NATIONAL ACCOUNTS METHODOLOGY ST.KITTS AND NEVIS

NATIONAL ACCOUNTS METHODOLOGY ST.KITTS AND NEVIS SECTION 1 : GENERAL INFORMATION 1. Country: St Kitts & Nevis 2. Agency & Contact Person: Chief Statistician, Statistics Division, Ministry of Finance, Planning & Development 3. Address, Telephone, Fax, E mail: Church Street, Basseterre, St Kitts, W.I. Tel. 1-869-465-2521 Fax 1-869-466-7398 Email stats@caribsurf.com 4. Available Data /Estimates of National Accounts: Gross Domestic Product @ Factor Cost by Economic Activity (Current & Constant Prices) 19 5. Date of most recent estimates: 6. Other Features of the system currently computed: The main emphasis was on the compilation of Gross Domestic Product at factor cost by kind of economic activity. As the capacity of the Statistics Division improved, Expenditure on Gross Domestic Product was compiled. The transference of the responsibility for the compilation of the Balance of Payments from the Eastern Caribbean Central Bank to the Statistics Division also made it possible for the calculation of other measures of National Accounts such as Gross National Product or National Income and other derivatives. These are published in other documents, such as the Statistical Review or Statistical Digest. 7. Frequency of dissemination: Annually 1

8. Mode of dissemination: 9. Date of most recent publication/data disseminated: SECTION 11 : INTERNATIONAL STANDARD GUIDELINES FRAMEWORK & CLASSIFICATION 1. The framework of reference, in as far as possible, follow the 1968 UNSNA. Preparations are in place for the implementation of the 1993 UNSNA. 2. Economic activity is classified according to the ISIC Rev 2 and is listed as follows: 1) Agriculture: Livestock, Forestry, Fishing and Crops (2) Mining and Quarrying (3) Manufacturing (4) Electricity and Water (5) Construction (6) Wholesale and Retail Trade (7) Hotels and Restaurants (8) Transport (9) Communications (10) Banks and Insurance (11) Real Estate, Owner Occupied and Rented Dwellings and Business Services. (12) Producers of Government Services (13) Other Services SCOPE AND COVERAGE Geographic Coverage: The National Accounts cover the entire economic territory of St Kitts and Nevis. Unit Coverage: In principle all resident institutional units operating within the economy plus their transactions with the rest of the world are included in the National Accounts Unrecorded activity: No adjustments are made for illegal activity. Own account production of goods is not covered by the available sources and is indirectly 2

estimated. VALUATION Output is recorded at producer s prices which are defined as purchaser s prices less invoiced trade and transport margins. The data are published by industry output at factor cost. Exports and Imports are valued fob, based on the balance of payments estimates. GDP by final use is valued at market prices which is equivalent of the SNA 1993 purchasers valuation concept. SECTION 111: SOURCES AND METHODS OF COMPILATION AGRICULTURE Coverage! Other Crops - growing of vegetables, fruits, root crops, legumes, cotton! Sugar cane - production of sugar cane by small farmers and the St. Kitts Sugar Manufacturing Corporation.! Livestock Production - Slaughter of livestock, (cattle, pigs, goats, sheep, poultry) milk production, production of eggs and broilers.! Forestry Products - production of charcoal! Fishing - production of fish landed and consumed by the producer (commercial fishing in ocean, coastal and offshore waters) Source of Data Other Crops Sugar Cane Production data is obtained from the Agriculture Departments of both St. Kitts and Nevis and combined to make one data set. Accounts of SSMC 3

Livestock Production data is obtained from the Agriculture Departments of both St. Kitts and Nevis and combined to make one data set, major poultry farmers and abattoirs. Fisheries Forestry Fish landing data from the Fisheries Department of St.Kitts and Nevis are used. Export of fish data from Nevis Fisheries division. Bench mark estimate from the 1991 Population census. Method of Estimation Other Crops The value added for this sub group is estimated by the production approach. Production data is obtained annually from the Agriculture Department on both islands for about 55 different crops grown. The value of output for each crop is estimated by multiplying farm gate prices by the quantity of output. From this, the value of intermediate inputs is deducted to estimate value added. Intermediate inputs consist mainly of seeds, fertilizers, insecticides, pesticides, repairs and maintenance of farm machinery, purchase of small tools and fuel etc. Based on information from the Agriculture Department, intermediate inputs are considered to be a fixed percentage of gross output. Presently it is assumed to be 15.0 percent. The value added at constant prices for crops is worked out by the double deflation method. Both outputs and intermediate inputs at current prices are revalued at the base year (1990) prices, and then the deduction is made to obtain value added at constant prices. Sugar cane Historically, the production of sugar cane was done by a different enterprise to the manufacturing of sugar. However, the industry was nationalized and privatized with a number of cost cutting methods. Eventually, the industry was rationalized, converted into one enterprise with a single financial statement. Previously, it was easier to construct the production accounts of the sugar cane sub sector, as separate financial statements were prepared. 4

