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In today's blog we will take a look at the potential impact budget cuts imposed by National Treasury (as it tries to curb South Africa's government ballooning spending) on Statistics South Africa will have on future numbers published.
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Time to get worried about the numbers we are given about SA's economy?
In a recent article that appeared in the Bussines Day, the Statistician General (SG) Dr Pali Lehohla, the head of Statistics South Africa bemoaned the fact that it's budget has been cut by National Treasury to the tune of around 13% or roughly R400million. In the article the following is mentioned "Lehohla told Business Day that it was bizarre that just months after the government moved the compilation of expenditure on the GDP to Statistics SA from the Reserve Bank, its resources were being limited." The full article can be read here.
Now to those who do not know there are three different ways in which to calculate the economic growth rate of country. They are production, income and expenditure methods. Stats SA which is the main source of official statistics have been calculating GDP using the production method for many years. The Reserve Bank has been calculating GDP from the expenditure side. And it is a unique case where the central bank gets involved in calculating economic growth rates. It was decided to move GDP from expenditure side that was calculated by the Reserve Bank to Statistics South Africa. Now this operation apparently took years to move from the Reserve Bank to Statistics South Africa. And highly trained and skilled staff is required to calculate GDP (from both the production and expenditure side). And paying and training and keeping skilled staff costs money. It is therefore odd that after moving such a big component into Stats SA's shoulders that National Treasury would decide to cut the department's budget. It has even more work to do now but you giving it even less money to work with. It does look like the Treasury decided on this budget cut without taking all the facts into consideration.
Now to those who do not know there are three different ways in which to calculate the economic growth rate of country. They are production, income and expenditure methods. Stats SA which is the main source of official statistics have been calculating GDP using the production method for many years. The Reserve Bank has been calculating GDP from the expenditure side. And it is a unique case where the central bank gets involved in calculating economic growth rates. It was decided to move GDP from expenditure side that was calculated by the Reserve Bank to Statistics South Africa. Now this operation apparently took years to move from the Reserve Bank to Statistics South Africa. And highly trained and skilled staff is required to calculate GDP (from both the production and expenditure side). And paying and training and keeping skilled staff costs money. It is therefore odd that after moving such a big component into Stats SA's shoulders that National Treasury would decide to cut the department's budget. It has even more work to do now but you giving it even less money to work with. It does look like the Treasury decided on this budget cut without taking all the facts into consideration.
Well so now that we know that Stats SA's budget has been cut by around R400million. What is the potential impact on us as readers and users of economic data? The impact we are afraid will be far reaching and has already reached some of the statistics published.
When Stats SA made large scale changes to it's CPI in 2008/2009 they moved away from collecting prices via the post, to actual price collectors going into shops across the country and collecting prices as reflected on the shelves. Part of the improvements in 2008/2009 was publishing CPI's at lower level. For example CPI's were published for all the big metropolitan areas in South Africa. City of Cape Town in Western Cape. PE and East London in PE, Ekurhuleni, City of Johannesburg, City of Tshwane. Essentially price movements per metro could be tracked over time. Sadly in the latest re-weighting of the CPI (published 15 February 2017 for January 2017 inflation) , Stats SA announced they are doing away with the lower level inflation rates and will only publish inflation rates per province. A great shame for those wanting to do analysis on metro or district level.
The main source of the CPI weights is a Expenditure survey tracking South African consumer spending patterns over a particular period. Was the quality of this survey (Living Conditions Survey that published their results the same day CPI announced their new weights) not good enough to use the data on a lower level in official inflation calculations?
We suspect this might be the case. Stats SA might not come out and say this, but efforts to reduce costs would inevitably lead to less being spent on sending Stats SA staff to households across the country to collect information over a long period of time. Less staff members would be employed to quality check the data and go back to households to clarify and confirm information submitted to staff. All of this would lead to lower quality data.
LCS survey response rates below says it all.
We suspect this might be the case. Stats SA might not come out and say this, but efforts to reduce costs would inevitably lead to less being spent on sending Stats SA staff to households across the country to collect information over a long period of time. Less staff members would be employed to quality check the data and go back to households to clarify and confirm information submitted to staff. All of this would lead to lower quality data.
