INTERNATIONAL MONETARY FUND

EXTERNAL
SECTOR
REPORT
Imbalances Receding

2024
INTERNATIONAL MONETARY FUND

EXTERNAL
SECTOR
REPORT
Imbalances Receding

2024
 ©2024 International Monetary Fund

Cataloging-in-Publication Data
IMF Library

Names: International Monetary Fund, publisher.

Title: External sector report (International Monetary Fund).
Other titles: ESR
Description: Washington, D.C. : International Monetary Fund, 2012- | Annual | Some issues also have thematic
titles. | Began in 2012. | Includes bibliographical references.
Identifiers: ISSN 2617-3832 (print) | ISSN 2617-3840 (online)
Subjects: LCSH: Balance of payments—Periodicals. | Debts, External—Periodicals. | Investments, Foreign—
Periodicals. | International finance—Periodicals.
Classification: LCC HG3882.I58

ISBN: 979-8-40027-750-4 (Paper)

979-8-40028-109-9 (ePub)
979-8-40028-111-2 (PDF)

The External Sector Report (ESR) is a survey by the IMF staff published once a year, in the summer.
The ESR is prepared by the IMF staff and has benefited from comments and suggestions by Executive
Directors following their discussion of the report on July 1, 2024. The views expressed in this publication
are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors
or their national authorities.

Recommended citation: International Monetary Fund. 2024. External Sector Report: Imbalances Receding.
Washington, DC, July.

Publication orders may be placed online, by fax, or through the mail:

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CONTENTS

Further Information vii

Preface viii

Executive Summary ix

IMF Executive Board Discussion Summary x

Chapter 1. External Positions and Policies 1

Overview and Context 1
Recent Developments: Trade and Current Account Balances 1
Recent Developments: Currencies, Financial Flows, Balance Sheets 4
Assessment of External Positions in 2023 10
Outlook and Risks 12
Policy Priorities for Promoting External Rebalancing 18
Box 1.1. Cross-Country Variation in Gross Capital Inflows to Large Emerging Market
and Developing Economies 20
Box 1.2. Geoeconomic Fragmentation and the Global Balance 22
Box 1.3. China Real Estate Slowdown and the Global Balance 25
References 34
Chapter 2. Navigating the Tides of Commodity Prices 37
Introduction 37
Features of Commodity Price Swings 39
Zooming In on Energy Price Swings 40
Looming Challenges 47
Conclusion 49
Box 2.1. Impact of the Recent Energy Price Shock on the EU Manufacturing Sector 51
Box 2.2. Co-Movements between Commodity Prices 53
Box 2.3. The Evolving Correlation between the US Dollar and the Oil Price 54
Box 2.4. Macroeconomic Impact of Energy Transition: The Case of Commodity Exporters 57
References 59
Online Annex Chapter 2
Chapter 3. 2023 Individual Economy Assessments 61
Methodology and Process 61
Selection of Economies 61
Box 3.1. Assessing Imbalances: The Role of Policies—An Example 62
Abbreviations and Acronyms 63
Technical Endnotes by Economy 94
References 97
Figures
Figure 1.1. COVID-19 Factors, Real Commodity Prices, and Global Trade Volume 2
Figure 1.2. Contributions to the Global Current Account Balance, 2000–23 2
Figure 1.3. Contributions of COVID-19 Factors to the Global Balance for ESR Sample
Countries, 2020–23 3

International Monetary Fund | 2024 iii

2024 EXTERNAL SECTOR REPORT

Figure 1.4. Fiscal Policy Changes, 2022–23 3

Figure 1.5. Decomposition of Changes in Current Account, 2019–23 4
Figure 1.6. Currency Movements 5
Figure 1.7. Exchange Market Pressure and Its Components, 2023 5
Figure 1.8. Aggregate Net Capital Inflows in Emerging Market and
Developing Economies, 2014–23 6
Figure 1.9. Net Capital Inflows to Emerging Market and Developing Economies by
Component, 2014–23 7
Figure 1.10. Gross Capital Flows in Emerging Market and
Developing Economies, 2014–23 7
Figure 1.11. High-Frequency Gross Portfolio Inflows to Emerging Market and
Developing Economies, January 2023–March 2024 8
Figure 1.12. Gross Assets and Liabilities, 2000–23 8
Figure 1.13. Net International Investment Positions, 1990–2023 9
Figure 1.14. Valuation Changes and Net International Investment Position, 2023 9
Figure 1.15. Evolution of the Global Financial Safety Net, 1995–2023 10
Figure 1.16. Bilateral Central Bank Swap Line Agreements with the
People’s Bank of China 10
Figure 1.17. External Balance Assessment Current Account Norms, 2023 11
Figure 1.18. Evolution of External Sector Assessments, 2012–23 12
Figure 1.19. Evolution of Headline Current Account Balance and IMF Staff Gaps 12
Figure 1.20. Global Current Account Balance, 2000–29 13
Figure 1.21. Fiscal Policy and Global Current Account Balance, 2024–28 13
Figure 1.22. Number of Net Harmful Trade Restrictions by Policy Instrument, 2009–23 14
Figure 1.23. Capital Flows at Risk for Emerging Markets 15
Figure 1.1.1. Gross Capital and FDI Inflows 20
Figure 1.1.2. Bilateral FDI Abroad in the Balance of Payments 21
Figure 1.2.1. Trade Fragmentation Impact on the Current-Account-to-GDP Ratio 22
Figure 1.2.2. Impact of Trade Fragmentation on Global Balance 23
Figure 1.2.3. The Global Interest Rate after a Financial Fragmentation Shock 23
Figure 1.2.4. Impact of Financial Fragmentation on Global Balance 24
Figure 1.3.1. Medium-Term Impact of China Real Estate Slowdown on the
External Sector 25
Figure 1.3.2. Medium-Term Impact on Global Balance 26
Figure 1.3.3. Real Effective Exchange Rate Response to China Real Estate
Slowdown Scenarios 26
Figure 2.1. Commodity and the US Dollar 38
Figure 2.2. Real Oil Price Swings 40
Figure 2.3. Effects of Oil Supply and Global Activity Shocks 41
Figure 2.4. Effects of Global Activity Shocks on Energy Exporters and Importers 42
Figure 2.5. Effects of Oil Supply Shocks on Energy Exporters and Importers 43
Figure 2.6. Effects of Oil Supply Shocks and Selected Country Characteristics 45
Figure 2.7. Impulse Responses to an Oil Supply and a Global Activity Shock in the
Flexible System of Global Models 46
Figure 2.8. US Oil Trade Balance and Rolling Correlations between
Oil Price and the US Dollar 48
Figure 2.1.1. Wholesale Energy Prices in Europe 51
Figure 2.1.2. Energy Cost in European Manufacturing 51
Figure 2.2.1. Cumulative Explanatory Power of Components 53
Figure 2.2.2. Correlation of First Principal Component with Commodity Prices 53