In order to disaggregate financial accounts, a number of ratios are now used to distribute some items of expenditure such as Interest payment, Depreciation and Management expenses. Since the Agricultural section of sugar incurred most of the debt, to resuscitate the industry, sixty percent (60.0%) of Interest payments are attributed to it. Forty percent (40.0%) of the Depreciation and the Profit/Loss is also attributed to this sector. The financial staff of the St.Kitts Manufacturing Corporation gave the ratios used. The value added for the sugar cane is estimated by analyzing the accounts of the St.Kitts Sugar Manufacturing Corporation. Prior to 1995, the production method was used to calculate the value added, as separate accounts were prepared for the different sections of the sugar industry. In recent times, the Income approach is being used so that value added is basically, Compensation of employees, Depreciation, Interest paid and Net Loss attributed to the sugar cane sector. The value added at constant price is projected, based on the changes in output of sugar cane ground, rather than the tons of cane cut, since the workers are only paid for cane reaching the Sugar Factory. Canes lost along the railway are not accounted for. Livestock The estimates of livestock output are based on the data from the Agriculture Department, Abattoirs, dairy farmers, and poultry farmers of both islands. Farm gate prices are obtained from the Department of Agriculture and the Central Marketing Corporation. Adjustment is made to production data for slaughter outside the abattoirs and for home consumption of livestock. In the absence of data on inputs certain proportions that is 15 percent of output, have been used as intermediate inputs. The value added at constant prices for livestock is worked out by the double deflation method. Both outputs and intermediate inputs at current prices are revalued at the base year prices, and then the deduction is made to obtain value added at constant prices. Forestry Data on forestry output has been estimated on the basis of output of charcoal from forestry. However, there has been a steady decline in the use of charcoal as fuel for cooking over the past censuses. More recently, the increase in the use of charcoal for 5

barbequing of chicken and fish by street vendors and restaurants has made it a bit more significant. There is paucity in data as the number of charcoal producers are scattered and are often unwilling to estimate their output. Fisheries Output for the Fisheries sector was originally derived using the consumption approach, since there was no data collection system in place. However, since then there have been two Agriculture and Fishing Censuses, in 1987 and 2000. The Fisheries Divisions of the Agriculture Departments now have data collection systems in place. Data is collected on fish landed at selected landing sites on both islands. Value added for fishing at current prices is based on output data and producers price. In the absence of detailed data on intermediate inputs, a fixed percentage, presently 15 percent of output is assumed to be material inputs. This is deducted. This was worked out in consultations with knowledgeable persons. Using a volume index of fish landed, constant price value added is derived. Constant Price Calculation For all the sub-sectors within agriculture, the double deflation method is used to estimate the value added at constant prices. Limitations Other Crops Estimates are based mainly on an annual estimation of production of a fixed set of crops. Presently, the Agriculture Department concentrates on the production of a few crops. The estimation of production of these crops is fairly reliable. There is need for a better data collection system, which allows for the continuous monitoring and estimation of production of a wider range of crops throughout the year, and allows for the introduction of other commercial crops, ensuring better estimates of output. New crops such as the exotic fruits, wax apples, spice guavas and passion fruits, introduced by the Taiwanese Agricultural mission and 6

which are now sold on a commercial basis are not measured. Sugar Cane Livestock Forestry The consolidation of the financial accounts does not allow for a true picture of the cost of output. The cost of standing cane is sometimes not shown as an asset. A more detailed set of accounts could be designed to show the true cost of sugar cane production. Fixed percentages could hide the true incidence of direct expenses. No estimate for the change in livestock population is taken into account when measuring output. The first limitation was the paucity of data, due to the absence of a data collection system for years, and when data became available, the ruminants were being severely decimated by the Tropical Bont Tick. Since late 2001, there have been some improvements in the stock of ruminants as the tick has been eradicated. It may become possible and feasible at a later date to improve the data set with stock data and eventually include them in output. Data on egg production is only from commercial poultry enterprises. No estimate is made for domestic egg production. The same applies to broilers. The paucity of data on forestry has made the estimation of value added more difficult over the last decade or two. While the use of charcoal as a fuel for cooking has decreased, its use as fuel for the preparation of barbecued meats and fish for sale by independent sellers and restaurants has increased during the same period. The availability of data on the production of charcoal and the cutting of trees in the forest should improve, as the Ministry of Environment has begun to assign forest rangers to monitor activities in the forest. MINING Coverage! Stone quarrying! Extraction of sand! Extraction of gravel 7

