System of National Accounts Basic Concepts National Academy of Statistical Administration Ministry of Statistics and Programme Implementation Central Statistics.

System of National Accounts Basic Concepts

National Academy of Statistical AdministrationMinistry of Statistics and Programme Implementation

Central Statistics Office

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System of National Accounts (SNA)Historical Development 1953 SNA, 1968 SNA,1993 SNA,2008 SNA

SNA aims to provide a comprehensive, coherent, and consistent picture of the economy that reflects

– all transactions taking place between the agents that together constitute

an economy– and other economic flows in an accounting period– and the opening and closing stocks of assets and

liabilities

Integrated Framework for Socio-Economic Analysis

System of National Accounts (SNA), 2008

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Presenting Stock and Flows - Format Stock of resources (opening) Production Consumption Capital formation, net exports Other changes in volume / prices Stock of resources (closing)

SNA -Integrated Framework for Socio-Economic Analysis

Resources: Human; Natural; Produced; FinancialEconomic Life: Production; Distribution Production- Goods and Services; Income; Residuals Distribution- Final Consumption; Accumulation; Exports

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OPENING STOCK OF RESOURCES

Human Produced Natural Financial

PRODUCTION

Income Goods & Services Residuals

Intermediate consumption

Final Consumption Accumulation Exports

DISTRIBUTION & USE

CHANGE: human

CHANGE:produced, natural, financial+

Other changes(volume, price)

CLOSING STOCK OF RESOURCES

Human Produced Natural Financial

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What constitutes National Accounts? • The residents mostly earn their income from production

carried out in the economy • Thus, income of all the residents is mainly generated from

production activity of goods and services in the economy• Income, thus generated, is spent for purchase of goods and

services produced in the economy or imported– either for final consumption – or saving for accumulating wealth

• National Accounts provide a quantitative description of all these processes and their inter-linkages

SNA - Introduction

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System of National Accounts (Contd.)

SNA provides a framework for systematic presentation of estimates of macro-economic aggregates relating to national income and wealth

Stocks of economic assets represent ‘wealth’   The SNA also has provision of recording ‘other flows’

caused by events like war, natural calamity, and scientific discovery and changes in general price level

affecting the stock of ‘economic’ assets

SNA - Introduction

7

Structure of SNAAnswers to the following questions • Who? : actors in an economy

– Institutional units and establishments• What? : flows and stocks

– economic activities and assets and liabilities• How? : macro-economic framework and accounting rules

– national accounting identities and sequence of accounts

• Why? : purpose– classification by purpose of expenditure

provides an overview of the conceptual framework of SNA

SNA - Introduction

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Institutional Units-Constituents of an Economy?

• All institutional units residing in the economic territory of a country during accounting period constitute its economy

• Institutional unit is an economic entity that is capable of owning assets, incurring liabilities, carrying out economic activities, taking decisions on all aspects of economic life, engaging in transactions with other entities

• All economic transactions take place only through institutional units

• Institutional Sectors: Corporations - Financial ,Corporations - Non-financial, Government, Non-Profit Institutions serving households (NPISHs), Households (includes unincorporated enterprises)

Structure-Who?- Actors: Institutional Units/Establishments

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Residence• Definition: The economic territory in which the

institutional unit has its centre of predominant economic interest

• The definition of Domestic Economy is based on the concept of Residence. And not Currency or Nationality

• All resident units constitute the domestic economy

For national accounts, Rest of the World (RoW) consists of all Institutional units

– not belonging to the domestic economy

– but have some transactions with resident units

Who? - Constituents of an Domestic Economy

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Economic Flows and Stocks

The SNA accounts consist of tables and balance sheets that register (in monetary terms)

• the economic actions or events (flows) that take place within a given period of time – Flows (Transactions) are captured during a period of time

and • the effect of these events on the stocks of (economic) assets

and liabilities at the beginning and end of that period – Stock of resources are measured at a certain point in time