iv International Monetary Fund | 2024

 Contents

Figure 2.3.1. US Oil Trade Balance and Rolling Correlations between

Oil Price and the US Dollar 54
Figure 2.3.2. Impact of Oil Price Shocks on the US Dollar over
Different Sample Periods 55
Figure 2.3.3. Responses of Foreign Investors’ Net Purchase of US Assets Following
Negative Oil Supply Shocks 55
Figure 2.4.1. Impulse Response to a Permanent Decline in Global Real Oil Prices in the
Flexible System of Global Models 58
Figure 2.4.2. Impulse Response to a Permanent Increase in Global Real Copper
Prices in the Flexible System of Global Models 58
Tables
Table 1.1. Selected Economies: Current Account Balance, 2021–24 16
Table 1.2. Selected Economies: Net International Investment Position, 2020–23 17
Annex Table 1.1.1. Selected Economies: Foreign Reserves, 2020–23 27
Annex Table 1.1.2. External Sector Report Economies: Summary of
External Assessment Indicators, 2023 28
Annex Table 1.1.3. External Sector Report Economies: Summary of IMF Staff–Assessed
Current Account Gaps and IMF Staff Adjustments, 2023 29
Annex Table 1.1.4. External Sector Report Economies: Summary of IMF Staff–Assessed
Real Effective Exchange Rate and External Balance Assessment Model Gaps, 2023 30
Annex Table 1.1.5. Selected External Sector Report Economies: External Balance
Assessment Current Account Regression Policy Gap Contributions, 2023 31
Annex Table 1.1.6. 2023 Individual Economy Assessments: Summary of
Policy Recommendations 32
Table 3.A. Description in External Sector Report Overall Assessment 62
Table 3.B. Economies Covered in the External Sector Report 62
Table 3.1. Argentina: Economy Assessment 64
Table 3.2. Australia: Economy Assessment 65
Table 3.3. Belgium: Economy Assessment 66
Table 3.4. Brazil: Economy Assessment 67
Table 3.5. Canada: Economy Assessment 68
Table 3.6. China: Economy Assessment 69
Table 3.7. Euro Area: Economy Assessment 70
Table 3.8. France: Economy Assessment 71
Table 3.9. Germany: Economy Assessment 72
Table 3.10. Hong Kong Special Administrative Region: Economy Assessment 73
Table 3.11. India: Economy Assessment 74
Table 3.12. Indonesia: Economy Assessment 75
Table 3.13. Italy: Economy Assessment 76
Table 3.14. Japan: Economy Assessment 77
Table 3.15. Korea: Economy Assessment 78
Table 3.16. Malaysia: Economy Assessment 79
Table 3.17. Mexico: Economy Assessment 80
Table 3.18. The Netherlands: Economy Assessment 81
Table 3.19. Poland: Economy Assessment 82
Table 3.20. Russia: Economy Assessment 83
Table 3.21. Saudi Arabia: Economy Assessment 84
Table 3.22. Singapore: Economy Assessment 85
Table 3.23. South Africa: Economy Assessment 86

International Monetary Fund | 2024 v

2024 EXTERNAL SECTOR REPORT

Table 3.24. Spain: Economy Assessment 87

Table 3.25. Sweden: Economy Assessment 88
Table 3.26. Switzerland: Economy Assessment 89
Table 3.27. Thailand: Economy Assessment 90
Table 3.28. Türkiye: Economy Assessment 91
Table 3.29. United Kingdom: Economy Assessment 92
Table 3.30. United States: Economy Assessment 93

vi International Monetary Fund | 2024

FURTHER INFORMATION

Corrections and Revisions

The data and analysis appearing in the External Sector Report are compiled by the IMF staff at the time of pub-
lication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered,
corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF
eLibrary. All substantive changes are listed in the online table of contents.