Prior to the 1990's there were a number of small producers of broken stone, while sand was extracted freely from the beaches and ghauts by independent truckers. Measurement was difficult, so output of mining was given as a fixed proportion of construction. Lately, following the passing of legislation prohibiting the unauthorized removal of sand from beaches and ghauts, all sand and stone production is managed by the government owned quarry and Ministry of Environment in St. Kitts and by private companies and the Ministry of Environment in Nevis. Source of Data Data is obtained from the financial accounts of the quarries. The quarry information is extracted from the account of the General Government in St. Kitts and from the financial accounts of the independent owner in Nevis. Physical output data is also obtained from the quarries. Method of Estimation The production approach is now used to estimate value added for this sector. Intermediate input is subtracted from gross output. The value of sand and stones sold is regarded as the output, since no information on stocks is available. The intermediate inputs are obtained from financial accounts. Constant Price Calculation The constant price estimate is obtained by extrapolating the base year estimates of value added by a volume index, based on the quantity of stone and sand quarried and sold. Limitations The use of quarry products by the government is not included in output. Depending on the type of construction, this could be significant. Also, in the process of road construction and dredging in the harbour, stones and sand are mined. The latter is not measured as part of output of the mining sector. Consequently, there could be some underestimation in any year for the quantity of output from the government quarry and the sector itself. Mechanisms should be put in place to measure the aggregate used by government in its construction 8

activity, and that generated by other construction companies. MANUFACTURING Manufacturing according to the International Standard Industrial Classification is defined as the mechanical or chemical transformation of inorganic or organic substances into new products, whether the work is done by power driven machines or by hand, whether it is done in a factory or in the worker s home and whether the product is sold at wholesale or retail. The economic activity relating to assembly of components and repair work is included under manufacturing except in cases where the activity is appropriately classified in the group construction. Manufacturing comprises all those industries that are covered under the major division 3 of ISIC. Coverage Manufacturing Establishments, according to the International Standard Industrial Classification of all Economic Activities (ISIC) Rev 2. It includes all those industries, which are covered under Division 31-39, and in our case, namely:! Manufacture of electronics! Manufacture of garments! Manufacture of furniture! Manufacture of chemicals! Manufacture of building materials! Manufacture of food and beverages etc. Generally, the manufacturing industry is divided into two sub sectors, namely, Largescale manufacturing and Small scale (household manufacturing). Source of Data Non-Sugar Manufacturing Financial Statements of Companies, obtained from Inland Revenue Department Completed National Accounts forms Quarterly Industrial Survey of domestic production. Social security gross wage data. 9

Sugar Manufacturing Financial Statement of St.Kitts Sugar Manufacturing Corporation Methods of Estimation The gross domestic product for manufacturing is estimated by using either the production or income approach. The value added has been worked out separately for sugar and molasses. Non-Sugar Manufacturing For the large manufacturing establishments, estimates of value added are prepared using the production approach. Data taken from the financial statements of the companies or from the annual survey forms are used. The production approach measures value added by subtracting the cost of intermediate consumption or inputs from the gross value of output. The gross value of output is sales plus change in stocks of finished goods and work in progress. For the small scale manufacturing establishments, value added is obtained by using the income approach. Gross wages paid to employees of these enterprises are extracted from the records of the Social Security Board. The estimates at constant prices have been worked out by extrapolating the base year value added by an index of domestic production of the various sub- industries. The data from the Quarterly Industrial Survey is used to construct the manufacturing index. Companies used in the index are weighted based on their contribution to total domestic output. Sugar Manufacturing- The income approach is used to estimate the value added for this sector in current prices. Previously the production approach was used, as separate financial accounts were available and the industry was financially viable. As the losses began to increase annually, it was decided that it was more feasible to use the Income approach and allocate certain expenses, such as Interest paid, 40.0 percent; Depreciation, 60.0 percent and the loss, 60.0 percent to the manufacturing sector. Constant Price Calculation 10

Constant price value added is obtained by extrapolating the base year estimates of value added by an index of output of sugar production. Limitations Limited financial and physical output data for small-scale enterprises. The discrepancy between the value of output given by some enclave manufacturing enterprises and the value of production given on the Industrial Survey forms is about 50.0 percent less. In some cases, the financial statements are arranged to represent those of a service enterprise, because neither purchases of raw materials, stocks or depreciation are given. The main items of value added for many of these enterprises are compensation of employees and a small operating surplus. This under valuation of production could lead to the under estimation of value added for the sector. CONSTRUCTION Coverage! All general and special trade contractors, mainly engaged in the construction, installation, repair, maintenance and demolition of building, plant, drainage and irrigation systems, roads, bridges and port facilities on a contract or fee basis.! Sub contractors engaged in only part of the work on a construction project such as repairs, painting, plumbing, installation of air condition equipment, excavating and foundation work.! Establishments and households undertaking own construction. Source of Data External trade data, from which imports, re-exports and import duties charged on building materials are extracted. Financial statements of the private quarries, government accounts for the government owned quarry and financial statements or national survey forms of manufacturers of masonry products such as concrete blocks and ready-mixed concrete. 11

