Counting Everything That Counts
IMF News, November 14, 2019
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Bibliographic details
- Published: November 14, 2019
Context and purpose
- Opening Remarks by IMF First Deputy Managing Director, David Lipton
- IMF Seventh Statistical Forum: “Measuring the Informal Economy”
- Washington, DC
- November 14, 2019
Why measure informal activity
- Informal activities are often hidden to avoid tax obligations or laws, complicating measurement and policy design.
- The informal economy can be as large as, or larger than, the formal sector in some low-income countries.
- Accurate measurement would improve policy tools, e.g., assessing debt sustainability or applying fiscal rules.
- Illustrative experience: when working on Poland in the early ‘90s, shifts to informal production explained apparent declines in formal sector output (food processing example).
- Relevant observations and quotations preserved from remarks:
- “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”
- “if you can’t measure it, you can’t improve it.” (Peter Drucker)
Path forward: concepts, capacity, and incentives
- Historical and institutional foundations:
- IMF established a conceptual framework to measure the informal economy in 1982 with a book called The Underground Economy in the United States and Abroad.
- Capacity building:
- The IMF Statistics Department has enormous demand for Technical Assistance to improve GDP measurement.
- By covering economic activity that was previously not- or ill-measured, one country in Africa saw its GDP increase by 89 percent!
- Incentives for formalization:
- Reforms across taxation, labor law, product markets, and the business climate can encourage formalization.
- Countries cited as having achieved important results through formalization efforts: Egypt, India, and Mexico.
- Institutional initiatives:
- IMF staff formed a task force on the informal economy in 2017 to identify data collection techniques and compilation methods to reflect the informal economy in external sector statistics.
- Work with other international agencies on illicit financial flows is ongoing.
- One case presented at the Forum argues that tracking illegal activity in the US national accounts would have raised 2017’s GDP by 1 percent.
- Collaboration:
- The World Bank, the International Labor Organization, and the UN are active on informality from labor-market perspectives; the IMF collaborates closely with them.
The power of Big Data and new techniques
- Big data, AI, and innovative data sources can provide new insights on economic activity and help measure the informal sector.
- Examples highlighted for upcoming presentations:
- Chinese National Bureau of Statistics: using transactions on digital platforms to observe informal activities; key challenge is disentangling informal activity from already formal activity.
- Central Bank of Mexico: using satellite nightlights imagery to estimate that the “non-registered” economy in the country could represent up to 29 percent of GDP.
- Fund researchers have used similar techniques to gauge economic activity in Iran and Venezuela.
- Use of big data to estimate economic activity in countries where official GDP and trade data are imprecise or too delayed, e.g., Zimbabwe.
Key takeaways and objectives for the Forum
- Return to core statistical business: measuring economic activity accurately using all possible means.
- Objectives for participants:
- Share practical advice on measuring informality.
- Explore methodological innovations and capacity-building approaches.
- Identify actionable ways to incorporate informal activity into macroeconomic statistics.
Opening Remarks by IMF First Deputy Managing Director, David Lipton — IMF Seventh Statistical Forum: “Measuring the Informal Economy”, Washington, DC, November 14, 2019