Print and Digital Editions

Print
Print copies of this External Sector Report can be ordered from the IMF Bookstore at http://IMF.org/external/
terms.htm

Digital
Multiple digital editions of the External Sector Report, including ePub, enhanced PDF, Mobi, and HTML, are
available on the IMF eLibrary at www.elibrary.IMF.org/ESR24

Download a free PDF of the report and data sets for each of the charts therein from the IMF website at
imf.org/en/Publications/ESR or scan the QR code below to access the External Sector Report web page directly:

Copyright and Reuse

Information on the terms and conditions for reusing the contents of this publication is at
http://IMF.org/external/terms.htm

International Monetary Fund | 2024 vii

 PREFACE

Produced since 2012, the IMF’s annual External Sector Report analyzes global external developments and
provides multilaterally consistent assessments of external positions of the world’s largest economies representing
more than 90 percent of global GDP, which include current accounts, real exchange rates, external balance sheets,
capital flows, and international reserves. Together with the World Economic Outlook and Article IV consultations,
this report is part of a continuous effort to assess and address the possible effects of spillovers from members’
policies on global stability and to monitor the stability of members’ external positions in a comprehensive manner.
Chapter 1, “External Positions and Policies,” discusses the evolution of global external positions in 2023,
key risks to external sector stability, and policy priorities for reducing excess imbalances over the medium term.
Chapter 2, “Navigating the Tides of Commodity Prices,” explores the external sector implications of energy price
swings. It finds that energy-importing countries bear the brunt of negative oil supply shocks and can mitigate
the impact through policies including greater exchange rate flexibility and more anchored inflation expectations.
Chapter 3, “2022 Individual Economy Assessments,” provides details on the overall external assessments for 30
economies and associated policy recommendations. This year’s external assessments are based on the latest version
of the IMF’s External Balance Assessment methodology, external sector data as of May 20, 2024, and IMF staff
projections in the April 2024 World Economic Outlook.
This report was prepared under the overall guidance of Pierre-Olivier Gourinchas, IMF Economic Counsellor
and Director of Research, and under the direction of the External Sector Coordinating Group, comprising staff
from the IMF’s area departments (African, Asia and Pacific, European, Middle East and Central Asia, and Western
Hemisphere) and several functional departments (Fiscal Affairs; Statistics; Strategy, Policy, and Review; Monetary
and Capital Markets; and Research): Ali Jawad Al-Eyd, Rudolfs Bems, Pelin Berkmen, Emine Boz, Nigel Chalk,
Jiaqian Chen, Mariana Colacelli, Borys Cotto, Christopher Erceg, Alexandra Aikaterini Fotiou, Kenneth Henry
Kang, Purva Khera, Vitaliy Kramarenko, Jaewoo Lee (Chair), Amine Mati, Erin Nephew, Dragana Ostojic, Marcos
Poplawski Ribeiro, Lev Ratnovski, Stephane Roudet, Christian Saborowski, Ranil Salgado, Mika Saito, Carlos
Sánchez-Muñoz, Martin Sommer, Antonio Spilimbergo, Anita Tuladhar, and Sebastian Weber.
Rudolfs Bems and Jiaqian Chen led the preparation of the report, which draws on contributions from Cian
Allen, Christiane Baumeister (external consultant), Lukas Boer, Benjamin Carton, Geoffroy Dolphin, Giovanni
Ganelli, Keiko Honjo, Ting Lan, Roman Merga, Racha Moussa, Dirk Muir, Rafael Portillo, Cyril Rebillard, and
Pedro Rodriguez. Important input was provided by country teams as well as David Coble, Majdi Debbich, Bada
Han, David Florián Hoyle, Parisa Kamali, Robin Koepke, Svitlana Maslova, Hui Tong, and Marco Rodriguez
Waldo. Excellent research and editorial assistance were provided by Mustafa Oguz Caylan, Santiago Gomez, Jane
Haizel, DavidGuio Rodriguez, Jair Rodriguez, Xiaohan Shao, and Brian Hyunjo Shin.
Cheryl Toksoz from the Communications Department led the editorial team for the report, with production
and editorial support from Absolute Services and the Grauel Group.
The analysis benefited from comments and suggestions by staff members from other IMF departments, as
well as by the IMF’s Executive Directors following their discussion of the report on July 1, 2024. However,
both projections and policy considerations are those of the IMF staff and should not be attributed to Executive
Directors or to their national authorities.

