In five months’ time, the National Statistics Office will join all other EU statistical institutes in introducing a new European System of National and Regional Accounts known as ESA 2010.
This compulsory accounting framework differs from the current ESA 95 in scope as well as in concepts, and reflects developments in measuring modern economies, advances in methodological research and user needs.
The structure of ESA 2010 is consistent with the worldwide guidelines on national accounting set out in the System of National Accounts 2008 (2008 SNA), which has already been implemented in the US, Australia and Canada.
Over the past two decades, substantial changes have impacted economies, in particular the increasing role of information and communication technologies in production processes, the growing pace of intangible assets, intellectual property products and service activities, and the globalisation of national economic systems.
Changes will involve reclassifications from one account to another, as well as the indirect measurement of financial services
These changes required adjustments in the way in which national accounts and balance of payments statistics are compiled, ensuring international comparability of macroeconomic data.
An extended data dissemination programme will be implemented. A new international Balance of Payments Manual, known as BPM6, will be introduced this year to coincide with ESA 2010, and will take account of the increasing importance of financial flows and stocks when analysing external stability.
These useful and necessary adaptations will translate into increases in Gross Domestic Product (GDP) levels of all EU member States, with a consequential effect on gross national income, an important variable in the calculation of the EU budget. Ratios of public deficit and debt in terms of percentages of GDP, used to determine fiscal policies under the Excessive Deficit Procedure (EDP), will change.
Regional GDP, employed in the distribution of structural funds, will be affected. Macroeconomic Imbalance Procedure (MIP) indicators, based on national accounts and on balance of payments data, will be revised.
How will Malta’s national accounts be primarily impacted? Outputs of research and development will be capitalised and treated as fixed assets instead of being classified as current expenditure.
ESA 2010 will significantly improve the measure of the contribution of insurance services to GDP through the use of a formula for the calculation of the non-life insurance output.
Special purpose entities (SPEs) that are set up or established in Malta, even though they may have no physical presence locally, will be included for the purpose of GDP estimates.
The economic relevance of the vast majority of SPEs, in terms of their contribution to GDP, is expected to be relatively low. However, the balance of payments and international investment position statements will be subject to significant changes in service and income flows, as well as in financial stock positions.
Balance of Payments estimates will also incorporate improvements and updates in methodology. A major change will be the elaboration of direct investment and its presentation on a gross asset and liability basis. Other changes will involve reclassifications from one account to another, as well as the indirect measurement of financial services, known as FISIM.
There are other methodological changes brought about by the implementation of ESA 2010, which currently do not have an impact on Malta.
For example an analysis of pension schemes will show the liabilities of all such schemes, private or public, funded or unfunded. Another example is the value of goods sent abroad for processing, which will no longer affect gross trade figures, because the new system uses a change-in-ownership approach rather than one based on physical movements.
Another change relates to expenditure on weapons systems, which will be recorded as an investment rather than as intermediate consumption.
Preliminary estimates announced by Eurostat last January indicate that methodological changes necessitated by ESA 2010 will raise average EU GDP levels by 2.4 per cent. The estimates differ for the individual member States. By way of comparison, the introduction of the new international standards led to an increase of 3.5 per cent in US GDP for 2010 to 2012.
NSO has been working on the introduction of ESA 2010 and other benchmark revisions since December 2012, when these changes were first communicated publicly. NSO’s economic statistics directorate is working towards a smooth transition. Interested users will be provided with appropriate technical explanations as this important change is implemented.
Michael Pace Ross is director general of the National Statistics Office.