Sources and estimation methods 1 General overview

The analysis of NOE shows that inadequate accounting in small enterprises and the informal sector are the most important reasons for non-exhaustiveness of national accounts.

Part of the production in the informal sector is often for own final use. Therefore, determining the actual volume of informal production is one of the most difficult problems in measuring the non-observed economy. The issue is of particular importance for Georgia due to the large share of the informal sector in the national economy.

Table 2. Share of the informal sector in total value added

2000 2001 2002 2003 2004 I-II Q. 2005 Share of the informal sector - % 38.0 38.0 34.0 36.0 31.0 30.0

The decrease from 38 to 30 per cent is mostly due to the GDP growth; the volume of the informal economy remained practically unchanged.

It is difficult to cover all small and individual enterprises with regular statistical surveys. In these cases, indicators obtained from regular surveys are extrapolated to the whole population on the basis of comparison of employment data from regular surveys of enterprises and data from the Labour Force Survey (LFS). The comparison is carried out by type of activity.

However, often the detailed classifications of the labour force and business surveys do not correspond and the labour force statisticians run into difficulties in allocating relevant codes.

Therefore, the adjustments are made at a higher level of aggregation than desired. In the meantime efforts are being made to improve the quality of the classification and questionnaire used in the LFS. A new and more detailed classification of types of economic activity was completed with additional explanations in 2005.

Balancing the supply-and-use of goods and services is one of the main approaches used to determine the components of NOE arising from incomplete and misreported information on production, incomes, expenditure and other key indicators. The reasons for imbalances are analysed by comparing data from different sources (Business Survey, Household Budget Survey (HBS), Foreign Trade Statistics) and adjustments are made for the components attributable to non-observed activity.

It should be noted, however, that this method is often used only in combination with other adjustment methods. Its use becomes difficult when several institutional sectors contribute to either supply or use, and it is necessary to take account of all components. In such cases it is often impossible to obtain reliable estimates of one or more components based on regular surveys.

2.2 Special surveys

Organising special surveys is an effective method of obtaining adjusted estimates. Such surveys are planned and carried out in specific areas, where either the quality of data obtained by current statistical surveys is low, or there are no data at all and a preliminary analysis indicates a possible high rate of NOE.

A number of special surveys were conducted within the framework of the TACIS programmes, and with the help of national accounts experts from the statistical offices of the Netherlands, Greece and Poland. The surveys enabled essential adjustments to be made in the national accounts, particularly in the production and income accounts.

2.2.1 Survey of tobacco consumption (1999)

The comparison of the results from this survey with business statistics data showed that the value of tobacco imports should be increased 1.2 times, and the value of tobacco production 1.5 times. The estimate for tobacco consumption (242 million Georgian Lari (GEL)) was 4.5 times greater than the figure obtained from the Household Budget Survey. An adjustment of about one per cent was added to the gross output in the production account. Corresponding adjustments were also made in the distribution of income account.

The estimate of increased tobacco consumption added about 3.2 per cent to the total GDP calculated from the expenditure side.

2.2.2 Survey of restaurants, cafes, bars and other similar establishments

Information obtained from the survey on the number of customers and average cost of services indicated that the actual output of these establishments exceeded by 3.8 times the figure reported in the regular statistical surveys. This suggests that 75 per cent of the actual volume of restaurant services is not observed. Corresponding adjustments in the main macroeconomic indicators, based on the survey results, were also made. In particular, the total output of this industry increased 3.4 times. Adjustments were also made to the expenditure side of GDP.

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2.2.3 Survey of construction activities

According to a survey carried out in Tbilisi, the total volume of construction and related activities was 145.1 million GEL, more than twice the amount reported in the 1999 regular business survey. The results from the same survey also showed that investment in construction was 197.4 million GEL, which is 2.1 times higher than the figure reported in the regular survey. The results suggest that about 50 per cent of all construction activities were not observed.

2.2.4 Survey of health care services

The results from the survey showed that in the first quarter of 2000, households obtained at least 4.3 times more health services and purchased 3.1 times more medicines and medical appliances than declared in official sources.

The estimate of the quarterly value of health care services was 87.1 million GEL, exceeding by about 6.8 times the same indicator obtained from the HBS. The estimate of household expenditure on medicines was 72.9 million GEL, 3.1 times higher than the figure obtained from the HBS. The comparative analysis of supply and use of medicines showed that the total supply should be increased by a factor of at least two, i.e. imports, exports and production should be adjusted accordingly.

In total, the summary effect of the adjustments on final use categories, obtained on the basis of this survey, equaled 3.4 percentage points. This estimate almost coincides with the adjustments that were made to the GDP compiled using the production approach.

2.2.5 Survey of education services

According to the results of the survey, household expenditures on education were 1.9 times higher than those reported by educational institutions. Household expenditures on schooling items exceeded by 2.2 times (or by 64.8 million GEL) the corresponding figure obtained from the HBS. Moreover the survey also enabled, for the first time, an estimate of households’ expenses on education abroad of 45.2 million GEL.

In the production accounts, the adjustments made to output and value added due to the increased volume of education services amounted to 59 million GEL, or 1.0 per cent of GDP in 2000. The total adjustment made to education services, including expenditure on schooling items and on education abroad, was 152 million GEL, equal to 2.6 per cent of GDP in 2000.

2.2.6 Survey of supply and use of tobacco goods (repeated survey), TV sets and other consumer commodities.

According to the survey, the estimate of legal imports must be increased about 3.5 times for the commodity groups under consideration. The registered imports of the commodities covered by the survey in 2001 was 5.8 per cent of the total registered imports (natural gas and electricity included). The actual imports of the considered commodities obtained from the survey makes up 13.2 per cent of the presently adopted adjusted import indicator and 27.3 per cent of the presently adopted adjustment. Due to the survey, the adjustment of the total annual imports of about 100 million US dollars was confirmed at about 3.1 per cent of the 2001 GDP.

The survey also made it possible to adjust the expenditure data on the considered commodities obtained from the HBS. The adjustment made was 4.8 per cent of total household expenditure.

A survey conducted in 2002, showed that consumption of cigarettes increased as compared to 1999. However, the tobacco prices decreased during the same period, thus resulting in a decrease of the total expenditure on tobacco goods.

A comparison of the results of the surveys conducted in 2002 and 1999 shows that in 2002, both unregistered imports and unregistered production increased considerably.

Domestic production of cigarettes sharply increased since 1999. At the same time, the share of non-observed production has also increased.

The results of the surveys mentioned in previous sections affected national accounts compilation process and adjusted corresponding figures in both production and final consumption accounts. Based on the surveys conducted, the overall adjustment to GDP due to changes in production, use, imports and exports was more than 10 per cent.

The special surveys of NOE are very important for the compilation of accurate national accounts. The results of the surveys, combined with additional employment data, provide well- founded estimates of the non-observed economy.