Within SNA boundaries

What ? - SNA aims to describe economic flows and stocks

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Economic Flows- reflect creation, transformation, exchange, transfer or extinction of economic value ; reflect creation, transformation, exchange, transfer or extinction of economic value undertaken by institutions

Stocks of (Economic) Assets- are a position in, or holdings of non-financial (produced or non-produced) assets , financial assets and liabilities at a point in time Economic asset is subject to ownership rights and used in some kind of economic activity or as a store of valueExcluded: Consumer durables and natural resources that are not owned (Environmental assets)

What?- Economic flows and Stocks (Contd.)

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Types of Transactions: Transaction in goods and services: Two kinds:

(i) Produced goods and services or (ii) Non-Produced assets Distributive transactions: Two kinds:

(i)Distribution of income generated (ii)Transfers Transactions in Financial assets and liabilities

Transactions – interaction by mutual agreement between institutional units :

(a) With counterpart – exchange something for something

(b) Without counterpart – transfers something for nothing

Other flows – change in value of assets and liabilities without transaction caused by (a) volume change, (b)level and structure of price

What?- Two Types of Economic flows

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Supply and Use of Products• Supply (Gross Value of Output) of goods and services produced in

the domestic economy (GVO) and imports (M) are used as – Intermediate Consumption (IC)– Final Consumption of the residents

• Households Final Consumption Expenditure (HFCE)• Government Final Consumption Expenditure (GFCE)• Final Consumption Expenditure of the NPISHs

– Gross Domestic Capital Formation (GDCF) • Gross Fixed Capital Formation (GFCF)• Change in Inventories (CII)• Acquisition less disposal of valuables• Consumption of Fixed Capital (CFC)

– and exports (X)

What?- Transactions in products (Goods and Services)

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SNA Framework- Supply and Use Tables In the SNA framework, Supply and Use Tables (SUTs) are the first

set of global tablesThese are based on the commodity balance identity: GVOmp + M = supply ≡ use = IC + PFCE + GFCE + GFCF + CIS

+ acquisition less disposal of valuables + X

… …. [1]

• As many commodity balance identities as the number of product categories used in national accounts compilation

• SUTs are a combined presentation of all these identities that help in

– verification and reconciliation of the estimates and– estimating the missing values

How? - SUT

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Distribution of Income from ‘Production’• Compensation of employees

– Wages and salaries; Employers’ social contributions• Taxes on production and imports

– Taxes on products; Other taxes on production• Subsidies

– Subsidies on products; Other subsidies on production• Property income

• Investment income– Interest, Dividends, Reinvested earnings on FDI, etc.

• Rent

What? - Distributive Transactions

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Transfers Current transfers (other than social transfers in kind)

– Current taxes on income, wealth, etc. – Net social contributions – Social benefits other than social transfers in kind– Other current transfers

Social transfers in kind Adjustment for the change in pension entitlements Capital transfers

Boundaries in the SNAProduction BoundaryConsumption BoundaryAsset Boundary

What? - Distributive Transactions

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SNA Production Boundaryincludes production of all goods and individual or collective services

that – are supplied to other units or – intended to be so supplied

including the production of goods and services used up in the process of producing such goods and services;

own-account production of all goods that are retained by their producers for their own

– final consumption or – gross capital formation– own-account production of housing services and

domestic services produced by employing paid domestic staff

What? - Boundaries

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Consumption Boundary• Consumption of goods and services is the act of completely

using them up– in a process of production (intermediate consumption) or– for direct satisfaction of human needs / wants (final consumption)

• The second activity represents final consumption and includes use of goods and services for both – individual needs - acquired by a household and used to satisfy the

needs or wants of members of that household; and – collective human needs - service provided simultaneously to all

members of the community or a section of the community

These are provided only by the government

What? - Boundaries

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Assets BoundaryAll that has a life of more than a year and qualifies as • economic assets i.e. store of value