viii International Monetary Fund | 2024

EXECUTIVE SUMMARY

F
ollowing a sharp global monetary policy the risks of sudden stops and disruptive currency
tightening to address inflation in 2021–22, and capital flow movements, while contributing to
tight monetary policy conditions in key increasing geoeconomic fragmentation and raising
advanced economies were maintained in 2023, trade barriers. Narrowing excess global current account
contributing to the continued strength of the US balances would reduce the risk of financial crisis,
dollar in 2023 and early 2024. Other reserve cur- improve resource allocation, and help preserve support
rency movements have been mixed in real terms, with for multilateralism.
notable depreciations of the Chinese renminbi and the Over the medium term, the global current account
Japanese yen partly reflecting weaker market sentiment balance is projected to continue narrowing, as current
and diverging monetary policy, respectively. Emerging account deficit countries embark on fiscal consol-
market and developing economies generally experi- idation and commodity prices moderate. Risks to
enced less depreciation pressure in 2023 than in the the outlook are sizable and tilted toward a widen-
previous year, as monetary policy divergence subsided. ing global balance. They include a divergence from
Net capital inflows to emerging market and developing projected medium-term fiscal consolidation plans,
economies recovered slightly from the lows experienced increasing geopolitical fragmentation, global spillovers
in 2022 but remained negative in 2023. This is the from a prolonged real estate slowdown in China,
result of various push (global) and pull (local) factors, and renewed commodity price spikes amid regional
including tight monetary policy in advanced econo- conflicts.
mies, geopolitical uncertainties, compressed interest Policy efforts, in both excess surplus and deficit
rate differentials, and subdued growth prospects. These economies, are required to promote external rebal-
patterns in net flows mask a decline in both gross ancing. Where excess current account deficits in 2023
inflows and gross outflows in emerging market and partly reflected the need to reduce high public debt
developing economies. levels, policies in the near and medium term should
The global current account balance—the focus on a credible fiscal consolidation. Economies
cross-country sum of absolute values of current with competitiveness challenges would also benefit
account—narrowed significantly in 2023, moderating from structural reforms, including to address bottle-
toward pre-COVID levels after a sustained expansion necks in the labor market. In economies where excess
during 2020–22. The narrowing reflects a reversal current account surpluses persist, the priority should
of large current account surpluses in commodity be on policies aimed at promoting investment and
exporting countries. Continued recovery from the diminishing excess saving, including through public
COVID-19 pandemic and a slowdown in global trade saving. Reforms to expand social safety nets and reduce
in goods during 2023 also contributed. informality would also help.
The excess global current account balance—the Coordinated policy efforts and multilateral coopera-
sum of absolute values of current account surpluses tion will help deal with complex challenges facing the
and deficits in excess of their norms—has remained world economy and preserve the benefits of multilater-
broadly unchanged relative to 2022, as a decrease in alism, including by maintaining stable and transparent
excess balances in several large economies was offset by trade policies. Following the completion of the 16th
increases in smaller economies. While part of current General Review of Quota, the provision of consent by
account surpluses and deficits reflects differences in member countries to their respective quota increases
fundamentals and desirable medium-term policies, would ensure that the IMF is adequately resourced to
excess global current account balances could exacerbate serve as an anchor of the global financial safety net.

International Monetary Fund | 2024 ix

 IMF EXECUTIVE BOARD DISCUSSION SUMMARY

The following remarks were made by the Acting Chair at the conclusion of the Executive Board’s discussion
of the External Sector Report on July 1, 2024.

E
xecutive Directors broadly agreed with the further analysis of the two newly emerging challenges
findings of the 2024 External Sector Report arising from the clean energy transition and the possible
(ESR) and its policy recommendations. They shift in the now positive correlation between the oil
welcomed that global current account bal- price and the US dollar.
ances narrowed significantly in 2023 after a sustained Directors noted that global current account balances
expansion during 2020–22. Nonetheless, Directors are expected to continue narrowing over the medium
observed that the excess global current account balance term, underpinned by a projected sizable medium‑term
has remained broadly unchanged relative to 2022, as a fiscal consolidation in current account deficit econo-
decrease in excess balances in several large economies mies and continued moderation in commodity prices.
was offset by increases in smaller economies. Concur- They cautioned that significant risks surround this
rently, global cross‑border holdings of financial assets outlook, including a divergence from projected medi-
and liabilities remained at historically high levels in um‑term fiscal consolidation plans, increasing geopolit-
2023, with net foreign creditor and debtor positions ical fragmentation, or renewed commodity price spikes
widening, largely owing to valuation changes. amid regional conflicts.
Directors noted that lower commodity prices, and Directors reiterated that excess global current
the related reversal of large current account surpluses account balances could exacerbate the risks of sud-
in commodity exporting countries, significantly con- den stops and disruptive currency and capital flow
tributed to the narrowing of global balances in 2023. movements, while possibly contributing to increasing
Other factors included the continued recovery of geoeconomic fragmentation and raising trade barriers.
international travel from the pandemic disruptions, as They consequently encouraged both excess surplus and
well as a slowdown in global trade in goods. Directors deficit economies to take steps to promote external
observed that tight monetary policy conditions in key rebalancing, in order to reduce the risk of financial
advanced economies were maintained, contributing to crisis, improve resource allocation, and help preserve
continued strength of the US dollar and more stable support for multilateralism.
currency markets in 2023 and early 2024, relative Directors underscored that policies to promote
to 2022. Net capital inflows to emerging market external rebalancing differ with positions and needs of
and developing economies, while recovering slightly, individual economies. They considered that in econ-
remained negative in 2023. omies in which excess current account deficits partly
Directors generally welcomed the analysis of the reflect the need to reduce high public debt levels,
external sector implications of energy price swings policies should focus on a credible and growth‑friendly
for the global and individual economies, differentiat- fiscal consolidation. Directors stressed that economies
ing among drivers behind the price swings, as well as with lingering competitiveness challenges would also
accounting for countries’ energy importer or exporter benefit from structural reforms, including to address
status. They concurred that, while energy‑importing bottlenecks in the labor market. In economies where
countries bear the brunt of negative oil supply shocks, excess current account surpluses persist, prioritizing
these countries can resort to several policy tools to mit- policies aimed at promoting investment and diminish-
igate the adverse effects, including greater exchange rate ing excess savings, including through expanded social
flexibility, lower government debt, and having stronger safety nets or higher fiscal deficits—where feasible—is
external buffers. Moving forward, Directors called for warranted. Directors also emphasized that economies

