'€œKnow thy self, know thy enemy. A thousand battles, a thousand victories.'€ It is one of the popular Sun Tzu quotes, stressing the importance of knowing what we have and what we can do as well as knowing our rivals. Under circumstances where resources are limited, like in the current world economy, every country is considered a rival. A problem arises as it is not easy to even know ourselves.

From a national economic perspective, understanding the strength of our economy is a must when we are on a playing field where many countries with various strengths and limitations compete endlessly.  Complying with that need, a set of national accounts data should be used and work as a kind of dashboard, which would allow us to know the shape and activities of our economy and to reveal how income is generated, distributed and used.

With a good and timely national accounts dataset in the form of Full Sequence of Accounts, the build-up phase to an economic crisis can be detected earlier. This is because an economic crisis never occurs instantly.

Bubbles in the economy, as a common precondition of a crisis, are actually visible. The great recession in 2008 was initiated by a bubble in US property, which caused problems in their subprime mortgage sector. Prior to that, bubbles had affected most IT businesses.

When the bubble burst, all US based IT companies were hit, such as Amazon, whose stock fell from US$107 to $7 per share, Cisco with 86 percent decline and Pets.com had to shut down their business.
World.com tried to survive by manipulating their accounts, but when it was discovered by the public, the impact was even more severe.

Any economic bubble can be detected by looking at the rapid change of '€œthe shape'€ of particular sectors of the economy.

The Asian crisis in 1998 also did not appear out of the blue. The build up to the crisis took at least five years. Evidence of some tricky internal acquisitions was detected by economists, such as Kwik Kian Gie, four years in advance, which rendered the economic foundations unstable. Those peculiarities in financial and capital aspects of the economy can indicate a future crisis .

By default, a national account divides economic actors into six institutions i.e. households, nonprofit institutions, governments, non-financial corporations, financial corporations and the rest of the world. Nevertheless, it still offers more detailed segregation such as splitting households into income levels, carving up corporations along with the industrial sector etc.

More detailed national accounts will provide better analysis materials but, on the other hand, it requires more data and compilation efforts that demand particular skills. Spatial disaggregation is also a possible option if a focus on specific regions is necessary.

As a complete picture, sequence of accounts looks like a house building. We are able to see if the wall is too thin or the doors are too small by comparing it with other houses. It explains why the principle of comparability is really substantial in the context of national accounts.

For that reason, UN Statistics Division, in cooperation with other international bodies, has released System of National Accounts as a recommended manual for all countries to develop their national accounts. The latest version of System of National Accounts is SNA2008 replacing SNA1993, which is no longer suitable to cope with complicated modern activities, especially due to growing financial businesses.

Not only to act as an early warning system of a crisis, national accounts dataset can also reveal any unusual financial activities such as inefficiency and poor productivity. One boiling topic regarding inefficiency is the common enemy of development: corruption.

As well as other inefficiencies, corruption creates unreasonably high costs that disrupt the cost and output balance. The hidden cost of corruption is usually camouflaged as other legitimate costs. At some point, where those legitimate costs can no longer be accommodated with the illicit load, the peculiarity will be visible through national
accounts.

A well-structured national accounts dataset, with sufficient level of detail, can provide undisputable evidence for financial misconduct. It can be detected either because of its size or because the frequency of the occurrence is quite high.

Fuel price is also a hot topic that can be comprehended better with national accounts dataset. Price distortion as the result of fuel subsidy creates a disharmony in supply and demand.

Subsidies bring incentive only to the demand side. Therefore, the more subsidies are spent, the higher demand will be.

On the other hand, we still have people living in poverty that need subsidy to make fuel price affordable for them. So judgment is needed to decide how much fuel subsidy should be injected and how to avoid an inappropriate amount of subsidy that could lead to a counter-productive result. National accounts should provide precise information to allow a fair judgment.

By developing a satellite account with focus on fuel related activities, the presence of illegitimate uses of subsidized fuel can be spotted. Supply of subsidized fuel is measurable, whether it is from domestic production or import. The demand is also measurable.

It is classified into household consumption and certain targeted users, e.g. nonprofit institutions, SMEs on public transportation, traditional fishers etc. The remaining fuel supply, if it does not go to a temporary depot (which is also measurable), goes to illicit users. That is what the authority should verify.

Policies made by government should be measured and based on data, and national accounts are the bank of most socioeconomic data, as each item of data is interconnected. It allows us to keep an eye on the building of the economy, comprehensively. Whoever we are, we have a right to keep that building solid and comfortable, like a cozy home.


The writer is an economist at the Central Statistics Agency (BPS). The views expressed are personal.

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