IMF assists to improve Bhutan’s National Accounts and FISIM

It is credit to the government of Bhutan that they have authorized to publish their Technical Assistance reports unlike most other countries. The following is IMF technical assistance on improving national accounts- the cover page a bit odd to see ‘author’ highlighted in a Fund TA report.

The mission provided TA to improve annual and quarterly GDP estimates mainly for financial services indirectly measured (FISIM) and for insurance. For FISIM, currently Bhutan follows the 1993 System of National Accounts (1993 SNA) standard for measuring output: property income earned less interest paid. The new 2008 SNA calls for measuring FISIM output using a reference rate approach. The mission recommended that the authorities use the “Base rate” (up to 2016) and the “Minimum Lending Rate” (beginning in 2016) established by the Royal Monetary Authority (RMA) as the reference rate for computing FISIM. In addition, the mission developed standardized EXCEL worksheets in a time series format for computing FISIM on deposits and Loans (SNA interest) that can be adapted for annual or quarterly compilations. (The EXCEL worksheets are available from the mission upon request.)

Bhutan : Technical Assistance Report-SARTTAC Report on National Accounts Statistics Mission

Not Directly Related: A bit of history of FISIM-

“To measure the supposed economic value generated by this interest-rate spread, a new accounting concept was introduced in the 1993 update to the UN System of National Accounts, the holy book of GDP. The concept is called financial intermediation services indirectly measured, or FISIM for short. Without going into technical details, the upshot is that the wider the spread the more value is judged to have been created. That is back to front. In banking, spreads increase when risk rises. If a banker judges you quite unlikely to repay a loan, she will raise the interest rate charged to reflect the higher risk of default. So, from an accounting point of view, the riskier the portfolio of loans the greater the contribution to growth. Put another way, the more catastrophically irresponsible bankers are, the more we judge them to be helping the economy to grow. It is as if a driving instructor rated your proficiency solely on the basis of your maximum speed.

As one report into the UK financial crisis put it, with the sort of understatement only the British can muster, “This can lead to some surprising outcomes.” 16 In the fourth quarter of 2008, after Lehman Brothers went bust and the international financial system seized up, from the perspective of UK national income things had never looked better. Just as the economy was about to go into free fall, the report said, “the nominal gross value-added of the financial sector in the UK grew at the fastest pace on record.”

Pilling, David. The Growth Delusion: Wealth, Poverty, and the Well-Being of Nations

“Unable to imagine when this was written that banking could be subtracting value from the economy, statisticians sought to find a way of measuring these earnings from financial intermediation. So for many years the convention was to count financial services as the negative output of an imaginary segment of the economy. It is, to use a phrase from Alice in Wonderland, curiouser and curiouser. As the financial services industry grew throughout the 1980s, the approach changed again, and the 1993 update of the UN System of National Accounts introduced the concept of “financial intermediation services indirectly measured,” or FISIM. This current measure compares banks’ borrowing and lending rates on their loan and deposit portfolios to a risk-free “reference rate” such as the central bank’s policy rate, and multiplies the difference by the stock of outstanding balances in each case. The practical difficulties are enormous, especially when it comes to translating this into an inflation-adjusted or real-terms figure. 10 But in principle it made sense as a way of measuring the service provided by banks in taking on risk.


This view that finance is a strategically important sector of the economy developed alongside the changes in statistical methodology. The original SNA (in 1953) had shown the financial services industry as making either a negative or a small positive contribution to GDP. Finance was a more or less “unproductive” activity because the interest flows (now measured by the FISIM construct) were broadly treated as an intermediate input of the finance sector and therefore netted out of the sector’s final value-added contribution to GDP. In the United States from 1947 to 1993, the net interest revenue from financial intermediation (labeled the imputed bank service charge, IBSC) was counted as an input to other sectors of the economy. This approach was formalized worldwide in the revised 1968 SNA, when the IBSC was “considered wholly intermediate consumption and, more pointedly, as the input/ expense exclusively of a notional industry sector with no output of its own. That is correct: an imaginary industry supplying no products or services was theorized into being as the ‘buyer’ of banks’ intermediation. The ‘services’ of financial intermediaries were still deemed productive outputs, therefore, yet rather than being traceable to other, tangible sectors of the national economy, they now disappeared into what was effectively the black hole of a dummy industry with a negative value-added equal (but opposite in sign) to the IBSC.” 17 The United Kingdom adopted this approach in 1973, France in 1975. This change started to turn finance from a conceptually unproductive into a productive sector. The 1993 SNA accelerated the reenvisioning of finance. In a study of international banking, Brett Christophers writes: “Instead of assessing banks’ borrowing and lending activities together, and intimating that the combination constituted a portfolio of services whose collective value could be imputed by deducting interest paid on the former from interest generated by the latter, SNA 1993 separates the two functions and defines each — each — independently — as a productive activity whose output can be measured.” 18 Ironically, the United Kingdom’s Office for National Statistics implemented this treatment of FISIM fully for the first time in the 2008 figures. 19 This is an important conceptual change. It portrays finance as an economic activity like any other — just as a manufacturer takes raw materials and transforms them into more valuable products, banks take a risk-free return and transform it into a higher return by taking risks, providing a service to both the source of the funds — the ultimate depositor or lender — and the recipient or borrower. But the absurdity of recording big increases in the contribution made by financial services to GDP as the biggest financial crisis in a generation or two got under way indicates that the statistical approach is mistaken. Economists have begun to suggest methods for adjusting the FISIM figure to take account of risk-taking behavior by banks. No doubt other technical suggestions will come along.”

— Coyle, Diane. GDP: A Brief but Affectionate History



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Ismail Ali Manik

Uni. of Adelaide & Columbia Uni NY alum; World Bank, PFM, Global Development, Public Policy, Education, Economics, book-reviews, MindMaps, @iamaniku