x International Monetary Fund | 2024

 IMF EXECUTIVE BOARD DISCUSSION SUMMARY

with external positions broadly in line with fundamen- complex challenges facing the world economy and
tals should continue to implement policies to address preserve the benefits of multilateralism. This includes
domestic imbalances and prevent excessive external maintaining stable and transparent trade policies,
imbalances; structural reforms to boost productivity ensuring the responsible use of industrial policies and of
would also improve competitiveness while facilitat- potentially disruptive new technologies such as artifi-
ing the green and digital transition. Directors also cial intelligence, and mitigating the effects of climate
noted that careful calibration of monetary easing and change. Directors stressed that ensuring an adequate
clear communication will be crucial to guard against global financial safety net, with the Fund at its core,
unwarranted financial and capital market volatility remains critical. Timely consent by members to their
and disruptive exchange market pressures. The policy respective quota increases under the 16th General
responses to potentially disruptive capital flow move- Review of Quotas is crucial in this regard.
ments should continue to be guided by the Integrated Directors reiterated the need to ensure transparency,
Policy Framework and the revised Institutional View consistency, and evenhandedness of external assess-
on Capital Flows, depending on country circum- ments across countries. They stressed the importance
stances. Strong macroeconomic policies and funda- of continued caution in interpreting and communi-
mentals continue to remain the first line of defense to cating the assessment results. Directors encouraged
protect against excessive capital volatility. further exploration of possible improvements to
Directors underscored that coordinated policy efforts enhance the EBA methodologies, and continued efforts
and multilateral cooperation will be key to deal with to ensure consistency across work streams.

International Monetary Fund | 2024 xi

 1
CHAPTER

EXTERNAL POSITIONS AND POLICIES

Overview and Context Recent Developments: Trade and Current

In 2023, external sectors of External Sector Report Account Balances
(ESR) countries turned relatively stable, follow- Pandemic factors continued to normalize in 2023.
ing a highly volatile 2020–22 period, which was Remaining supply chain disruptions dissipated, with
characterized by two key shocks: the COVID-19 the level of pressure falling below pre-COVID-19
pandemic beginning in 2020 and Russia’s invasion levels and transport costs declining, relative to
of Ukraine in 2022. Commodity prices moderated 2021–22 levels (Figure 1.1, panel 1). Following the
toward historical trends and pandemic factors1 lifting of COVID-19 restrictions in China in early
continued to recede, contributing to the return of 2023, the travel sector in Asia rebounded strongly in
public and private saving, investment, and current the first half of 2023 (UN World Tourism Organi-
account balances toward prepandemic trends, nar- zation 2024). Household consumption in advanced
rowing the global current account balance. Following economies and emerging markets rotated back from
a sharp global monetary policy tightening to address tradable goods to services, with the composition
inflation in 2021–22, tight monetary policy condi- in most countries returning to prepandemic levels
tions in key advanced economies were maintained in (Figure 1.1, panel 2).
2023, contributing to the continued strength of the Commodity prices declined in 2023, reversing from
US dollar and constraining capital flows to emerging 2022 peaks toward historical averages. Following a
markets. volatile 2022 with major negative supply shocks and
The medium-term outlook indicates continued elevated uncertainty about the commodity outlook,
narrowing of the global current account balance, prices for all major commodity groups (food, energy,
supported by fiscal consolidation efforts in current metals) have declined from the peaks reached during
account deficit countries and a moderation in com- 2021–22 (Figure 1.1, panel 3). Both the easing of
modity prices. However, there is a high degree of supply concerns and the slowdown in demand have
uncertainty surrounding this outlook. Risks include contributed. The most notable reversal was observed
delays in the implementation of projected fiscal for gas prices in Europe, which, after reaching very
consolidation and heightened uncertainty about the high levels in 2022, have fallen dramatically. As of the
commodity market outlook in view of geopolitical first quarter of 2024, real commodity prices remain
tensions, as well as intensification of geoeconomic elevated relative to prepandemic levels, in part due to
fragmentation and a prolonged real estate slowdown in continued global geopolitical tensions.
China. Besides impacting the global current account Global trade in goods slowed in 2023. Despite
balance, these risks could hamper the efficient flow of resilience in global economic activity, the volume of
resources and undermine the relative external stability imports and exports declined globally by 0.9 per-
of postpandemic years. cent, with global trade openness, measured as real
goods trade-to-GDP ratio, falling sharply in 2023
(Figure 1.1, panel 4). The slowdown has equally
The authors of this chapter are Cian Allen, Rudolfs Bems (lead), affected emerging markets and advanced economies,
Giovanni Ganelli, and Racha Moussa, in collaboration with Benja- reflecting restrictive global monetary policy and rela-
min Carton and Dirk Muir, and under the guidance of Jaewoo Lee.
Mustafa Oguz Caylan, Santiago Gomez, David Guio Rodriguez, Jair
tively tight financial conditions, especially in emerging
Rodriguez, Xiaohan Shao, and Brian Hyunjo Shin provided research markets, which tend to disproportionately impact
support, and Jane Haizel provided editorial assistance. traded goods. The postpandemic shift in demand back
1Throughout the chapter, “pandemic factors” refers to the direct
toward services (Figure 1.1, panel 2) has also had a
effect of COVID-19 (that is, lockdowns) as well as the market impli-
cations of COVID-19 (for example, initial collapse of the oil price dampening effect, while geopolitical fragmentation
and GDP) and policies implemented in reaction to COVID-19. could be another contributing factor (Box 1.1 in the