Method of Estimation The commodity flow method is used to derive value added in current prices. The net imports (CIF) value is adjusted to include import duties, stamp duties, consumption tax, custom service fees and transportation and trade margins to obtain purchasers value. This value of imported materials and domestically produced construction materials, constitute the value of materials input into construction. Labour costs are estimated by applying the ratios as given by the Physical Planning Unit and construction companies. This ratio is applied to the value of total cost of construction materials to obtain the value added in current prices. Presently, it is 75.0 percent of total cost of construction materials. Constant Price Calculation The cost of various building materials is combined using appropriate weights to derive a composite weighted index. This index is used to deflate the current price value added to obtain constant prices value added. Limitations In the case of construction, a commodity flow approach is used due to the paucity of data from construction companies. The trade margin may be too inflexible as the same percentage is spread over a wide range of items. The business sector is unwilling to give more precise margins on the individual items. ELECTRICITY AND WATER SUPPLY Electricity and Water are departments of the government in St.Kitts. The same hold true for Water department in Nevis. As such their revenues and expenditures are included in the government estimates of recurrent revenue and expenditure. Their activities are classified under the relevant industry for national accounts purposes. However, Electricity is now a statutory body in Nevis, having its own complete set of financial accounts. Coverage 12

! Generation, transmission and distribution of electricity, for sale to households, industrial and commercial users.! Collection, purification and distribution of water to household, industrial and commercial users. Source of Data Revenue and Expenditure of Electricity and Water Departments in the Federal Government and Nevis Island Administration Accounts. Nevis Electricity Company Financial Statements. Electricity generated during the year from the Power Station in St.Kitts and Nevis. Water production and metered water data from the Water Department in St.Kitts and Nevis. Method of Estimation The income approach is used to estimate value added. This consists of the summation of compensation of employees and operating surpluses. Since these are government owned enterprises, apart from NEVLEC, any losses incurred, which may be often especially for water, are considered subsidies. In such a case, the compensation of employees is treated as the value added. Electricity s value added is usually obtained using the production approach, so that intermediate inputs are subtracted from the gross value of output which is the value of total sales. Government accounts do not record stocks, therefore no allowance is made for stocks. The value added for the privatized portion of electricity is obtained similarly, except when and if the government owned electricity department makes a loss. Constant Price Calculation Electricity: Water Constant prices are derived by a volume index of electricity generated. A volume index of water produced is used. WHOLESALE AND RETAIL Coverage 13

! Wholesale Establishments! Retail Establishments Wholesale trade according to the International Standard Industrial Classification covers units, which resells without transformation, new and used goods to retailers and to industrial, commercial, institutional or professional users or to wholesalers. Also included are enterprises, which act as agents in buying and or selling merchandise and the separate sales branches and offices of manufacturing enterprises. Wholesalers frequently assemble, sort and grade goods in large lots, break bulk, repack, bottle and redistribute in small lots, refrigerate, deliver and install goods. Government agencies which purchase and supply goods to government and administration, education and medical bodies are included in wholesale trade, as well as marketing boards and similar units operated by government or cooperative organizations. Retail trade covers units, which mainly resell without transformation, new and used goods for personal and household consumption. Also included are establishments primarily engaged in renting goods for personal or household use. Method of Estimation Current Prices: The income approach is used to estimate value added for wholesale and retail trade. Estimates are based on the basis of annual accounts of trading establishments at the Inland Revenue Department and from completed National Account questionnaires. Data on compensation of employees and operating surplus are obtained from the available financial statements. The estimate of value added computed for the sample of establishments from the financial accounts are inflated, based on the total wage bill obtained from the Social Security, to cover the non response. Constant Price Calculation Deflating the current prices by the Consumer Price Index derives the constant prices value added. Source of Data! Accounts of the trading establishments at the Inland Revenue Office! National Accounts Survey forms. 14

Limitations Many large establishment carry on a wide range of business activities which would fall under different industrial classification. Some of these activities are very significant. However, the accounts of the establishments are generally consolidated into one single financial statement. This may lead to an overstatement of economic activity, especially where the enterprise is becoming more involved in other types of activity A wide section of establishments are surveyed annually, and the data from these are used to provide ratios on the cost structure of the sectors of GDP. HOTELS AND RESTAURANTS Coverage! Hotels and Restaurants! Other Paid Accommodations Sources of Data Accounts of hotel and Restaurants at Inland Revenue National Accounts Survey Form Expenditure patterns from the 1997 Visitor Expenditure Survey Inland Revenue returns on Hotels and Restaurants taxes Data on stay-over visitors Method of Estimation The Income approach is used to estimate current prices. Constant Price Calculation The constant price estimates were derived using a volume index of stay over visitors in paid accommodations. Limitations High level of non-response to National Accounts Survey Outdated visitor expenditure survey Does not take into account the income generating activities of cruise ship passengers, excursionists and stay-overs in non-paid accommodations. TRANSPORT 15