– on which ownership right can be established and – the economic owner derives benefits by holding or using

• including – all non-financial assets whose economic owners are

residents of the economy– all financial claims, shares or other equity in corporations of

the residents plus gold bullion held by monetary authorities as a reserve asset

fall in the assets boundary of the SNA

What? - Boundaries

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SNA framework• SNA is founded on the macro-economic framework that

gives a set of identities forming basis of SNA sequence of accounts measuring economic flows and stocks

• SNA framework is based on the premises that all goods and services produced in domestic economy are put to “use”

• circular flow of income and expenditure of residents and non-residents participating in transactions in the economy

• The framework establishes the equivalence of – supply and use of goods and services produced– the value of production of goods and services, income

generated in production and expenditure on final products

SNA Framework- Identities, Accounts and Valuation

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Government

Households

Final Consumption

Income

Govt. Expenditure

Saving

Investment

Imports

Exports

Circular Flow of Income and Expenditure[Showing also Leakages: Saving, Taxes, Imports; and Injections: Investment, Government Expenditure, Exports]

Taxes

Enterprises

Expenditure on intermediate &

capital g&s

FinancialMarket

Taxes

Res

t of

th

e W

orld

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Output “Enterprises” produce goods and services (g&s), using g&s

produced by other enterprise in the domestic economy or RoW or by themselves as intermediate consumption (IC)

The receipts of the enterprises from sale (or value of goods and services otherwise disposed) of the produced goods and services represent the gross value of output (GVO)

How? - Output, Production

ProductionIn the SNA, the measure of production (in ‘gross’ terms) is Gross Value Added (GVA). Defined as

GVA = GVO – IC ……[2]where GVO stands for Gross Value of Output, IC for Intermediate Consumption

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Gross Domestic Product (GDP)• GDP is a measure in monetary terms of production of all

goods and services counted without duplication, as sum of GVA of all resident producer units within the economic borders of country during a given period of time and taxes less subsidies on products

GDP = ΣGVA + taxes less subsidies on all products (t-s) GDP includes Illegal & concealed production, Production of

goods for own consumption, Production of non-market services by government and NPISH, Services of own occupied dwelling units of households

GDP excludes social activities, cultural activities and unpaid volunteers, do-it-yourself decoration, maintenance and small repairs to durables and dwellings by households

How? - Gross Domestic Product

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• The Capital Stock (Produced resource in the form of buildings, infrastructure, machinery and equipment) attracts Consumption of Fixed Capital (CFC) in the process of production

• Net Domestic Product (NDP) is obtained from GDP by subtracting the CFC

NDP = GDP – CFCGDP = NDP +CFC

• Similarly, NVA= GVA - CFC

Gross / Net Domestic Product (GDP / NDP)

How? – Gross vs Net

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Generation of Income

• GVA resulting from the process of production is the income generated, which in turn is distributed to

• households as – Compensation of Employees (CE) and – (gross) Operating Surplus (OS) (en route financial market)– Mixed Income (MI): mix of CE and OS, and

• government as production taxes (net of subsidies), composed of – Taxes on products and import taxes (net of subsidies) and– Other production taxes (net of subsidies)

How? - Circular Flow

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Primary Income - from recipients’ perspective• Primary incomes: incomes accruing to units for their

– involvement in or – for ownership of assets used in

production processes• Households receive primary income from producers of goods

and services as – Compensation of employees (CE) and– Property income (PI) from

• lending of financial assets • renting of natural resources owned by them• or mixed income (MI)

How? - Generation of Income

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Primary Income - from recipients’ perspective (Contd.)