International Monetary Fund | 2024 1

 2024 EXTERNAL SECTOR REPORT

Figure 1.1. COVID-19 Factors, Real Commodity Prices, and Figure 1.2. Contributions to the Global Current Account
Global Trade Volume Balance, 2000–23
(Percent of world GDP)
1. Supply Chain Disruptions 2. Change in Imports from
Harper Petersen Consumption Shift to Tradables 8
Others
Charter Rate Index Median China
Baltic Dry Index 25th/75th quartile range 7
Oil exporters
Global Supply Chain United States
Pressure Index 6
2,500 5 0.5 Global current account balance
(std. dev. pts.,
right scale) 4 0.4 5
2,000
3 0.3 4
1,500 2 0.2 3
1,000 1 0.1
2
0 0.0
500 1
–1 –0.1
0
0 –2 –0.2 2000 03 06 09 12 15 18 21 23
2019 20 21 22 23
Jan. 2017
Jan. 18
Jan. 19
Jan. 20
Jan. 21
Jan. 22
Jan. 23
May 24

Sources: IMF, World Economic Outlook database; and IMF staff calculations.
Note: The absolute value of current accounts is shown, in percent of world GDP.
The global current account balance is calculated as the sum of absolute values of
3. Real Commodity Prices 4. Global Real Goods Trade-to-GDP current accounts across countries. The categories “oil exporters” and “others” are
Ratio also the sum of absolute values of the current accounts of countries in those
300 Gas (right scale) 900 105 categories.
Metals 800
257 Food 700 103
Oil
213 600 102
500 April 2024 World Economic Outlook; Gopinath and
170 400 100
300
others 2024). Most recent data for early 2024 indicate
127 200 98 that a limited recovery is under way.
83 100 97 These developments have contributed to signifi-
0 cantly narrowing the global current account balance
40 –100 95
2011 13 15 17 19 21 23 toward pre-COVID-19 levels.2 Following a sustained
Jan. 2019
Jan. 20
Jan. 21
Jan. 22
Jan. 23

Apr. 24

expansion during 2020–22, the global balance in

2023 decreased by 1 percentage point of world GDP
(Figure 1.2).
Sources: CEIC, Global Economic Database; Haver Analytics; IMF, Primary
Commodity Price System; IMF, April 2024 World Economic Outlook; and Joint
A continued recovery from the pandemic facili-
Organizations Data Initiative. tated the narrowing. COVID-19 factors significantly
Note: In panel 2, the impact on imports from the shift in consumption to durables expanded the global balance during 2020–21, with
and nondurables is plotted, in percent of country GDP. The impact on imports is
estimated by applying the import content of durables, nondurables, and services reversed effects in 2022–23 (Figure 1.3). In China,
from Hale and others 2019 for the United States, and scaling it by the percentage for example, COVID-19 travel restrictions tended to
of foreign value added in domestic demand (OECD TiVA) for other countries, to the
difference between the actual consumption of durables, nondurables, and increase the current account surpluses by lowering
services, and what they would have been based on their 2019 shares in private its service deficit. In the United States, the increased
consumption. Countries included are Australia, Canada, Chile, China, Denmark,
France, Germany, Indonesia, Israel, Italy, Japan, Korea, Mexico, New Zealand, demand for durables and disrupted business travel
Spain, South Africa, Sweden, Türkiye, the United Kingdom, and the United States. during the lockdown increased imports of goods and
In panel 3, US consumer price index was used to derive real prices. In panel 4,
index constructed as real goods trade-to-GDP ratio. Global foreign trade volumes
decreased exports of services, widening the current
are arithmetic averages of percent changes for individual countries weighted by account deficit. In turn, the gradual recovery of
the US dollar value of exports or imports as a share of world total (in the preceding
year). Real GDP similarly constructed using US dollar GDP value share of world
total. 2Global current account balance is defined as the sum of absolute

current account balances across all countries. This indicator is a

convenient summary measure of the global configuration of current
account balances but need not indicate an excess global current
account balance.

2 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Figure 1.3. Contributions of COVID-19 Factors to the Global Figure 1.4. Fiscal Policy Changes, 2022–23
Balance for ESR Sample Countries, 2020–23 (Cyclically adjusted fiscal balance, percentage points of potential GDP)
(Percent of world GDP)
1
Travel Household Medical Oil Transport 0
0.8 Other Change in global balance, relative to 2019
–1
0.7 –2
0.6 –3
0.5 –4

0.4 –5
CA deficit economies CA surplus United States
0.3 (excl. the United States) economies

