Abstract
This Report on the Observance of Standards and Codes on Data Module for Iceland highlights Data Module, response by the authorities, and detailed assessments using the data quality assessment framework. Iceland’s macroeconomic statistics are generally of high quality and are adequate to conduct effective surveillance. There is a high degree of quality awareness among Iceland’s statistical managers. There are some deficiencies in the periodicity and timeliness of the producer price index, and in the timeliness of central government finance statistics.
2 November, 2005
Report on the Observance of Standards and Codes
Response from the Icelandic Authorities
I. General Response and The Cross-Cutting Recommendations
The Icelandic authorities—Statistics Iceland, the Central Bank of Iceland, and Ministry of Finance—are grateful for the opportunity to have some of the main official statistics reviewed and evaluated against the IMF’s Data Quality Assessment Framework. The ROSC exercise was found to be valuable and helpful in assessing current practices and methodologies. The authorities concur with most of the recommendations of the ROSC as they are in close harmony with the views of these institutions. As regards the recommendations that are of a cross-cutting nature, the following response can be given:
The ROSC has observed that Icelandic legislation on official statistics is spread over several legal acts, some of which are quite old. For this reason it is recommended that single, comprehensive statistical legislation be enacted. Furthermore, it is recommended to strengthen the authority for coordinating official statistics by assigning specific responsibility to Statistics Iceland in the new legislation. While being of the opinion that the present legal arrangements have been broadly adequate, the Icelandic authorities concur with the desirability of having a single and modern statistical act. The Icelandic authorities have decided to prepare comprehensive statistical legislation along the lines found in many neighboring countries, containing all the main principles of official statistics as recommended by the United Nations and the IMF.
A. Staff Resources
Statistics Iceland agrees that there is a need to increase staff resources for work on macroeconomic statistics. In view of the recommendation of the ROSC, the Icelandic authorities have decided to increase the staff in macroeconomic statistics (national accounts and price statistics) in the course of the next two years.
The Central Bank of Iceland will take a further look at the recommendation of increasing staff resources and decisions will be taken after careful studies of the cost and benefits.
It should be noted, however, that the perception of insufficient staffing is a misconception often applied to small economies. It is important to bear in mind the size of the economy and population when estimating the sufficiency of staff resources. The size of the economy already leads to official institutions being disproportionately large in international comparison in terms of population. Enlarging these institutions would be impossible in practice and out of line with IMF orthodoxy. Small economies such as Iceland learn to adapt to size constraints, through sharing of tasks, etc. It should also be noted that size can also have benefits in terms of oversight and flexibility.
B. Metadata
The ROSC makes several references to the provision of metadata as well as availability of summary methodologies for the IMF’s DSBB. In the last year or so, substantial efforts have been made at Statistics Iceland to improve and increase the provision of data and metadata, not least through a new website which was launched in June 2005. Continued efforts will be made in this respect as well as in fulfilling the IMF’s standards for providing and updating data and metadata on a regular basis.
The mission has recommended the Ministry of Finance provide detailed metadata through publications and/or websites of relevant compiling agencies to meet the requirement of the users. One of the objectives of the State Accounting Committee (SAC) is to look into the practices regarding the production and dissemination of metadata for the source data of the central government and to come up with improvements. This work is expected to be completed over the next two to three years.
The Central Bank’s balance of payments metadata comply with requirements made in the SDDS. In addition, significant improvements are being made to inform the users about data sources, methodology, and compilation practice as the balance of payments metadata will be disseminated with the statistics on the Central Bank’s website. Also, advanced notice will be given if major changes are decided in methodology, source data, and statistical techniques. The new metadata (and the SDDS) will explicitly mention that there is no external government access to the balance of payments statistics prior to release. New metadata on monetary statistics are being prepared that explain the data revision process with particular mention of the revision made when end-of-year data are externally audited. Metadata for monetary statistics have been disseminated on the Central Bank’s website. The Central Bank website has hyperlinks to the IMF website. The Central Bank believes that the metadata accessibility has improved and become adequate.