• Government receives – Taxes less subsidies on products and imports (duties)– Property income

• Primary income is also received from (and paid to) RoW• For an institutional unit, Balance of Primary Income is

– total value of the primary incomes receivable less

total of the primary incomes payable• At total economy level, it is called Gross National Income

GNI = primary income generated in the domestic economy (GDP) + (net) primary income receivable from RoW

• NNI = GNI – CFC• Per capita income = NNI / Mid year population

How?- Primary Income

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Secondary Distribution of Income

Out of the balance of primary income (gross), the institutional units may pay and/or receive current transfers:– transactions in which an institutional unit provides part

of primary income to another unit without receiving from the latter any thing in return as a direct counterpart

After making the current transfers, the institutional units are left with Gross National Disposable Income (GNDI)

GNDI = GNI + Current Transfers receivable

- Current Transfers payable

How? - Distribution of Income

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Use of Income

The GNDI the available income is spent by the households, government and NPISHs on final consumption

The balance is Saving

Saving = GNDI- Final Consumption Expenditure

which then flow to the financial market Enterprises borrow from the financial market for acquisition

of assets (capital formation)

How? - Circular Flow - Use of Income

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Valuation of Goods and Services Taxes and subsidies on products bring about difference in

prices of products at different stages – production, distribution and sale resulting in different perception of prices for same transactions between users and producers

Valuations recommended in 2008 SNA: ‘basic prices’, ‘producers prices’ and ‘purchasers prices’

Purchasers’ price

Less trade and transport margins

Equals producer's prices

Less taxes less subsidies on products payable/receivable by their producers

Equals basic prices

How? - Valuation

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Market Prices

Prices paid by consumers are different from what the producers perceive as their receipts, because:

• the taxes on products that are passed on to government are not receipts of the producers

• trade and transport margins, which forms part of the traders and transporters income

Thus, in the National Accounts:• Use of products are recorded at purchasers’ prices

• Supply (output) of products are recorded at basic prices

How? - Valuation

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GVA at basic priceAn enterprise’s earnings from production is the GVA at basic prices= Receipts from sale of its products

minus (taxes on products –subsidies on products) = Gross value of output at basic prices (GVObp)

minus Intermediate Consumtion (input) at purchasers prices (ICpurp)= Gross Value Added at basic prices (GVAbp )

GVAbp = GVObp - ICpurp

Which gets distributed asCE + OS + MI + other production (t-s)

Where, CE is compensation of employees, OS is gross operating surplus and MI is mixed income - mix of CE and OS

How? - Valuation

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GDP - at Market Prices

GDP the measure of production is always at market prices

GDP at market prices is defined as:

GDPmp= ΣGVAbp + taxes less subsidies on all products (t-s)

GDPmp≡ GVObp – IC + (t-s)on products + (t-s)on imports … [2]

GDPmp represents the primary income generated from the production undertaken within the domestic economy. Taxes on products is a part of income. The above equation is in fact the Production Account

How? - Valuation

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Commodity Balance Identity

The equivalence of supply and use of goods and services lead to the commodity balance identity:

Output at purchasers’ prices is

GVOpurp ≡ IC + PFCE + GFCE + GFCF + CII

+ acquisition less disposal of valuables

+ X – M …. …. …[1]

exports and imports are both valued at f.o.b., which excludes taxes and subsidies on importsNote that PFCE stands for Private Final Consumption Expenditure, which includes final consumption expenditure of Household and NPISHs

How? - Identities

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Expenditure-side Identity

GDPmp ≡ PFCE + GFCE + GFCF + CII

+ acquisition less disposal of valuables + X – M

This is the expenditure-side identity

GDPmp≡ Σ GVAbp + taxes less subsidies (t-s) on products (including on imports)

= Σ GVAprodp + taxes less subsidies (t-s) on imports

Sum of GVA at producers price includes taxes less subsidies on domestic products only. Thus taxes less subsidies on imports is to be further added to get GDP at market price

How? - Identities

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Income-side IdentityOn the income-side,

GDPmp ≡ (CE + OS + MI) generated in domestic economy+ (t-s) on products + (t-s) on imports …

[3]Income of the residents of the economy

≡ primary income generated within the economy (GDPmp) + (net) primary income earned from abroad (RoW)

