Thank you for the invitation to provide a response to the IMF on the recent Volume I and Volume III reports on the Report on the Observance of Standards and Codes (ROSC)—Data Module for Australia.
Australia found the ROSC exercise useful. It provided one way of assessing the quality and suitability of each field of macroeconomic statistics and the relevant priorities of the fields of statistics.
The conduct and processes of the ROSC were appropriate for obtaining and reviewing the information needed. This was the first data ROSC in which Australia has participated and participants have gained insights which will position Australia well for participation in similar exercises in the future.
Australia notes the high quality of the staff employed by the IMF on the mission and thanks the staff for their professionalism.
The report recommends a number of changes and improvements for Australian macroeconomic statistics. Set out below is Australia’s response to the IMF’s recommendations. Before implementing any changes, Australia will continue its usual practice of consulting users on how best to improve its statistics.
II. General Comments
The report recommends a number of changes and improvements for Australian macroeconomic statistics. Australia agrees that most of the recommendations will result in improvements, and work regarding several of these improvements is already included in work programs. For example, the recommendations about frequency, coverage and methods for the Consumer Price Index (CPI) are under active consideration as part of the Australian Bureau of Statistics’ (ABS′) 16th Series Review of the Consumer Price Index (the 16th Series Review).
Australia notes that implementing these recommendations would represent a significant cost and thus would need to be considered on a cost/benefit basis, along with broader Government priorities within the constrained fiscal environment.
While the Data Quality Assessment Framework (DQAF) and Special Data Dissemination Standard (SDDS) frameworks provide useful approaches to assessment, some of the elements of these frameworks need review. In several cases the IMF mission identified data not provided in the narrowly defined contexts of Government Finance Statistics (GFS) and monetary statistics, when in fact the data are provided under the full set of System of National Accounts (SNA) produced by Australia. This suggests that the IMF framework should take into account the full span of the SNA standards, and not just a selected portion. Australia believes that compiling an aggregate in the appropriate part of the integrated SNA produces a superior result to compiling it in isolation.
III. Cross-cutting recommendations
Review deviations from current international standards, recognizing the broader benefits of international comparability, with a view at least to providing mapping to enable internationally comparable estimates to be derived.
As the first adopter of the new standards for national accounts and balance of payments statistics an issue has emerged as to the comparability of Australian national accounts and balance of payment statistics with other countries, which are not yet using the new standards.
Some of the recommendations are aimed solely at facilitating international comparability, and it is not clear that all of these are improvements. Australia believes that, in a small number of cases, adoption of the international standards does not produce statistics which are useful for domestic policy purposes. For example, the market-oriented creditor approach to interest and debt measurement has served Australia well during the global financial crisis. Providing an inferior alternative view solely for the purposes of international comparability as the report recommends would be complex and costly.
Australia will continue to work with the international community to improve the standards.
Review the periodicity of data categories, particularly those where flexibility options have been taken under the SDDS. Especially, with the uncertainties in economic developments since the outbreak of the GFC, early discernment of turning points and of changes in trends could significantly help economic management.
Discussion during the ROSC process, and parts of the report comment on a lack of progress on reducing Australia’s use of flexibility options in reporting under the SDDS. This is based on the view, put by the IMF team, that the flexibility options are transitional arrangements and that there should be work in place to ensure they are not needed in the future. This does not accord with Australia’s understanding or the written material available on the SDDS, which indicate that the SDDS regime allows both transitional and permanent flexibility options. It is likely that Australia will continue to exercise permanent flexibility options for low priority/high cost reporting.
For instance, it is likely the Department of Finance and Deregulation (DoFD) will keep using the central government operations (CGO) flexibility option for some time because accrual data takes longer to process than cash data and the Australian Government does not release June and July monthly data until it releases the Final Budget Outcome in September each year. Australia suggests that the IMF should review reporting timelines for countries on full accrual systems.
Ensure staff management and succession planning so that the agencies providing official statistics can respond effectively to the needs of a rapidly changing external environment.
Australia will continue to apply best practice human resource management consistent with funding and priorities constraints.
