Numbers & Statistics

Opening Remarks by IMF First Deputy Managing Director, David Lipton IMF Seventh Statistical Forum: “Measuring the Informal Economy”

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Via IMF (Den Internationale Valutafond)

Opening Remarks by IMF First Deputy Managing Director, David Lipton IMF Seventh Statistical Forum: “Measuring the Informal Economy”







November 14, 2019















Good morning and welcome to the 7th annual IMF Statistical
Forum.

The theme for this year’s conference is how to measure the informal economy.

This theme reminds me of a quote, often attributed to Albert Einstein:
“Everything that can be counted does not necessarily count; everything that
counts cannot necessarily be counted.”

So, with this year’s conference, one could say we are trying to prove
Einstein wrong and find ways to count all the things that count, but
are not currently counted!

Why measure informal activity

The last two Statistical Forums were about diagnosing and providing
recommendations on the impact of digitalization on the accuracy of
macroeconomic and welfare indicators. This year’s conference returns to the
basics. Needless to say, it is not an easy task. For one, some activities
are informal precisely to stay in the shadows, away from tax obligations or
laws. But capturing informal activities is not just for tax collection or
law enforcement purposes. The informal economy is so much more, and is only
growing with the rise of the shared economy. In some low-income countries,
for example, the informal sector is estimated to be the same size as the
formal one, and perhaps even larger.

If only we knew for sure.

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As management guru Peter Drucker said, “if you can’t measure it, you can’t
improve it.” It would be an improvement, for example, to assess a country’s
debt sustainability, or apply a fiscal rule, if we could measure all
economic activity.

And to the extent we know, we can understand economic trends better. For
example, when I was working on Poland in the early ‘90s, we documented how
informal markets were emerging as substitutes for state sector production.
That explained how the seeming decline in food processing was simply a
shift to informal production that was not picked up in the official data.

The path forward

Measuring informality is not exactly a new problem. The IMF first
established a conceptual framework to measure the informal economy in 1982,
with a book called The Underground Economy in the United States and Abroad.

Since then we have made big strides, but more is needed.

In some cases, the answer lies in increasing a country’s capacity to
measure GDP. Our 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!

Another route is to create incentives for formalization. This requires
reforms in various areas, for example taxation, labor law, product markets,
and improving the business climate. Countries like Egypt, India, and Mexico
have achieved important results with that approach.

Our staff is always exploring new methodologies. We 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. We are working with other international agencies on illicit
financial flows. One of the cases you will hear about tomorrow argues that
tracking illegal activity in the US national accounts would have raised
2017’s GDP by 1 percent.

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Other international organizations are working in the same direction within
their expertise. The World Bank, the International Labor Organization, and
the UN have been doing excellent work on measuring informality through the
labor market, and we collaborate closely with them.

The power of Big Data

A new and exciting area is about using innovation and technology to help
with this major challenge. How can big data and AI help measure the
informal sector? What innovative sources of data can be leveraged to
provide new insights on economic activity? And ultimately, how can
developing economies leap-frog using these new techniques?

Let me give you some examples from the upcoming presentations:

Experts from the Chinese National Bureau of Statistics will talk about how
transactions on digital platforms can be used to observe informal
activities. Since observing is not the same as measuring, one challenge
they have is disentangling what is informal from what is already formal.

Researchers from the Central Bank of Mexico will explain how they use
satellite nightlights imagery to estimate that the “non-registered” economy
in the country could represent up to 29 percent of GDP. This is a technique
that Fund researchers have also used to gauge economic activity in Iran and
Venezuela, among others.

You will also hear about how the Fund is using big data to estimate
economic activity in countries where official GDP and trade data are either
imprecise or too delayed, as in the case of Zimbabwe.

Conclusion

To sum up, this year’s conference is essentially a return to core
statistical business: measuring economic activity accurately, using all
possible means. I hope your discussions will result in practical advice on
measuring informality, which is so important and yet so difficult.

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I would like to thank you all for coming to our Forum—which, despite all of
what I just said, we hope to keep very informal. Let me also thank Louis Marc and his team in
the Statistics Department for putting together yet again a great
conference.

And now, it is my pleasure to turn it over to our Managing Director
Kristalina Georgieva. Kristalina is traveling, but this topic is close to
her heart, so she wanted to participate with a recorded statement. Please
join me in welcoming her onto the screen.

Thank you.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Andreas Adriano

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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