C. User Groups
One of the cross-cutting recommendations of the ROSC concerns regular user contacts through user groups and surveys. Statistics Iceland established a broadly based advisory user group on national accounts (including foreign trade) in 2004 and this year a similar group has been established for the consumer price index (CPI). That group is in addition to the mandatory advisory CPI group which has functioned for many decades. Apart from this, Statistics Iceland has for a long time sought user or expert advice through ad-hoc groups on specific tasks, such as new surveys or data collections, revisions of classifications and similar undertakings. At present several such groups are active, notably on the system of health accounts, wage statistics, implementation of Classification of the Functions of Government (COFOG) and local government finance. Statistics Iceland will continue to expand and maintain user contact, mainly through user or advisory groups. In the Icelandic setting with its few actors and close proximity, the value of formal user surveys is more doubtful but will also be explored.
The Central Bank sees merits in establishing user groups. However, further analysis on the topic is needed before any decisions on implementation can be made.
II. National Accounts—Comments By Statistics Iceland
Recently, much effort has been spent on increasing the work on national accounts and strengthening the relevant methodologies in that respect. Of such efforts, it may be mentioned that work on income accounts has been under way during the last three years, substantial work has already been done on supply and use accounts, and as of September 2005 chain-linking has replaced the fixed base year for constant price measurements, both in the annual and the quarterly accounts. Statistics Iceland is of the opinion that these efforts need to be continued and agrees fully with the recommendation to expand the scope of the annual national accounts. For this reason, the Icelandic authorities have now pledged to increase the staff in national accounting. At the same time Statistics Iceland will be seeking ways to redirect its work towards increasing the scope and the timeliness of national accounts and other macroeconomic statistics.
A particular effort will be made to improve the timeliness of the annual GDP by type of activity. In Iceland, such accounts are heavily dependent on tax data; these provide good coverage as they include standardized comprehensive company accounts but are quite late. Producing quarterly GDP by type of activity as recommended by the ROSC and by the advisory user group on national accounts has not been prioritized for reasons of scarce resources. However, this is certainly of great interest and will be explored in the near future. In particular, quite different and more timely data sources will be sought to enable the generation of provisional estimates.
As mentioned previously, chain-linking has been implemented in the fixed price measurements of the national accounts, both annual and quarterly. A revised series at constant prices, extending back to 1990, was released on schedule in September 2005 as well as a continuous time series at current prices from 1980. Hence, there is now harmony in the methodology used for the expenditure and the output approaches as well as in the quarterly accounts. Furthermore, and as anticipated during the ROSC mission, chain-linking has reduced substantially the differences in measurements between the CPI and the household final consumption deflator. As is the experience in most other countries, some differences continue to exist and can be related to the difference in scope of the two yardsticks.
The recommendation to include benchmarking techniques to combine quarterly estimates and annual series will be carefully explored in the near future in connection with further development of the quarterly accounts.
Statistics Iceland is of the opinion that to investigate annually the discrepancy between GDP by type of activity and by expenditure, as recommended by the ROSC, is one of the most important tasks for Icelandic national accounting. Such investigations have so far been carried out by constructing supply and use tables at an interval of a few years; Statistics Iceland intends to do this more frequently and regularly, preferably annually if resources allow.
III. Price Statistics—Comments By Statistics Iceland
Statistics Iceland agrees with the findings of the ROSC that the present staff level in price statistics is insufficient to ensure the continued development of the PPI and to maintain the regular production and updating of the CPI without risk. As regards the CPI, the ROSC recommends that staffing back-up arrangements are strengthened and staff resources increased. Back-up arrangements are continuously in place and are regularly overhauled. The CPI work is always under much pressure and would clearly benefit from added staff resources.
As regards the development of the PPI, the work is being carried out according to a phased and prioritized work programme as recommended by the ROSC. In the first instance, the emphasis is on strengthening the regular quarterly production of the index, followed by extending its coverage to eventually introducing monthly data instead of the present quarterly ones. At present, a substantial part of the data is already collected on a monthly basis.
In light of the ROSC recommendation the Icelandic authorities will make an effort to increase the staff resources in price statistics over the next two years.