IV. National Accounts
Make (as an alternative presentation) national accounts series available that strictly follow the 2008 SNA in matters as the accrual of interest and valuation of loans.
As raised above, Australia considers that the market-oriented creditor approach to interest and debt measurement has served Australia well during the global financial crisis. Providing what is considered as an inferior alternative view solely for the purposes of international comparability would be complex and costly. The resources that would be devoted to providing an inferior alternative view would be better deployed on other quality issues.
However, Australia, through the ABS, will continue to publish supplementary memoranda for nominal values of loans.
Improve the sample size and product detail of the Annual Integrated Collection. Update the HES more frequently and review the PPI with the objective to improve its usability for national accounts compilation (see also below).
Improvements to sampling method and content of the Annual Integrated Collection (AIC) are under review. Australia agrees that these recommendations would enhance the reliability of macro-economic statistics. An option currently being explored is to make enhanced use of tax record data as a cost-effective alternative to an expanded AIC sample. For comments on the Household Expenditure Survey (HES) and Producer Price Index (PPI) see below.
V. Consumer Price Index
Australia agrees that most of the CPI recommendations will result in improvements, and work on many of these improvements is already on work programs. Recommendations about frequency and changes to the coverage and methods used to produce the CPI are under active consideration as part of the ABS’s 16th Series Review. Australia notes that implementing these recommendations would represent a significant cost and thus would need to be considered on a cost/benefit basis, along with broader Government priorities within the constrained fiscal environment.
We note that there is no recommendation relating to the deposit and loan facilities index, even though concerns about this item are expressed in the text (see Volume III, p57). Australia will give some consideration to improving the methodology and implementation of the deposit and loan facilities price index.
Examine the costs and benefits of producing a national consumer price index and associated sub-indices on a monthly basis.
Australia acknowledges the potential benefits of a monthly CPI to the efficient operation of the Australian economy through the more timely data for monetary policy. Additionally, user demand for a monthly CPI of equivalent quality to the existing quarterly is very strong.
However, the case for a change to a monthly CPI must be carefully weighed against costs, including any additional production costs and/or reductions in data quality.
Examine the costs and benefits of conducting a HES on a more regular basis to facilitate the more frequent updating of CPI weights. This would include re-examining the potential bias in the CPI from out-of-date weights and how the bias would be mitigated with increases in the frequency of updating weights.
The ABS has attempted to quantify the likely reduction in bias arising in the CPI from more frequent reweighting and has concluded that optimum benefit would be gained from reweighting on a four yearly cycle. Therefore, the benefits from reweighting the CPI on wage and benefit indexation are considered to outweigh the costs of conducting HES on a more frequent four yearly cycle (currently HES is undertaken every six years). It should be noted that a more frequent HES also has benefits to users of statistics other than the CPI, including to the national accounts, see above.
Assess the impact on the CPI of restricting the expenditure weights and CPI price collection to the six State capital cities plus Darwin and Canberra, and examine the options for compiling a CPI covering all the domestic territory of Australia.
The 16th Series Review has identified two potential methods of improving geographic coverage of the CPI pricing sample. Refinement of these alternatives will result in a decision about geographic coverage within the context of the outcomes to be implemented from the review.
Consider the costs and benefits of replacing the Australian expenditure classification CPICC with the internationally standard COICOP. Investigate options including a move to COICOP, further correspondence between CPICC and COICOP, or a classification system which is structured to deliver both. The implications for the coding of the HES also need to be considered.
The 16th Series Review has examined the role of the Classification of Individual Consumption According to Purpose (COICOP), its relationship with HES, the Consumer Price Index Commodity Classification (CPICC), the commodity classification used in supply/use tables in the national accounts, the version of COICOP used in the national accounts and the use of COICOP internationally.
The conclusion is that COICOP falls short of the ideal as a general purpose classification, as manifest by many local variations in Australia and internationally. Australia will work with the international statistical community to improve the characteristics of COICOP. In the meantime, the ABS intends to harmonies the use of a ‘standard Australian variation’ of COICOP to be applied in Australian statistics, and concordances to the SNA COICOP.