0.2 Sources: IMF, World Economic Outlook database; and IMF staff calculations.
Note: CA = current account.
0.1

–0.1
2019 20 21 22 23
Figure 1.2). Commodity exporters as a group reduced
Source: IMF staff calculations. current account surpluses by 0.55 percent of world
Note: COVID-19 factor contributions derived from COVID-19 adjustors of external GDP, as saving declined to buffer the economic impact
sector assessments. Change in global balance is measured relative to its 2019
level and differs from headline global balance because it is based on External of declining commodity prices (see also Figure 1.5,
Sector Report country sample, for which COVID-19 adjustors are available. panel 3). The terms-of-trade shifts implied by the
“Travel” refers to restrictions on international travel; “Household” refers to shift in
household consumption toward traded goods; “Medical” refers to a surge in trade commodity price adjustments have also significantly
of medical goods; “Transport” refers to a surge in transportation costs; “Oil” refers impacted external balances for commodity importers.
to extraordinary reduction in demand for oil in 2020, due to mobility restrictions;
“Other” captures other country-specific COVID-19 factors for 2020. See Online
Most notably, the outsized fall in gas prices in Europe
Annex 1.1 of the 2021 External Sector Report for details on the adjustors. in 2023 (see Box 2.1 in Chapter 2) decreased energy
ESR = External Sector Report. import bills and increased trade balances for the
region’s gas importers.
The narrowing of the global balance can be linked
international travel and the rotation of consumption to sizable changes in private saving, more than
out of durables and back into services since 2022 offsetting the impact of public saving on the current
have narrowed the global balance.3 Other COVID-19 account. Current account deficit countries (excluding
factors, such as elevated transportation costs and the United States) expanded fiscal positions slightly,
trade in medical goods, tended to similarly widen and the United States did so considerably relative
the global balance temporarily during the pandemic. to 2022. Current account surplus countries’ fiscal
Analysis of ESR sample economies shows that in positions remained broadly unchanged (Figure 1.4).
2021, COVID-19 factors could have contributed These developments widened the global balance.
0.63 percent of global GDP to the post-COVID-19 However, changes in government saving in 2023
increase in the global balance. In 2023, the with- were surpassed by changes in private sector saving
drawal of such factors is estimated to have contrib- for key contributors to the global balance—China,
uted 0.1 percent of global GDP to the narrowing of the United States, and oil exporters. On the current
the global balance relative to 2022. account deficit side, the decrease in the US current
A significant share of the narrowing of the global account deficit despite considerable fiscal loosening
balance in 2023 can be linked to a reversal of peak implies an increase in private saving (Figure 1.5).
current account surpluses in commodity-exporting The current account surplus declined with private
countries in 2022 (see contribution of oil exporters in saving in China, albeit from a high level, reflect-
ing the end of COVID-19-era lockdowns. For oil
3Most recently, in 2023 lower travel service balance is estimated to
exporters, the current account surplus and saving
have decreased the current account in China by 0.4 percent of GDP declined as they smoothed the impact of commodity
relative to 2022. price volatility.

International Monetary Fund | 2024 3

 2024 EXTERNAL SECTOR REPORT

Figure 1.5. Decomposition of Changes in Current Account, monetary policy divergence subsided, with additional
2019–23 tightening in major advanced economies staying
(Percent of World GDP) limited.
Current account Investment Private saving Public saving
The strong US dollar persisted in 2023, with the
1. United States currency remaining close to its post-2000 peak (Figure
2.0 1.6, panel 1), in part reflecting continued tight mon-
1.5 etary policy and the relative resilience of the US econ-
1.0 omy in 2023. In the fourth quarter of 2023, the US
0.5
dollar depreciated slightly, reflecting expectations of the
0.0
–0.5
beginning of the Federal Reserve cutting cycle. How-
–1.0 ever, the more recent expectations of higher-for-longer
–1.5 policy rates in the United States have reversed this
–2.0 depreciation in early 2024.
2019 20 21 22 23
Other reserve currency movements in 2023 and
2. China early 2024 have varied. The Chinese renminbi
2.0
(–9.9 percent) and the Japanese yen (–10.2 percent)
1.5
1.0
depreciated in real effective terms compared to their
0.5 2022 average. The depreciations partly reflected
0.0 weaker market sentiment for the former and diverging
–0.5 monetary policy for the latter. The euro (0.3 percent)
–1.0 has remained broadly stable in real effective terms,
–1.5
while the pound sterling (4.9 percent) has appreci-
–2.0
2019 20 21 22 23 ated, potentially driven by interest rate differentials
(Figure 1.6, panel 2) and the speed of economic
3. Oil Exporters
2.0 recovery.
1.5 Nominal effective exchange rate trends for other
1.0 ESR countries in 2023 and early 2024 have displayed
0.5 broadly similar patterns to their 2022 dynamics
0.0
(Figure 1.6, panel 3). Some emerging market and
–0.5
–1.0
developing economies (EMDEs), such as Brazil and
–1.5 Mexico, have appreciated again in 2023 and early
–2.0 2024. Others, such as Argentina and Türkiye, have
2019 20 21 22 23
experienced significant depreciations. Country-specific
Sources: IMF, April 2024 World Economic Outlook; and IMF staff calculations. factors such as interest rate differentials (see Figure 1.6,
Note: Investment is displayed as a negative value. The private saving rate is
calculated as the residual from the current account balance, investment, and the
panel 2), speed of postpandemic economic recovery,
public saving rate. preexisting vulnerabilities (such as lower perceived
institutional quality), and success with disinflation
efforts are reflected in these persistent differences in
currency movements across EMDEs during 2022–23.
Recent Developments: Currencies, Financial The Russian ruble depreciated in 2023, largely due to
Flows, Balance Sheets declining export earnings.
The realized change in exchange rates is an imper-
Exchange Rates fect measure of external pressures because interest
Following a rapid US dollar appreciation in 2022, rate changes and (active or passive) changes in foreign
currency markets were more stable in 2023 and early exchange (FX) reserves can also cushion pressures.
2024. Exchange rate movements in 2022 were domi- Figure 1.7 plots an index summarizing this for 2023,
nated by the rapid monetary tightening in the United incorporating realized exchange rate movements, policy
States, relative to other economies, which drove a rate changes by central banks, and adjusted changes
sharp increase in the value of the US dollar. In 2023, in FX reserves, with positive values corresponding to
tight monetary policy conditions prevailed globally but exchange market pressure that would depreciate the

