of FISIM and the breakdown of households' deposits and loans
in order to determine the parts corresponding to final and intermediate
consumption.
As a result it was possible to make a new Regulation 1889/2002 of 23
October that confirms that FISIM is to be allocated, fixes the methods
to be used and sets the 2005 deadline for the implementation of the allocation
of FISIM in national accounts.
The main characteristics of the methodology to be used on a harmonized
basis by all Member States are the following:
- FISIM has to be calculated and allocated only on loans and deposits
granted by financial intermediaries (belonging to sectors S.122 other
monetary financial institutions and S.123 other financial intermediaries,
except insurance corporations and pension funds) to user sectors. This
is because only the interest rates of those loans and deposits are controlled
by financial intermediaries.
- In the balance sheet of FIs included in S.122 and S.123 loans and deposits
have to be broken down to differentiate between loans and deposits :
- Which are interbank (i.e. between the institutional units included
in sectors S.122 and S.123);
- Which are undertaken with user sectors (except the Central Bank).
Similarly, loans and deposits with the rest of the world should be broken
down into loans and deposits with non-resident FIs and loans and deposits
with other non-residents.
It is necessary to use average stocks of loans and deposits (average
of four quarters) and the accrued interest.
Moreover, to calculate imported FISIM, it is necessary to know, by user
sector, stocks of
loans and deposits and interest payable and receivable by non-resident
FIs.
- The output of the Central Bank (S.121) is measured as the sum of its
costs because the way the Central Bank operates using the same method
as for other FIs produces very strange results. The Central Bank is not
taken into account in the calculation of FISIM output and its allocation
among user sectors.
- The calculation and allocation of FISIM on loans and deposits is based
on the differences between the actual interest payable and receivable
and a "reference" rate of interest; these differences represent
the margin earned by the financial intermediaries.
- According to SNA (paragraph 6.128), the reference rate represents the
pure cost of borrowing funds - that is a rate from which the risk premium
has been eliminated to the greatest extent possible and which does not
include any intermediation services.
As a result of the trial period, the interbank rate has been chosen as
reference rate: it is
calculated as the ratio of interests receivable on loans between resident
FIs to stocks of loans between resident FIs.
To determine FISIM imports and exports, the reference rate used is the
weighted average interbank rate on loans and deposits between residents
FIs and non resident FIs. If necessary, a split could be done, distinguishing
several external reference rates according to currencies in which the
transactions are denominated.
- This reference rate approach is a bottom-up approach where FISIM output
generated by the activity of financial intermediaries is simply calculated
as the sum of FISIM that are provided to each user sector and to the rest
of the world.
For further information contact Christian.Ravets@cec.eu.int.
An Experience in Compiling Output and Value
Added for the Insurance Industry: The Case of Malaysia
By Viet Vu, UNSD
This case study is based on the data on the insurance
industry prepared in 1995 as part of the UNSD supported project to implement
the 1993 SNA in Malaysia. The data showed the volatile movement over time
of the output and value added of the industry when the 1993 methodology
is used to measure output as a difference which is the sum of the premiums
earned and premium supplements less the claims due less the change in
actuarial reserves and reserves for with-profit insurance.
Unlike the experience of the United States during
the period after September 11 2001, during which claims incurred shot
up sharply, the output of the insurance industry in Malaysia in 1991 declined
mainly because of the increase in the technical reserve, which results
in a negative value added. After 1991, the output and value added increased
significantly due to a significant increase in premiums and premium supplements.
During the 1987-1993 period, intermediate consumption and compensation
of employees plus consumption of fixed capital increased steadily.
The volatility of value added over time generates a volatility in the
ratios of value added over output during the 1987-1993 period as follows:
0.326, 0.144, 0.235, 0.012, -0.196, 0500, 0.603. This volatility defeats
the purpose of using the ratios of value output over output of previous
years to estimate quarterly and annual value added.
This case raises the issue of reviewing the method of calculating insurance
output. The OECD Task Force on the Treatment of Non-Life Insurance in
National Accounts and Balance of Payments Statistics has been set up to
address the measurement of the output of non-life insurance. (See the
article on the OECD task force in this SNA News and Notes issue.)