VI. Producer Price Index
Assess user needs for monthly data. Examine the costs and benefits of producing a limited number of key producer price indices on a monthly basis to meet the ROSC requirement for monthly indices and the needs of users.
As the ABS has no evidence of user demand for a monthly PPI, Australia is not convinced of the need for monthly PPI data and does not consider this recommendation as a priority, given competing statistical priorities.
Priority for any resources available for PPI development will be given to expansion of the quarterly range of indexes, see below. Under these circumstances, the ABS will continue to exercise a SDDS flexibility option for periodicity of the PPI.
Examine the costs and benefits of producing the outstanding PPIs for services, taking into account the added value from the gain in coverage, the methodological and data issues that would arise from developing PPIS for each service industry, and user needs.
The ABS will accord this recommendation high priority after the conclusion of work on the 16th Series Review of the CPI. See also the next recommendation.
Review the compilation of deflators in the national accounts. This review should cover both conceptual issues and issues of practical measurement. The aim would be to make better use of the data collected by Prices Branch.
The ABS will accord this recommendation high priority after the conclusion of work on the 16th Series Review of the CPI.
VII. Government finance statistics
The ROSC report demonstrates that Australian Government Finance Statistics (Australian GFS) have a high degree of compliance with the IMF’s requirements. The deviations from GFS2001 identified in the report result from the Australian GFS being implemented ahead of the release of the current international standard. Despite this early implementation there is a high level of consistency with the international standard. The ABS will review the Australian GFS, including any current deviations, in implementing the next update to the international standard. The ABS understands the new standard is scheduled for release during 2012.
Extend the transactional coverage of GFS data to include a breakdown of domestic/foreign and bank/nonbank stocks and flows of financial assets and liabilities, available in the quarterly financial accounts dataset.
The breakdown referred to is available in the Australian Financial Accounts. Including this breakdown in Australian GFS will be investigated during the implementation of the next update to the international standard. The availability of the breakdown from Treasury reporting systems will be considered in the investigation. In addition, it should be recognized that as a result of the ROSC, additional financing data provided by DoFD is now loaded monthly by the ABS on the SDDS website.
Improve the timeliness of the monthly GFS data (Central Government Operations) dissemination, so as to eliminate the need for the targeted flexibility option.
Processing of accrual data takes longer than the processing of cash data and the Australian Government does not release June and July monthly data until it releases the Final Budget Outcome in September each year. Under these circumstances, it is unrealistic to assume that changes can be made to improve the timeliness of the monthly GFS data so as to eliminate the need for the targeted flexibility option.
Review deviations from GFSM 2001, and consider adopting the classifications and concepts fully so as to further increase consistency with other macroeconomic datasets, and attain international comparability.
No action will be taken to review deviations from GFSM 2001. However, the ABS will review the Australian GFS, including any current deviations, in implementing the next update to the international standard.
Consider the costs and benefits of additional work to re-disseminate quarterly data for general government after benchmarking so as to attain a publicly disseminated time series consistent with annual data.
The cost and benefit of disseminating benchmarked quarterly data will be investigated during the implementation of the next update to the international standard. However, there is no known domestic demand for the benchmarked data and this will be considered against other demands on the ABS budget.
VIII. Monetary statistics
Obtain, from APRA, source data presenting systematically the split between transactions in national currency and those in foreign currency.
The Australian Prudential Regulation Authority (APRA) source data separately identifies Australian dollar and foreign currency items for the major components of both the asset and liability sides of the balance sheet. Foreign currency denominated items are approximately three per cent of total assets and liabilities of authorized deposit taking institutions. The level of detail provided in the APRA balance sheet data is sufficient for calculating the definition of broad money that is published on the Reserve Bank of Australia (RBA) website as part of the Financial Aggregates. It has been traditional practice in Australia to exclude deposits in foreign currency from broad money. This is consistent with the IMF manual, which suggests including foreign currency deposits in broad money only when it is widely accepted as a medium of exchange within a country.
Collect data for a proper sectorization of holders of certificates of deposit issued by banks. Such sectorization can be obtained through a survey of money market operators. A first step would be to identify all holdings by financial corporations reporting to APRA.
