Implementing New International Standards for National Accounts and Balance of Payments Statistics

National Accounts – ESA 2010

National Accounts are compiled in the EU according to the European System of National and Regional Accounts (ESA) framework. In 2014, the new ESA 2010 framework replaces the current ESA 95 version and all EU Member States must adopt ESA 2010 by September 2014. 

The Quarter 1 2014 National Accounts and the National Income and Expenditure Annual Estimates 2013 for Ireland released today are based on the ESA 2010 framework, with back data available to 1997 for the quarterly series and to 1995 for the annual series. The ESA 2010 changes have been implemented in addition to the routine revisions caused by the inclusion of more comprehensive and up to date data. 

There are a total of 25 updates to the ESA 2010 framework that affect Ireland’s National Accounts.  The ESA 2010 change with the greatest impact on Ireland’s gross domestic product (GDP) is the new treatment of research and development (R&D) expenditure. Under ESA 95, R&D expenditure was treated as an ancillary cost to the main production of an enterprise. Under ESA 2010, R&D expenditure is recognised as investment and is included as gross fixed capital formation in the expenditure approach to GDP and as value added in the income approach.

In addition to the ESA 2010 changes, the results include extended estimates for illegal economic activities.  The European statistical agency, Eurostat, has agreed recommendations on the estimation and recording of these activities in recent years and now requires Member States to include estimates for illegal economic activities in the National Accounts by September 2014.

Table 1: GDP on an ESA 2010 basis at Current Market Prices

Balance of Payments – BPM6

In June 2014, and in line with other EU Member States, the CSO implemented the sixth edition of the IMF’s Balance of Payments and International Investment Position Manual (BPM6).  The Quarter 1 2014 Balance of Payments (BOP) results are published today on a BPM6 basis, with back data to 1998 for the main aggregates.  Revisions to the BOP results for 2012 and 2013 due to the availability of additional and revised data are also included in the results in line with the CSO’s revision policy for BOP statistics.

Under BPM6, the change of economic ownership principle is applied, revising the treatment of goods sent abroad for processing.  The recording of processing is no longer based on physical movements of goods and in the BOP statistics, goods sent abroad for processing are no longer included in gross exports and imports of goods, instead the fee received for the processing is included in the service category “Repairs and Processing”.  This new treatment of processing services has very little effect on the current account balance.

A BPM6 change that does have an impact on the balances of Ireland’s BOP accounts is the new classification of non-produced, non-financial assets, or “patents and copyrights”.  Under BPM6, outright sales and purchases of patents and copyrights are no longer included in the capital account of the BOP but move to the current account and are included in the service category “Research and development”.  As Ireland is typically a net purchaser of patents and copyrights, the new treatment reduces the current account balance in the quarters affected by adding to imports of services.  The BPM6 definition of R&D services aligns with the ESA 2010 treatment of R&D as an investment.

Table 2: BOP Imports of R&D on a BPM6 basis

Other major changes under BPM6 are mainly reallocations with broadly neutral effects on the overall account balances.  For example in the current account, merchanting of goods is classified under goods instead of services and financial intermediation services indirectly measured (FISIM) are part of financial services, rather than income, in line with the treatment of FISIM in the National Accounts. 

For further information on ESA 2010 contact Michael Connolly at 01 498 4006 and for further information on BPM6 contact Chris Sibley at 01 498 4305.

Central Statistics Office                                                                        3 July 2014

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