≡ CE generated in (paid by) the domestic economy

+ OS and MI generated in the domestic economy

+ (t-s) on products + (t-s) on imports

+ CE from RoW (net) + PI from RoW (net)

≡ Gross National Income (GNI) …… …….[4]

How? - Identities

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Gross National Disposable IncomeFrom the income, taxes on income and wealth are paid both to the

governments of the country and abroad. The Government similarly earns such taxes both from the domestic economy as well as abroad

Further, there are current transfers made both within country and across the border. Thus,

Gross National Disposable Income (GNDI)

≡ GNI - net taxes on income and wealth payable to RoW

+ net current transfers receivable from RoW ….[5][Note that the transfers within the economy get cancelled out]

How? - Identities

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Gross Saving

(Gross) Saving of the domestic economy is defined as

Gross saving = GNDI minus (PFCE + GFCE) .... ...... [6]

Using the expenditure- and income-side identities, this reduces to

Gross Saving = Gross Domestic Capital Formation

+ acquisition less disposal of valuables

+ acquisition less disposal of non-produced non-financial assets

- (net) Capital transfer receivable

+ net lending (to RoW) .... ...... [7]

How? - Identities

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Main SNA Indicators – A sum up

GDPplus (net) primary income from RoW

= GNIplus (net) current transfer from RoWplus (net) taxes on income and wealth from RoW

= GNDIminus final consumption expenditure

= Gross Savingplus (net) capital transfer from RoWminus gross capital formation minus acquisition less disposal of valuables from RoWminus CFC

= Net lending / borrowing from /to RoW

How? - Accounts

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SNA framework reflects economic processes in sequence of accounts that

• core of accounting framework, provides overview of the economy • structured by institutional sectors (incl. ROW) and three sub-sets of accounts

Three subsets of Accounts are:

I. Current accountsProduction Accounts … … … ← identity [2] Income Accounts

i. Generation of income account … … ← identity [3] ii. Allocation of primary income account … … ← identity [4] iii. Secondary distribution of income account … ← identity [5] iv. Use of income account … … ← identity [6]

II. Accumulation accounts … … ← identity [7]

III. Balance sheet

SNA Framework- Sequence of Accounts Sequence of Accounts

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Transaction accounts

Transaction accounts - All the accounts, except Balance Sheets and the Other Changes in Assets Accounts, consist of values of transactions and are linked to the basic economic activities of

productionincome generation and distributionconsumption and capital formation

How? - Accounts

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General Features of AccountsLike business accounts, each of these accounts of SNA are

organised as a sequence of T-accounts and thus have two sides, called

– ‘resources’ and ‘uses’ for current accounts– ‘changes in liability & net worth’ and ‘changes in

assets’ for accumulation accounts– ‘liabilities & net worth’ and ‘assets’ for Balance sheet

Entries made in these accounts are based on the principle of double accounting, thus permit checking consistency

The accounting structure - applies to all institutional units / sub-sectors / sectors and total economy. However, all transactions are not relevant for all sectors

How? - Accounts

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Links between Accounts

• Among the transaction accounts: The balancing item (in the uses side) of one account is carried forward as the first item (in the resources) of the next account

• The changes in assets and liabilities brought about by transactions (and other changes) are reflected in the Balance Sheet

• The sequence of accounts thus provides an integrated view of the entire economy

How? - Accounts

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Links between the Accounts

Production Account

Income Accounts

Capital Account (non-financial

assets)

Financial Account(financial assets/

liabilities)

Opening BalanceSheet

Other Economic

flows

Closing BalanceSheet

GDP

savings

Net lending/borrowing

How? - Accounts

Transaction

Accounts

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Integrated Transaction Accounts of 2008 SNA – in Brief Uses Resources

Production Account

Intermediate Consumption (P2) Output (P1), of which:Market output (P11); Output for own final use (P12) and Non-market output (P13)