Coverage! Road Transport! Air Transport! Sea Transport (Government ferry and other inter island ferries, shipping agents and operations of vessels for the transport of freight and passengers overseas). Source of Data Road Transport: Air Transport: Sea Transport: Traffic Department - provides information on the number and type of vehicles licensed during the year. Inland Revenue Department- rental vehicle tax data, financial accounts of transport companies Insurance Companies motor insurance rates Airport Authority Travel agents and services allied to air transport Foreign airlines Tourism data Financial Statements of the Port Authority Government Accounts-government owned ferry National Accounts survey forms for shipping agencies. Cargo movements statistics- Port Authorities Method of Estimation Road Transport: This sector covers the activities of omnibuses, taxis, rental cars, rental buses, rental jeeps, trucks, vans, pickups, etc used in the transport industry. The trucks and vans owned by government, industrial or commercial establishments are excluded. Data on income and expenditure are extracted from financial accounts of rental companies and transport equipment. Value added of other public transport is obtained by multiplying the number of vehicles by the estimated average income. Intermediate inputs, which cover the cost of maintenance, fuel, mortgage payments and insurance premiums paid on these vehicles, are deducted from gross output. Estimate of intermediate input was obtained from interviews with the taxi associations, bus associations and lending agencies. 16

Air Transport: Sea Transport: The current price value added estimates have been prepared by analyzing the accounts of travel agencies and allied services and the financial statements of the Airport section of the Port Authority. The Production approach is used to calculate value added. For the foreign airlines, the Income approach is used, and value added consists mainly of compensation of employees and depreciation. The current price value added is derived from the annual National Accounts survey of shipping agents and the financial statements of the two Port Authorities. The Social Security data on gross wages for the Transport sector are also used as an indicator of activity. Data for the government owned ferry is obtained from the government account. The accounts of the Sea section of the Air and Sea port Authority was included from 1992. Constant Price Calculation Road Transport: Air Transport: Sea Transport: Constant price value added is derived by extrapolating the base year value added by a composite index of stay over visitors, cruise ship passengers and construction. Using a volume index of passenger arrivals and departures by air, derives the constant price estimates. The constant price estimate is derived using a volume index of cargo loaded and unloaded at the two seaports. Limitations Frequent update on the average income of the taxis is required especially as natural disasters may impact the tourism sector which is the main user of taxi services. Due to the paucity of financial data on the operation of vehicles used to transport goods for a fee, underestimation of value added of this activity occurs. COMMUNICATIONS Coverage 17

! Cable and Wireless! Post Office! Other courier services Sources of Data Telecommunication: Private couriers: Post Office: Financial Accounts of the sole provider Financial Accounts of other couriers Financial accounts of Post office, extracted from Government accounts Method of Estimation The current price value added is obtained by analyzing the financial accounts of the sole provider of telecommunications, and the Expenditure and Revenue of the Post Office as it appears in the Trial Balances of the Federal Government and the Nevis Island Assembly. The accounts of private courier services, such as Federal Express, DHL, UPS and LIAT express are also analyzed to obtain value added. The value added of the telecommunication section is added to that of the private sector couriers, while the post office value added is presented separately. Historically, the Postal services operate at a loss, so the compensation of employees is the value added. The government absorbs all losses, so they are considered a subsidy. The Income approach was used for the Post office, while the Production method is used for the other segment of Communication. Constant Price Since the current price value added was calculated separately, likewise the constant price estimates are worked out separately. For the telecommunication and courier enterprises, the value added was obtained by deflating the current price with a price index of international and local telephone rates. In the case of the Post Office, the value added in constant prices is derived using a volume index of the number of employees at the Post Office. Limitations The increased use of Internet services has caused the output of traditional telecommunication enterprises to fall. Unless information on the financial operation of the Internet providers is captured, value added in this sector would seem to fall. 18

BANKING, IMPUTED SERVICE CHARGE, INSURANCE Coverage! Eastern Caribbean Central Bank (ECCB) in St. Kitts! Commercial Banks and other Financial Institutions e.g. Mortgage Bank! Co-operative societies/credit Unions! Savings and loans association Source of Data National Accounts Survey Form Financial Statements from Inland Revenue ECCB Bs-3 forms Method of Estimation ECCB: The value added of the Eastern Caribbean Central Bank, consists mainly of compensation of employees, that are stationed at the Central Bank in St.Kitts. Commercial Banks: For commercial banks, co-operatives, and other financial institutions, the value added consists of the compensation of employees, depreciation, and operating surplus or the sum of the actual service charge plus imputed banking service charge less intermediate consumption. The actual service charge is obtained by aggregating the income of these institutions with the commissions they receive from trading in foreign exchange. Imputed banking service charge is the difference between interest received from loans and advances made to the general public and interest paid on deposits. Constant Price Calculation The constant price estimate for this sector is obtained by extrapolating the base year value added with an index based on the sum of loans and advances plus deposits in commercial banks. 19