OECD Task Force on the Treatment
of Non-life Insurance in the National Accounts and Balance of Payments
By Fenella Maitland-Smith, OECD
Following its meeting of national accounts experts in
October 2001, and in the light of the events of September 11th, the OECD
set up a task force to address the treatment of non-life insurance in
national accounts and balance of payments statistics.
In the 1993 SNA non-life insurance output is calculated as the balance
of premiums earned plus premium supplements less claims due within the
period under review. This works reasonably well for most classes of non-life
insurance business but breaks down when a major catastrophe hits. The
problem is one of timing. Whereas the 1993 SNA algorithm depends on the
balance of premiums to claims within a year (or quarter), catastrophe
business is medium to long term, and the relationship between premiums
and claims would never be expected to be stable from year to year. The
1993 SNA treatment could lead to negative output in exceptional catastrophe
years, and possibly overstated output in 'catch-up' years. Since most
countries use a physical quantity indicator to derive output in volume
terms their implied deflators reflect the volatility in the current price
measure.
Insurers manage their exposure to risk on the basis of 'expected' claims
using a combination of reinsurance and 'medium- to long-term' technical
reserves, e.g. equalisation reserves. The task force's discussions have
focussed on finding a pragmatic approach to reflecting this medium- to
long-term aspect of economic behaviour in the national accounts, but have
also touched on some fairly radical re-thinking of the treatment of non-life
insurance.
The task force has met twice, and will provide a final report to the
OCED meeting of national accounts experts in October 2003. The following
list provides a summary of the conclusions reached so far, and the work-in-progress.
Contributions and comments are welcomed via the electronic discussion
group (please contact fenella.maitland-smith@oecd.org).
The task force:
- …recognizes that the notion of expectation plays an important
part in the business of insurance - when accepting risk and setting
premiums, insurers consider both their expectation of loss (claims)
and of income (premiums and premium supplements).
- …recommends that expected claims should replace actual
claims in the calculation of output, for all claims.
- …supports the use of a statistical method for estimating
expected claims whereby loss ratios (losses : premiums) are 'smoothed'
using some type of moving average (simple exponential smoothing is recommended).
Losses due to exceptional events (Hurricane Andrew, 9/11, European storms,
etc.) may be removed prior to the smoothing process, and then added
back, spread over a number of years.
- …supports the use of an accounting approach for estimating
expected claims in cases where equalization provisions (or similar reserves)
are made for the purpose of smoothing loss ratios. Changes in equalization
reserves are then included in the calculation of output in all years.
In the case of an exceptional event, and the subsequent recovery years,
a further, similar term may be added to the calculation to take account
of changes in own funds needed to pay claims, and the related rebuilding
of reserves. The task force did not reach a conclusion on how own funds
should be defined in this context.
- …has not yet reached agreement on the integration of expected
claims and exceptional losses into the SNA framework. The options
are currently under discussion, via the EDG, including the possibility
of treating some or all claims as capital transactions.
- …recognizes that an improved treatment of reinsurance
could solve many problems. The task force is attracted by the use of
a common treatment for direct insurance and reinsurance, as opposed
to the consolidated approach of the 1993 SNA, and is considering various
options, again via the EDG. These options include explicit recording
of international flows of net premiums and claims, and the estimation
of premium supplements for imported insurance services. Since the majority
of reinsurance services are provided cross-border, these changes would
have a significant effect, both on estimates of output and on balance
of payments statistics.
- …is considering two aspects of the scope of premium supplements
- whether the investment income on own funds should be included, and
whether holding gains and losses should be included. These questions
are being discussed in conjunction with the OECD Financial Services
Task Force, and in the context of the insurers' view of own funds and
holding gains as sources to support the payment of claims.
Accrual Accounting of Interest:
Outcome of the Discussion
By Cor Gorter, IMF
End September 2002, the IMF closed the Electronic Discussion
Group (EDG) on the Accrual Accounting of Interest with a report of its
moderator. This report-which is available at the IMF website-was send
to the ISWGNA who agreed with most of its conclusions. The ISWGNA established
the EDG in 1999 to obtain the views of a broad group of users and compilers
on how macroeconomic statistics should record the accrual of interest
on bonds and other tradable debt securities. The text of the 1993 SNA
allows various interpretations. After much discussion, however, most EDG
participants accepted the current SNA probably recommends that the so-called
"debtor approach" be followed. According to this method, the
amount and time path of interest accrual are determined at the time the
debt securities are created.