Finally, efforts will be made to prepare proper documentation covering all aspects of the basis, methodology, and production of the PPI.
IV. Government Finance Statistics—Comments By The Ministry of Finance (MoF)
The mission has recommended that the MoF compile an annual balance sheet for the central government and for the consolidated general government. This would fall under the auspices of the State Accounting Committee (SAC), which is represented by all the main producers of source data and official statistics. The SAC has during this year further developed the accrual accounting for the central government. Its main task has been (1) to develop an overall presentation frame of the central government finances in line with the GFSM 2001 framework, where the integrated system will be fully utilized and presented, (2) reclassifying the revenue presentation (structure) and the expenditure classification by economic type in line with the GFSM 2001, and (3) to fully develop the balance sheet for the central government, particularly the balance sheet for nonfinancial assets (a balance sheet for financial assets and liabilities exist already). Development of the balance sheet for the central government is expected to take two to three years. A more developed balance sheet exists for the local governments, which will make the consolidation for general government easier.
Clarifying the classification of financial liabilities of the local governments has been in progress. Since 2001, it has been problematic to distinguish between domestic and foreign financing, and between bank and nonbank financing, due to problems relating to simplification and streamlining of compilation of financial data on the local government level. A committee is addressing the problem and expects to resume the publication of these data for the general government relatively soon, with statistics for 2005.
The authorities are making efforts to ensure the timely provision of source data to the compiling agencies in order to meet the timeliness requirement of the SDDS. As stated in a footnote on the DSBB “Iceland is in the process of updating its computer software used in compiling central government operations and central government debt data. As a result, there are some delays in the dissemination of these data.” The Financial Management Authority is expecting to overcome these delays in providing central government operations data to the compilers no later than in early 2006.
V. Monetary Statistics—Comments By The Central Bank of Iceland (CBI)
The staff report recommends that the CBI adopt the full scheme of sectorization of institutional units and classification of financial instruments as recommended in the MFSM. The CBI will respond to this recommendation inter alia by collecting data on financial derivatives from the Deposit Money Banks (DMBs) and disseminating these statistics in the coming months or as soon as collection of source data begins. Also, preparations have started to include fixed assets in the Central Bank’s balance sheet.
The deposits of nonfinancial public corporations with DMBs cannot be disaggregated from the Treasury and government agencies because the Enterprise Register does not distinguish between the two sets of entities. In the DMBs accounts, the net claims on the central government cannot be presented separately for the same reason.
Finally, it should be noted that deposit departments of cooperative societies are classified with DMBs in Iceland and therefore do not fall under the category of Other Financial Corporations (as stated in the DQAF). Also, disaggregated data on commercial banks and savings banks are no longer disseminated.
The Central Bank fully concurs with the ROSC recommendations that the accounts of the CBI, DMBs and the Banking system in the analytical framework should be presented as recommended in the Monetary and Financial Statistics Manual (MFSM). Efforts are being made towards following this recommendation.
As regards the treatment of provisions for loan losses and securities held for investment purposes, this is consistent with the FME (Financial Supervisory Authority) Rules on Financial Statements of Credit Institutions. It has been convenient to compile reports in accordance with the provisions of rules on financial statements. The arguments for changing this arrangement will be examined. In addition, the Central Bank will take steps to present net foreign assets in the accounts of the CBI and of DMBs. The Central Bank accounts disseminated with other monetary statistics (see the Statistics pages on the Central Bank’s website) present both net and gross foreign assets.
The Central Bank has implemented the recommendation to exclude deposits of nonresidents from the definition of monetary aggregates. Central government deposits have not been excluded and in fact this is impossible under the current automatic classification of deposits by DMBs (because deposits of nonfinancial public corporations cannot be disaggregated from the Treasury and government agencies). Since the Treasury mainly banks with the Central Bank, it is assumed that it does not have major deposits with the DMBs. Treasury deposits in the Central Bank are not included in monetary aggregates. In the Central Bank’s view, this is therefore a very minor problem and should not warrant a downgrading of the data quality assessment.
The recommendation of ascertaining the residency of the holders of currency-linked and indexed bonds issued by the resident banks, and classifying these bonds into domestic/foreign liabilities, has been implemented.