Imputed Service Charge Imputed service charge consists of interests received by financial intermediaries, less interest paid on deposits. The data is obtained from the national survey form of financial intermediaries, and supplemented with data from the ECCB BS-3 forms. The same index as used in the case of Banking is used for deriving the constant price value added for the imputed service charge. The interest that is made on the enterprises own investments are not included as part of interest received. INSURANCE Coverage! Life Insurance! Non Life Insurance: Casualty Insurance, Fire, Accident, Health etc! Insurance agents and brokers! Organizations servicing insurance carriers! Independently organized pension funds Source of Data National Accounts Survey Forms Financial Statements at Inland Revenue Balance of Payments forms for domestic and foreign Insurance companies. Method of Estimation The production approach is used to estimate value added for this sector. In the case of Life insurance, adding premiums received and deducting claims paid, and the increase in policyholder reserve estimate the gross output. Interest on these reserves is not deducted. In the case of casualty insurance the gross output is estimated by adding premiums received, net commissions received, re-insurance claims recovered and subtracting reinsurance paid and claims paid. Subtracting intermediate consumption from the gross value of output for all types of insurance give the current price value added for this sector. 20

Constant Price Calculation The constant price value added is obtained by deflating the current price value added by a composite price index based on the cost per thousand dollars of insuring property and motor vehicles. Limitations: The frequency of catastrophic incidents like hurricanes or flash floods in this region, that create negative value added for many large firms could lead to the closure of some of these companies. It also makes it difficult to spread the losses over a number of normal years, when hurricanes are occurring almost every year since 1995. The Balance of Payment forms have to be used to obtain information on the operation of a number of foreign owned insurance companies, as their response to the National Accounts survey is poor and/or untimely. REAL ESTATE AND OWNER OCCUPIED DWELLINGS Coverage! Owner occupied dwellings! Real Estate agents renting and operating non residential buildings, apartments buildings and dwellings Source of Data Inland Revenue (consumption tax records on gross takings of real estate agents) National Accounts Survey Form Building Board (approved plans) Land and House tax records at Inland Revenue Method of Estimation Data for the preparation of this sector GDP are obtained from the Land and House Tax 21

section of the Inland Revenue Dept., the Building Board, National Accounts survey and Retail Price Index. Owner Occupied Dwelling: The number of dwellings has been obtained by extrapolating census estimates of the housing stock with the information on building plans approved. The estimates for gross output of owner occupied dwellings and free rented have been worked out on the basis of number of houses and estimated rent per house. One month's rent has been assumed as material input for owner occupied dwelling. When intermediate input is subtracted from gross output, value added for owner occupied dwellings is obtained. Real Estate Activities The Production approach is used to calculate the current price value added. The intermediate consumption is deducted from the gross output. Constant Price Calculation Constant price estimates for owner occupied dwellings are obtained by extrapolating the base year value added with a simple volume index on the number of residential building plans approved during the year. Constant price estimates for real estate is generated by applying an index that is based on the Consumer Price Index for housing to the current period value added. Limitations Plans for the future There is a long delay between the time a house is constructed and the database at Inland Revenue is updated to show the number of dwellings. Consequently, there is an undercount of the number of owner occupied dwellings in St.Kitts. Presently, collection of additional data is being done from the House and Land Tax section of Inland Revenue Dept., to update the stock of owner occupied and rented 22

building. The exercise is completed for St. Kitts and should soon be done for Nevis. This will help to improve the estimate of housing stock on both islands, and by extension, the value added for this sector. PRODUCERS OF GOVERNMENT SERVICE Coverage! Government departments, offices and other bodies engaged in administration, defense and regulation of the public order, promotion of economic growth and welfare and technological development, provision of education, health, cultural, recreational and other social and community services free of charge or at sale price which do not cover their cost of production.! Social security arrangements for large sections of the community imposed, controlled or financed by the government. Excluded from this sector are public enterprises such as the post office, stone crusher, sea transport, water and electricity, which are included among the appropriate industries. Also excluded are construction activities of the government, which are included in the construction industry. Source of Data Federal Government Accounts and Nevis Island Administration accounts Method of Estimation The value added at current prices has been worked out by analyzing the accounts of the Federal Government and the Nevis Island Administration. Since there is no market price for the producers of government services the cost of production is therefore used as the value of these services. The income approach is used to derive the current price value added for this sector. Value added for general government services consist of compensation of employees, gratuities and social security contributions paid on behalf of its employees. Pension and gratuities are considered as forming a part of compensation of employees and are regarded as deferred payments. Social Security board value added consists of compensation of employees and depreciation. 23