APRA source data are available regarding debt securities held by financial institutions that have been issued by other institutions (such as the level of sectorization in banks, other authorized deposit taking institutions, registered finance companies, insurance corporations, non-financial corporations, non-residents). These data are for all debt securities, without identification by type of security (that is, certificates of deposit, promissory notes, commercial paper are collectively reported). The level of detail currently provided in the APRA reporting forms is sufficient for calculating the definition of broad money that is published on the RBA website as part of the monthly Financial Aggregates release.
This recommendation is in respect to the detailed IMF Monetary Statistics Survey which requires a greater level of detail than is currently collected on the APRA reporting forms. In the event of a redesign of the APRA reporting forms, this issue could be considered. For those particularly interested in the supply and demand for certificates of deposits (including holdings by type of institution), this information is available from the quarterly ABS release of the Financial Accounts (ABS Catalogue Number 5232.0).
Conduct consultations outside the financial sector with the view to better identify the needs of academics, media, international investors, etc.
The RBA conferences and workshops currently provide academics and other users with a forum for providing feedback.
Expand the institutional coverage of monetary statistics to money market corporations and cash management trusts.
The RBA has a long-standing practice of publishing monthly measures of the supply of money and credit, referred to on the RBA website as Financial Aggregates. These measures include data on money market corporations, finance companies and cash management trusts. Money market corporations and finance companies currently have assets equivalent to six per cent of the assets of authorized deposit taking institutions, while assets of cash management trusts are equivalent to one per cent of assets held by authorized deposit taking institutions.
However, this recommendation is in respect to expanding the scope for Australia’s reporting of the detailed IMF Monetary Statistics Survey. In the medium term, the RBA intends to expand the reporting to included money market corporations and finance companies in the IMF Monetary Statistics Survey. However, given the magnitude of cash management trusts, this component is not a high priority.
IX. Balance of payments and international investment position statistics
Consider publishing additional datasets that fully comply with the international standards for classification/sectorization as well as data that allow conversion to the BPM5 presentation format to serve international users.
The ABS will consider publishing additional datasets that fully comply with the new international standards for classification/sectorization except, in a small number of cases, where it has been decided that the international standards do not provide a useful view for domestic policy purposes. It will be necessary to assess the likely requirement for cells to be closed to prevent the series identifying individual businesses.
The second part of this recommendation is that Australia, as an early adopter of the BPM6 standard, should maintain parallel series that allows conversion to the BPM5 standard until international agencies convert to the new standards. Australia has some concerns with this approach as it would create additional complexity and costs for the compiling agencies as well as result in different versions of important official statistics, such as the balance on current account, being readily available. This may result in confusion for users. Australia would be pleased to work with the IMF to develop acceptable presentation strategies to enable comparability.
Enhance consultations between the ABS and RBA to avoid differences in classification. Consider bringing the reserves data in the BOP/IIP and the reserve template in line with international standards regarding the recording of repos.
Consultations between the ABS and RBA will be enhanced to avoid differences in classification.
The treatment of repos is one of the areas where it has been decided that the international standards do not provide a useful view for domestic policy purposes. The ABS and RBA will work together to ensure a consistent treatment.
Publish or reclassify data that are currently available but not published or erroneously classified in the prescribed manner of BPM6;
Investigate the assumption that all portfolio equity investment abroad is through investment funds, with a view to showing separately dividends on equity excluding investment fund shares and obtaining a better estimation of reinvested earnings attributable to investment fund shareholders;
Consider using the sign convention as required under the BPM6 standards; and
Even though this is not a requirement in the international data standards, it is recommended that the ABS start publishing remaining maturity of external debt by sector in view of the high international demand for these data.
All four recommendations above are included on the ABS work plan and will be investigated as resources become available.
The investigations will consider, amongst other things, data quality, the likely requirement for cells to be closed to prevent the series identifying individual businesses and the impact on time series. The investigations will include, as appropriate, consultation with the user community, assessment of implementation costs, consideration of the risk of creating confusion with domestic users and consideration of the possible timing for implementing any changes.