Staff has recommended that the public should be given advanced notice of major changes in methodology, source data, and statistical techniques but this has not fully been addressed. In this context, it was recommended that studies and analyses could be conducted on the level and direction of revisions, possibly on an annual basis and shared with users. The Central Bank will consider this recommendation but it will be subject to the availability of staff resources. It is stated in the staff report that in practice revisions are rare and insignificant because the monthly reports submitted by the DMBs are usually final. Therefore, the Bank is not entirely convinced that there is a need for such studies because of timely reporting of data by all the parties concerned. Also, it should be noted that seasonal adjustments are not carried out on a regular basis. However, seasonally adjusted data are sometimes examined during research or statistical analysis.
Efforts are being made to improve the data presentation in tables on Accounts of the Central Bank of Iceland, DMBs, and the Banking system. First, an investigation is in progress to explain the discrepancy between the monetary statistics and balance of payments (external position). Steps will be taken to do the same for government finance statistics. Second, steps will also be taken to explain the relation between monetary statistics tables. Inconsistencies in time series have been rectified and breaks in the series will be explained in metadata. Third, statistics are also clearly identified as preliminary, revised, or final. Fourth, monetary statistics releases have now been synchronized so that they are available to all users at the same time. Finally, please take note that “Chapter 2” data reports containing data on deposits, loans, and bonds issued by four commercial banks and seven savings banks are no longer sent to the banks after the monetary statistics are released to the public according to the Advance Release Calendar.
VI. Balance of Payments Statistics—Comments By The Central Bank of Iceland (CBI)
On a general note, the Central Bank fully concurs with staff recommendations and will strive to improve the collection, compilation, and dissemination of the balance of payments statistics in accordance with international standards or best practices.
Measures will be taken to ensure that respondents fully understand their obligation to provide information for the balance of payments data. Respondents will also need to be informed of the Central Bank’s commitment to confidentiality with a pledge that their data will not be disseminated on a disaggregated basis, but used solely in the aggregated compilation of the balance of payments and external position. In future, laws and regulations on the obligation to provide information and on confidentiality will be cited on forms of questionnaires or in a separate letter to regular respondents, and also in annual surveys of external trade and international investment position.
The mission recommended that direct investment income on equity and portfolio investments should be shown separately in the income account of the quarterly statistics. The Central Bank will implement this recommendation. In addition, balance on income statistics, disaggregated according to the IMF standard, are available from the supervisor of balance of payments statistics. The same applies to the disaggregation of assets and liabilities in the financial account regarding other investments: trade credits, loans, currency and deposits, and other. It is always debatable how far statistics for the general public should be broken down, since more detailed dissemination often obscures the headline issues. In Iceland, the presentation of balance of payments statistics has reflected this focus on headline issues, which has been shaped by historical experience (tradition). Interest payments will be calculated on an accrual basis instead of the previous due-for-payment basis.
The inclusion of financial derivatives in the balance of payments and external position statistics is scheduled to take place (at least from the banks). Derivatives are expected to be included in the balance sheets of DMBs next year (and expedited if possible) and efforts will be made to obtain information about derivatives of other financial institutions. Statistics for nonresidents’ deposits have been reconciled with the monetary statistics. Permanent debt between parent and affiliated banks will be included under the direct investment category.
Efforts will be made to improve data collection for the balance of payments statistics. In particular, new approaches need to be explored for capturing data on growing cross-border investment when the quarterly balance of payments is compiled. As the staff has advised, the Central Bank has embarked on an investigation to disclose the reasons for inconsistency in the external position of the monetary statistics and balance of payments.
Regarding the revision of the data, steps will be taken to improve the policy (entailing the immediate inclusion of new data and explicit statement in statistical releases that this has been done). Steps will also be taken to identify which balance of payments data have been revised when they are released. Every effort will be made to inform users of the reasons for the revision of balance of payments statistics in Central Bank press releases and on the Statistics page of the Central Bank’s website. Furthermore, the Central Bank will consider studies and analyses of revisions and making them public, subject to the availability of staff resources.