The gross output for producers of government services is defined as equal to its cost of production, i.e. the sum of intermediate consumption of goods and services, compensation of employees, consumption of fixed capital and indirect taxes paid, if any. Since the government accounts are done on a cash basis, there is no allowance in the estimates for depreciation of buildings, machinery or equipment. Therefore the gross output consists mainly of compensation of employees and intermediate consumption. The intermediate consumption is made up of the purchase of goods and services on current account less sales of similar second hand goods and scraps and wastes. Constant Price Constant price estimation of value added is obtained by deflating the current price value by a price index that allows for changes in wage increase due to cost of living. The constant prices for the Social Security estimate is derived by deflating the current prices by a volume index based on the number of persons employed. Limitations Each year the expenditure on the purchase of goods and services, contain expenditure incurred the previous year. The final date for submitting vouchers is the middle of December. Late vouchers are processed in the following year. The Statistics Dept. has not been able to adjust the expenditure data to account for the financial year only. Coverage Other Services! Private educational services! Research and scientific institutes! Private medical, dental and other health services! Religious organizations and community services! Recreational and cultural services 24

! Legal and accounting services! Business services! Data processing, marketing, advertising! Engineering, architectural and technical services! Machinery and equipment repair, rental and leasing! Personal and household services Similar services provided by the public are included in the producers of government services. Source of Data National Accounts Form Social Security (gross Wages) Inland Revenue records Method of Estimation The gross earnings of employees and self-employed persons, provided by Social Security is the main source of information used to calculate the value added for this sector. This is complemented with data from the national accounts survey forms and Inland revenue records of gross takings of professionals, who are required to pay Traders Tax or Consumption Tax. Constant Price The constant price estimates are obtained by deflating the current series with the All Items index of the CPI. Limitations There are a number of private educational institutions in the Federation at all levels. It is very difficult to obtain data on their financial operations, especially the offshore medical schools. Professionals, such as doctors, lawyers, accountants, engineers, pay consumption tax. Data on their gross takings are filed at the Inland Revenue. However, due to the untimeliness of reporting, the information is not useful for compiling the estimates. The response rate to the National Accounts survey is generally low in this sector. 25

Compilation of Expenditure on Gross Domestic Product or Final Use of National Output. Expenditure on the GDP is measured as the final purchases of the different sectors, Private (Persons) and General or Government, Gross Capital Formation and Export and Import of goods and services. Government Final Consumption Expenditure Government final consumption expenditure is defined as the value of gross output of producers of government services less the value of government sales and the value of its own account capital formation. The gross output is equal to the cost of production, that is the sum of intermediate consumption of goods and services, compensation of employees, consumption of fixed capital and indirect taxes paid. Coverage Coverage for government final consumption expenditure includes compensation of employees, purchase of goods and services, less revenue received from sales. Sales do not include fees and charges that are levied by government for regulatory purposes, such as motor vehicle licenses, passport fees and court service fees. Fines and penalties whether they are paid by the household or business sector are also excluded from the sales figure. These items are deducted from gross output to arrive at the final consumption expenditure. Source of Date St.Kitts and Nevis Government Accounts Method of Estimation The annual accounts of the Federal Government and the Nevis Island Administration are reclassified and an economic analysis of the recurrent revenue and expenditure is done. The final accounts are combined and estimates of compensation of employees, purchase of goods and services and receipts from the sale of goods and services are obtained. These are used to obtain the government final consumption expenditure. Limitations 26

The cash basis method of recording transaction for government does not allow for the segregation of government own gross fixed capital formation as an industry. Although the Capital Account shows a significant proportion of Government's capital formation, a number of capital projects funded by International Organizations are undertaken by the private construction firms. The delay in reporting and the unwillingness of some to complete National Accounts forms make it difficult to compute gross output for government. Private Final Consumption Expenditure Coverage! Final consumption expenditure of households in the domestic market! Direct purchases abroad by resident households! Direct purchases in the domestic market by non resident households! Final consumption expenditure of private non-profit institutions serving households.! Private final consumption expenditure. Source of Data Residual Method of Estimation The value added for this section of Expenditure is derived as a residual after all the other components are derived. Limitations Since private consumption expenditure is obtained as a residual, it may contain all the errors that may have occurred in the other components. It does not facilitate a breakdown of private consumption expenditure by object of expenditure. Previously, there was lack of household consumption patterns since the last survey was held in 1976. A new Household Expenditure survey was undertaken in 1998, and it is planned to begin to use the information to estimate the value of Private consumption expenditure in the future. GROSS FIXED CAPITAL FORMATION 27