(Taxes-subsidies) on products & imports (D21 – D31)

GVA / GDP (B1)Generation of income Account

GVA / GDP (B1)Compensation of employees (D1)(Taxes – subsidies) on production & imports

Mixed income(B3) +Operating surplus (B2)

Primary Distribution of Income

Mixed income (B3) +Operating surplus (B2)

Compensation of employees (D1)(Taxes – subsidies) on production & imports (D2–D3)

Property Income (D4) Property Income (D4)Gross National Income (B5)

Secondary Distribution of Income

Gross National Income (B5)Taxes on income & wealth payable (D5) Taxes on income & wealth receivable (D5)

Social contributions & other social benefits payable (D6) Social contributions & other social benefits receivable (D6)

Other current transfers payable (D7) Other current transfers receivable (D7)Gross Disposable income (B6)

Use of disposable

Income Account

Gross Disposable income (B6)Final Consumption Expenditure (P3), of which:

Household FCE; Government & NPISHs FCE

Adjustments for hhds’ pension funds (D8) Adjustments for hhds’ pension funds (D8)

Gross Savings (B8)changes in assets changes in liability & net worth

Capital Account

Gross Savings (B8)Gross Fixed Capital Formation (P51g) Capital transfers receivable minus Change in Inventories (P52) capital transfers payable (D9)Acquisition less disposal of valuables (P53)

Acquisition less disposal of non-produced non-financial assets (NP1, NP2 & NP3)

Minus CFC (P51c)Net lending / borrowing (B9)

Financial Account

Net lending / borrowing (B9)Net acquisition of financial assets (F1 to F8) Net incurrence of liabilities (F1 to F8)

Net lending / borrowing (B9)

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Other Volume Change

Changes in Assets Changes in Liabilities and Net

WorthAddition/reduction of non financial (produced and non-produced) and financial assets due to other changes in volume of assets

Addition/reduction due to other changes in volume of liabilitiesChange in net worth due to other changes in volume of assets (holding gain/loss)

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Revaluation Account

Changes in Assets Changes in Liabilities and Net Worth

Addition/reduction of non financial and financial assets due to price change

Addition/reduction due to price change of financial liabilitiesChange in net worth due to price change (holding gain/loss)

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Changes in Balance Sheet

Net Acquisition of Assets

Net Lending and addition to Net

WorthChange in value of non financial assets

Change in value of financial assets

Change in financial liabilitiesChange in net worth

Due to transactionVolume changeHolding gain

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Balancing Items in Accounts• Balancing item

the sum of resources (right side) minus the sum of uses (left side) in each of the current accounts

shown on the left side (uses side) of the account

• Each account has a balancing item that is significant as a macro-economic aggregate like gross / net domestic product (GDP / NDP) gross / net national income (GNI/ NNI) gross / net disposable income (GNDI/NNDI) saving net lending/borrowing

How? - Accounts

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The value of a product or group of products, valued for the current period using its own prices from an earlier period (which are kept constant)

At the micro level:

At the aggregate level:

the total value of a group of products in period t where each item is revaluated at its own prices of period 0 (period 0 is kept constant for a period of time)Where: is the price of item i in base period 0

is the quantity of item i in period t is the total value in period t measured at the prices of

base period 0

What is Estimates at Constant Prices

qp ti,i,0

qp=Q ti,i,0it0,

tiq ,

0,ip

tQ ,0

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• Changes over time in a constant price time series reflects only changes on quantities (and quality)

• Thus it is an aggregated volume measure– expressed in money terms– which thus is additive

• It is not value of a product or group of products adjusted for changes in the general price level. Can be estimated by-

• Revaluation : Multiply the quantity or volume at time t by price at time 0 • Deflation : Divide the GO at current price by price relative or price index

with base 0• Extrapolation : Multiply the value at time 0 with volume relative or

volume index

What is Estimates at Constant Prices

qp=Q ti,i,0it0,

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Thanks