The next question was whether there is reason to revise
the current recommendations. Some of the participants argued forcefully
that the future SNA should come to say that interest on debt securities
accrues in line with the securities' current market values (the so-called
"creditor approach"). However, there was also strong opposition
against such revision. Because neither camp was able to convince its opponents,
and also to respond at a request from the IMF Committee on Balance of
Payments Statistics, the IMF Statistics Department surveyed its correspondents
in the member states on these issues in April 2000. The responses received
from statistical offices, central banks, and Ministries of Finance clearly
showed a preference for the debtor approach.
In his report, the EDG moderator therefore concluded
that neither the EDG discussions nor the survey among statistical agencies
had shown broad consensus for revising the 1993 SNA. Nonetheless, the
exchange of views on the theoretical advantages of the various options
had shown that the creditor approach has certain merits. The moderator
therefore recommended that the ISWGNA recognize that national accounts
compilers may wish to record, in supplementary tables, the accrual of
interest based on current market values.
The April 2002 meeting of the ISWGNA confirmed the 1993
SNA recommends to accrue interest on the basis of the debtor approach.
The meeting also noted that no new economic situation had emerged that
would importantly change the arguments used at the time the 1993 SNA was
drafted. In view of the importance of the issue, the ISWGNA invited the
UN Statistical Commission to approve this "no change" interpretation.
Twenty-one out of the 24 members of the Statistical Commission supported
the ISWGNA recommendation. Two members disagreed, and one member pointed
out that, although it considered the ISWGNA interpretation correct, the
creditor approach would be conceptually preferable.
Please consult http://www.imf.org/external/np/sta/na/interest/index.htm
if you want to read the papers posted on the Accrual of Interest EDG.
Activities of the Electronic
Discussion Group on the Treatment of Pension Schemes in Macroeconomic
Statistics
By Philippe de Rougemont, IMF
Background
At the request of the Inter-Secretariat Working Group on National Accounts
(ISWGNA), the IMF Statistics Department established an Electronic Discussion
Group (EDG) on the treatment of pension schemes in October 2002. The purpose
of the EDG is to explore alternative treatments for, and to identify the
most appropriate treatment of such pension schemes in macroeconomic statistical
systems. The establishment of this EDG was announced in an article of
SNA News and Notes No.15, this article provides additional detail
about the functioning and activities of the EDG.
Pension obligations, as they have the potential to exert pressure on
government finance, have been the subject of increased focus in assessing
medium-to-long-term fiscal sustainability. In the accounting area, the
International Federation of Accountants (IFAC) has recently begun work
on the accounting treatment of government social policy obligations (SPO).
These developments have led to a renewed interest in the question of how
the activities of pension schemes should be recorded in macroeconomic
statistics.
Under the System of National Accounts 1993 (1993 SNA) current
rules, activities of many pension schemes, such as social security and
unfunded employer schemes, do not lead to recognition of financial assets/liabilities.
More recently, the IMF's Government Finance Statistics Manual 2001
(GFSM 2001) recommends that contributions and benefits of government
employer insurance pension schemes be recorded exclusively as financing
transactions, and therefore recognizes stocks of government liabilities
for all employer schemes, both funded and unfunded, in the form of insurance
technical reserves.
Contributions
The EDG posted material from six contributors from various horizons,
in addition to the introductory discussion paper (John Pitzer - November
2002). Three contributions focus on issues regarding employer insurance:
- One describes the new practice of treating, in Australian National
Accounts, government unfunded employer schemes (superannuation schemes)
in a similar manner to funded schemes, and explains the reasons. The
impact on the 2001 government debt and net lending/ net borrowing
is respectively +17% and -0.4% of GDP. There is a call for an "update
of 1993 SNA" (Australian Bureau of Statistics - January
2003);
- Another argues that the need for international comparability and time
consistency considerations strongly favor liability recognition of unfunded
government employer pension obligations. The likely impact on the stock
of government liabilities (adding an equivalent of 18% of GDP for Canada
in 2001) and net lending/ net borrowing is substantial. The contribution
calls for "the necessity to review the recommendations of the 1993
SNA" and discusses a more appropriate measure of households
savings ratio (Francois Lequiller, OECD - January and March 2003);
- A third stresses the analytical advantages of the way the GFSM
2001 deals with pension obligations and runs a numerical example
(David Pritchett - February 2003).