Gross fixed capital formation consists of the outlays of industries and the producers of government services, and of private non profit services to households, on additions of commodities to their fixed assets, reduced by their net sales of similar second hand and scrapped goods. The commodities in question may be purchased or produced on own account. Coverage! Acquisition by producers for civilian use of tangible assets which have an estimated lifetime use of one year or more, except land, mineral deposits, timber tracts and similar non reproducible tangible assets. Relatively inexpensive durable goods, such as certain types of office equipment, may be excluded on practical grounds. Government outlays on construction and machinery and equipment primarily intended for military use are classified as intermediate consumption and are excluded from gross capital formation.! Outlays on improvements and alterations of capital goods, which significantly extend their expected lifetime or substantially increase their productivity, are considered to be gross capital formation.! Outlays on the reclamation and improvement of land, on the development of timber tracts, mines, plantations, orchards and similar agricultural holdings are included in gross fixed capital formation.! Purchases and breeding of draught animals, breeding stock, dairy cattle and sheep, and other animals reared for wool and hair clips, should be included as acquisition of fixed assets.! Dealer's margins solicitor's fees, stamp duties on documents and their transfer costs of transactions in land, mineral deposits, timber tracts, and similar nonreproducible assets are covered in gross fixed capital formation. Source of Data International trade statistics are the main source of data used in estimating the gross fixed capital formation. Data on Domestic production of capital goods are obtained from the survey however; the majority of the enterprises involved are part of the enclave industries, so their impact is negligible. Data on some types of household capital goods, such as local stoves and small fishing boats are not captured fully. 28

Trade and transport margin, referred to as mark-up are obtained from the major hardware and automobile dealers in both islands, and tend to be rigid over a very long period of time. Method of Estimation In St. Kitts and Nevis four items are generally classified under gross fixed capital formation. These are Land Development, Transport Equipment, Other Equipment and Construction. The data on Land development is taken from the Capital Expenditure of the Federal Government and the Nevis Island Administration government accounts. The commodity flow approach is used to estimate investment in machinery and equipment. Items are identified using the Harmonized System of Trade and the imports, re-exports and duties paid on those items are extracted from the trade data. The process also involves segregating the flow of capital goods and construction materials from those that are destined for intermediate and final consumption. Gross capital formation is valued at purchaser's prices, therefore to the net Import CIF values, must be added, duties, consumption taxes, Port fees, and trade margin. The estimate for equipment and machinery is derived separately and then added to the value of construction derived using the method outlined under the estimation of the Construction sector. Limitations There has been some reluctance of wholesalers and retailers to give more precise information of the ratios for transportation separate from trade margin on the individual items of equipment and machinery for gross fixed capital formation. There is a tendency to give information, which is often undervalued. Where the goods are allowed duty free concessions, determining the purchaser's price may still be difficult since the importer adds margins to the CIF values. Some of the durable goods have multiple end uses; either, capital formation, intermediate consumption or final consumption. Although provisions are made for this, the ratios used are also fixed over a very long period of time, rather than on 29

comprehensive end use studies. Fixed ratios are used in deriving the total value of construction. Once the value of purchaser's value of imported construction material is obtained and domestic production of construction materials is added to get the value of total construction materials, a fixed ratio is added to represent the value of labour costs. Some construction activities may be more labour or material intensive than others, therefore applying the same rate may not be the best method. However, for now it can be considered adequate until better measures are obtained. The measurement of capital formation should take account of movement in stocks and adjustments should be made to the annual figure to reflect this. However, due to the paucity of data on stocks, both in the public and private sector, no provision is made in the annual estimates. The assumption that all imported materials are used in the current period is assumed, so that the change in stocks is therefore zero. Although there is generally a zero figure is given for Land Development, however, there have been years when some occurred, such as the Cruise Ship Berthing project, where land was reclaimed from the sea. Since the project also included the construction of buildings, piers, the builders classified the entire work as construction. Other expenditure on land development is sometimes combined with the general expenditure of a government ministry and therefore is not disaggregated. In this case the value may be small in comparison to the total ministry's expenditure. Net Exports of Goods and Services Exports and imports of goods and services are defined in the SNA 1968, to include merchandise, transportation, communication and insurance services, and miscellaneous services such as the gross margins realized by resident merchants on goods purchased in another country and sold in a third country. Excluded from the exports and imports of merchandise of a country, are the inward and outward movement of such items as goods in direct transit through the country; goods not owned by residents entering the country for storage and trans-shipment only, tourists and travelers effects and goods for exhibition or study, samples which are returnable or of no commercial value. These should be included in the value of imports and exports of a country; sales and 30