LCS survey response rates below says it all.
It couldn't collect information from more than a third of all households in Gauteng. And with Gauteng making up more than a third of overall spending in South Africa, one can begin to imagine the impact on the LCS estimates and therefore the CPI weights. Sure the missing households that they could not get hold of would be "imputed" for. No amount of imputations and data editing could ever beat actual information collected from households. In total 15.1% of households had to be imputed for which is a significant amount of data in the LCS that is therefore based on best guesses and statistical imputations and synthetic estimates.
Poorer quality data, means potentially larger data revisions as new and additional data sources becomes available, which means less trust will be placed in the current numbers being published. Poorer quality data or less detailed data makes it harder to assess the impact of certain policies being implemented in municipal, district or province level.
Think about poverty levels for example. How will the state know if its winning the battle of reducing poverty if i cannot be measured accurately? If Stats SA is not properly funded poverty levels, service delivery successes and failures, population figures, employment numbers as reported in the Quarterly Labour Force Survey (QLFS) will all be negatively impacted. Monthly economic surveys such as motor trade sales, retail trade, wholesale trade, electricity generated and available for distribution etc will all start declining in quality. As less businesses are surveyed in order to cut back on costs. All of these surveys feed into the nation accounts which calculates the size and growth of South Africa's economy. We can go on and on. But the message is clear. Policy setters, businesses, NGO's, international community all demand more and more quality data. And with budget cuts Stats SA wont be able to supply even though demand for more data is ever increasing.
How is Treasury going to do proper budget planning and expenditure estimates without detailed data supplied by Statistics South Africa. Treasury as one of the main users of published data from Stats SA should surely know how important lower level and quality data is when it comes to planning and policy setting. Are they cutting their nose to spite their face?
With the big data revolution, National Treasury cutting Stats SA's budget is sending Stats SA in the opposite direction that it should and surely wants to be going in. Instead of providing more lower level data and better quality data, budget cuts at Stats SA would lead to the exact opposite, as the LCS data and the impact it had on the CPI level of publication has shown.
Perhaps this is one instance where Treasury should not be cutting the budget, but look to add to it in order to increase Stats SA's capacity to supply timely, detailed, quality lower level data.
Think about poverty levels for example. How will the state know if its winning the battle of reducing poverty if i cannot be measured accurately? If Stats SA is not properly funded poverty levels, service delivery successes and failures, population figures, employment numbers as reported in the Quarterly Labour Force Survey (QLFS) will all be negatively impacted. Monthly economic surveys such as motor trade sales, retail trade, wholesale trade, electricity generated and available for distribution etc will all start declining in quality. As less businesses are surveyed in order to cut back on costs. All of these surveys feed into the nation accounts which calculates the size and growth of South Africa's economy. We can go on and on. But the message is clear. Policy setters, businesses, NGO's, international community all demand more and more quality data. And with budget cuts Stats SA wont be able to supply even though demand for more data is ever increasing.
How is Treasury going to do proper budget planning and expenditure estimates without detailed data supplied by Statistics South Africa. Treasury as one of the main users of published data from Stats SA should surely know how important lower level and quality data is when it comes to planning and policy setting. Are they cutting their nose to spite their face?
With the big data revolution, National Treasury cutting Stats SA's budget is sending Stats SA in the opposite direction that it should and surely wants to be going in. Instead of providing more lower level data and better quality data, budget cuts at Stats SA would lead to the exact opposite, as the LCS data and the impact it had on the CPI level of publication has shown.
Perhaps this is one instance where Treasury should not be cutting the budget, but look to add to it in order to increase Stats SA's capacity to supply timely, detailed, quality lower level data.
Data sources:
https://www.businesslive.co.za/bd/national/2017-06-06-how-treasurys-budget-cuts-at-stats-sa-will-hurt-sa/
www.statssa.gov.za
https://www.businesslive.co.za/bd/national/2017-06-06-how-treasurys-budget-cuts-at-stats-sa-will-hurt-sa/
www.statssa.gov.za