What is Wealth Accounting?

For every country, wealth is what underpins the income that the country generates. It includes buildings, manufactured assets such as the machinery used in factories, infrastructure such as highways and ports, and natural assets such as land, forests, fish, minerals and energy, as well as human and social capital. Wealth Accounting measures these assets and capital goods that are inputs to our economic well-being.
 
All countries follow the System of National Accounts (SNA) that provides an international standard for measuring national income and savings. The SNA, which has been in use since the 1950s, has some provision for doing wealth accounting but relatively few countries are doing it. Without wealth accounts, countries have a very incomplete picture of the prospects for future income, just as assessing the value of a business would be incomplete without analyzing its balance sheet.
 
Truly comprehensive wealth accounting would go beyond the SNA to include broader forms of wealth such as human capital and the benefits flowing from ecosystem services such as pollination and flood protection from mangroves.

Why is GDP not enough as an indicator?

Countries rely on GDP (gross domestic product) as a measure of its economic performance. However, GDP only measures current income and production. It tells us nothing about income for the long term. It does not answer questions like: are income and growth sustainable? Will the same level of income be available for our children? GDP says nothing about the assets that underpin this generation of income. For example, when a country exploits its minerals, it is actually depleting wealth.

How can wealth accounting help countries grow sustainably?

A country’s wealth includes produced capital (buildings, machinery, and infrastructure); natural capital such as land, forests, fish, minerals and energy; human and social capital; and net foreign assets. See Figure 1 below.
 
Comprehensive wealth accounting can provide an estimate of the total wealth of nations by measuring the value of these different components of wealth. Changes in wealth is an indicator to assess if a country is growing its income without depleting its stocks.

Comprehensive wealth composition
 
We measure changes in wealth through adjusted net savings (ANS). Gross National Savings measures the difference between production and consumption, but doesn’t take into account depreciation in manufactured capital or changes in natural and human capital. ANS measures the real difference between production and consumption by capturing depreciation of fixed capital, but also investment in human capital, depletion of natural resources, and damage from pollution. (Read more on ANS as an indicator).

How is Wealth Accounting Related to WAVES?

Natural capital is especially important to many developing countries where it forms a large share of their total wealth. As shown in Figure 2, natural capital accounts for more than 30% of total wealth for low income countries. Natural Capital Accounting (NCA) focuses on this critical component of wealth.

 Wealth of low income countries

 
In February 2012, the UN Statistical Commission (UNSC) approved the System of Environmental and Economic Accounts (SEEA) as an international statistical standard like the System of National Accounts (SNA). The SEEA provides standard methodology for compiling accounts for material natural resources like minerals, water, energy and timber, as well as the emission of pollutants like greenhouse gas emissions. The SEEA covers asset accounts and flow accounts, both monetary and physical. Methodology for ecosystem accounting, or for regulating services of ecosystems, is still being developed. This is a fundamental leap forward for natural capital accounting, which can now be implemented at scale. By providing crucial information to manage nature resources, NCA can be a powerful tool for policy makers grappling with trade-offs in a growing economy.
 
The WAVES Partnership is working with ministries of planning, development and finance across the world to integrate natural resources into development planning through NCA.

World Bank and Wealth Accounting: A Timeline

 
2011 : Published The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium, with comprehensive wealth estimates for 1995, 2000, and 2005.
 
2010 : Launch of the Wealth Accounting and Valuation of Ecosystem Services (WAVES) Global Partnership to help countries build accounts for natural capital and to ensure that value of natural capital is included in development policies.
 
2006 : Published Where is the Wealth of Nations? Measuring Capital for the 21st Century (2006), which provided the first snapshot of comprehensive wealth for 120 countries for the year 2000.
 
2000 : Began publishing the ANS indicator annually for more than 200 countries in the Little Green Data Book.
 
1999 : Published Adjusted Net Saving (ANS) indicator, also called genuine savings, defined as gross national savings adjusted for the annual change in the volume of all forms of capital, as a complementary indictor to comprehensive wealth.
 
1990 : The World Bank began constructing a global database of country-level comprehensive wealth measures.