Portugal: Tobacco Smuggling and Drug Trafficking in the International Accounts

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Portugal: Tobacco Smuggling and Drug Trafficking in the International Accounts

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Introduction and scope

• The inclusion of illegal activities in national accounts followed the changeover to the ESA2010.
• In the balance of payments domain, legal recognition of illegal activities occurred with the 2019 benchmark revision (data published by October 2019) and affected the entire time span of the series.
• For international transactions, only tobacco smuggling and drug trafficking are considered; alcohol smuggling is assumed not to be relevant in Portugal.
• An estimation of prostitution activities was included only in the internal component of national accounts.
• Exports of illegal activities represent about 0.04% of total exports of goods and around 0.07% of total imports in 2017.

Methodology and data sources

• The estimation is mainly performed by Instituto National de Estatistica de Portugal (PT-INE) within the national accounts framework and shared with Banco de Portugal for balance of payments purposes.
• The estimate follows guidelines agreed between Eurostat and Member States to ensure comparability.
• Drug trafficking
  • Assumption: the consumption of drugs is assured by imports while exports are null.
  • Calculation of the value of drug imports is based on consumption data (demand side perspective); a seizure-based approach (supply side perspective) was tested but revealed weaknesses.
  • Drugs considered: cannabis, cocaine, ecstasy (or MDMA) and heroin (or opium). Other drugs are not considered due to the low prevalence of their use.
  • Determining the value of drug imports involves multiple sources and is complex because there is no single source indicating the amount consumed.
• Tobacco smuggling
  • Main source: reports on fraud combat, tax and customs evasion published by the Office of the Secretary of State for Fiscal Affairs and available annually.
  • Seizures provide an almost direct estimate of the value of illegal tobacco exports through the value of seizures.
  • Methodological approach: Eurostat supply-side perspective with two main assumptions:
  • i) seizures are a proportion of imports;
  • ii) exports are equivalent to imports (price/margins adjusted), based on conclusions that tobacco seized in Portugal is mainly intended for the European market and Portugal is primarily a gateway to Europe.
  • Adjustment: convert the value (in euro) of street price seizures to wholesale prices using, in the absence of better information, the cannabis margin (retail price/wholesale price).
  • Exports are valued according to the value of seizures.
  • To mitigate volatility in yearly seizure values, for each year the average of the values of the last three known years is assumed.

Linkages across statistical domains and compilation practices

• Banco de Portugal incorporated an estimate of illegal activities equivalent to the one in national accounts with the 2019 benchmark revision.
• During the benchmark revision, efforts were made to enhance coherence between PT-INE (non-financial accounts) and Banco de Portugal (external statistics).
• Due to limited regular access by Banco de Portugal to some data and PT-INE’s more thorough handling of these data, Banco de Portugal adopted PT-INE figures.
• Implementation strategy:
  • Direct incorporation in the balance of payments domain of the entire set of results estimated by PT-INE.
  • Where PT-INE’s estimation is not produced in a timely manner for monthly balance of payments compilation, an advanced procedure was introduced to anticipate PT-INE’s annual estimation.
  • The anticipation model assumes the same approach as the INE model to minimize revisions when PT-INE data are disclosed.
  • Monthly figures are compiled using the methodology of the annual figures to achieve compatible periodicity for illegal activities in the monthly balance of payments.

Current challenges and limitations

• Estimates suffer from several drawbacks:
  • Absence of monthly indicators of illegal activities that would allow imposing seasonality on consumption over estimated annual values.
  • Time lag between available sources and the need to compile monthly balance of payments statistics.
  • Lack of sources to estimate possible services associated with illegal balance of payments activities.

References

• Informal Economy Reports