Three other contributions include:
- A call for liability recognition of social security and social assistance
retirement obligations, arguing that, although no exchange arrangement
takes place, government promises to pay retirement pensions create a
valid "constructive obligation", which affects household behavior
(Brian Donaghue - January 2003);
- A paper on Taxonomy and a Glossary elaborated by a recently established
OECD Task Force on Pension Statistics (Jean-Marc Salou - February 2003);
- An interview of Anne Harrison by the moderator, discussing the conditions
under which schemes that seem to be funded are not treated as such in
the 1993 SNA. It also discusses the notion of segregated "reserves",
which would refer to accumulated schemes' inalienable assets that are
of sufficient financial solidity. The need for greater clarity on the
coverage of defined-contribution schemes is raised, as is the question
of ownership of the funds of pension schemes (March 2003).
Timetable
An initial report is expected to be prepared by June 2003. It will be
circulated to contributors and posted on the website for further comment.
An interim progress report will be produced by September 2003 and provided
to the ISWGNA for its consideration.
Future contributions could usefully address issues in two main areas,
having in mind the harmonization of statistical and accounting treatments
of pension schemes:
Concerning employer insurance schemes, one needs to clarify: whether
the funded/unfunded distinction is important and what is its precise definition;
the valuation rules for pension liabilities and for property income attributed
to insurance policy holders; the recording of actual versus imputed contributions;
whether government and non-government schemes should be treated differently;
and how the recording of relevant transactions in the 1993 SNA
- which involves three elements of non-financial transactions,
financial transactions, and the adjustment item - would be linked with
those in GFSM 2001.
In the area of social security and social assistance schemes,
the EDG needs to discuss the arguments for and against an extension of
liabilities recognition of pension obligations.
The readers of SNA News and Notes are invited to contribute to the EDG,
get background documents, read views of others and register for automatic
notifications at http://www.imf.org/external/np/sta/ueps/index.htm.
Manuals and Handbooks
Manual on Statistics of International
Trade in Services. Statistical Papers Series M. No.86. United Nations,
European Commission, IMF, OECD, UNCTAD, WTO, 2002.
Quarterly National Accounts in Asia: Sources and Methods. CCNM/STD(2002)1.
OECD, 2002.
National Accounts Studies of the ESCWA Region, No.22. UN ESCWA, December
2002.
Meetings and Seminars
14 - 16 April 2003: OECD Workshop on national accounts
for Balkan countries, OECD, Paris, France
15-17 April 2003: Meeting of the Canberra II Group on Non-Financial Assets,
Voorburg, Netherlands
7-9 May 2003: Ad Hoc Expert Group Meeting on a Gender-Aware Macroeconomic
Model to Evaluate Impacts of Policies on Poverty Reduction, Addis Ababa,
Ethiopia
26-30 May 2003: Inception Workshop on the International Comparison Programme
organized by the Asian Development Bank and ESCAP, Bangkok, Thailand
25-27 June 2003: Second Subregional Workshop on Tourism Statistics and
the Elaboration of a Tourism Satellite Account, Manila, Philippines
7-11 October 2003: OECD meeting on national financial accounts experts,
Paris, France
13-15 October 2003: Second Meeting of the Canberra II Group on Non-Financial
Assets, OECD Headquarters, Paris, France
October 2003: Seminar "The Environment and its Implications for
the Fund" organized by the IMF, Washington D.C., USA. Participation
by invitation only.
Editorial Note
SNA News and Notes is a bi-annual information service
of the ISWGNA prepared by United Nations Statistics Division (UNSD). It
does not necessarily express the official position of any of the members
of the ISWGNA (European Union, IMF, OECD, United Nations and World Bank)
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SNA News and Notes is published in four languages (English, French, Russian
and Spanish) and can be accessed on the internet: http://unstats.un.org/unsd/nationalaccount/snanews.htm
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The updated version of the 1993 SNA with search capability, national accounts
glossary, handbooks on national accounts and activities and reports of
the ISWGNA can be accessed on the internet: http://unstats.un.org//unsd/sna1993/introduction.asp
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Correspondence including requests for free subscriptions should be addressed
to: UNSD, Room DC2-1520, New York, NY 10017; tel.:+1-212-963-4854, fax:
+1-212-963-1374, e-mail: sna@un.org
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