4 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Figure 1.6. Currency Movements Figure 1.7. Exchange Market Pressure and Its Components,
2023
1. US Dollar Real Effective Exchange Rate, 2022:M1–2024:M4 (Percent change)
(2000–24 average = 100; increase = appreciation)
Adjusted change in FX reserves Interest rate
130 Nominal exchange rate Total Exchange Market
Vis-à-vis advanced economies
Vis-à-vis emerging markets Total Exchange Market Pressure 2022 Pressure 2023
2002 AE peak
120 1. Emerging Market and Developing Economies

POL
MEX
110 2003 EM peak
BRA
IND
THA
100 Appreciation Depreciation
2022:M1 M04 M07 M10 23:M1 M04 M07 M10 24:M1 M04 CHN
MYS
2. Real Effective Exchange Rates and Real Interest Rate Differentials
(2023:M12 versus 2022:M12) ZAF
30 RUS
Change in real exchange rate, percent

COL Reserve currencies

25 Other EBA currencies
20 Appreciation 2. Advanced Economies
15 MEX CHE
BRA POL HUN
10 CHE TUN GBR
GBR
URY SGP IDN PER MAR CZE TUR (29, 3)
5 HKG EUR SWE ROU SGP
IND AUS
0 ARG KOR CAN CHL
EA
NZL SAU ZAF RUS (8,–13)
–5 (–96, –21) CHN THA DNK CAN
JPN MYS
NOR ISR SWE
–10
–6 –4 –2 0 2 4 6 8 10 12 14
AUS
Change in real interest rate relative to the United States, pp
HKG
3. Nominal Effective Exchange Rate Changes, 2022 and 2023 KOR
(Percent change)
JPN
25
COL
20 –30 –20 –10 0 10 20 30 40
2023:M12 versus 2022:M12

BRA
Appreciation
15 Sources: Adler and others (2024); Goldberg and Krogstrup (2023); IMF,
MEX
POL URY International Financial Statistics database; and IMF staff calculations.
10 HUN EUR CHL
CHE Note: The Exchange Market Pressure Index is based on Goldberg and Krogstrup
MAR GBR
5 DNK SGP (2023, updated). It is defined as the weighted and scaled sums of ER depreciation,
KOR IDN THA SAU PER
SWE IND HKG adjusted changes in FX reserves, and policy rate changes. It combines pressures
CZE
0 observed in exchange rate adjustments with model-based estimates of incipient
TUR (–22, –35) CAN TUN AUS ROU
CHN ZAF RUS (22, –27) pressures that are masked by changes in reserves and policy rate adjustments.
–5 JPN ISR MYS
NZL Positive values correspond to exchange market pressure that would depreciate the
ARG (–40, –74) NOR
–10 nominal exchange rate. A country’s total exchange market pressure in 2023 is the
–15 –10 –5 0 5 10 15 20 25 sum of scaled and weighted observed adjusted changes in FX reserves,
2022:M12 versus 2021:M12 short-term interest rate changes, and nominal exchange rate movements. Values
of adjusted changes in FX reserves and interest rate changes are expressed in
terms of counterfactual exchange rate adjustments that would have occurred if no
Sources: Haver Analytics; IMF, Global Data Source; IMF, International Financial
changes in FX reserves or policy rates had occurred. Changes in FX reserves are
Statistics database; and IMF staff calculations.
adjusted for valuation changes, income flows, and changes in other foreign
Note: In panel 2, EBA currencies refers to the national currencies of the countries
currency balance sheet positions by Adler and others (2024, updated). Figure
in the EBA model country sample. For scaling purposes, Argentina, Russia, and
includes all ESR economies covered by Goldberg and Krogstrup (2023). Missing
Türkiye were omitted from panel 2, and Argentina, Colombia, and Russia were
economies are Argentina, Indonesia, and Türkiye. The United States is not
omitted from panel 3. Omitted countries are listed with their coordinates. Data
reported as the reference currency is the US dollar. Data labels in the figure use
labels in the figure use International Organization for Standardization (ISO) country
International Organization for Standardization (ISO) country codes. EA = euro area;
codes. AE = advanced economies; EBA = External Balance Assessment;
ER = exchange rate; ESR = External Sector Report; FX = foreign exchange.
EM = emerging markets; EUR = euro area; pp = percentage points.

International Monetary Fund | 2024 5

2024 EXTERNAL SECTOR REPORT

nominal exchange rate. Using the adjusted changes in Figure 1.8. Aggregate Net Capital Inflows in Emerging Market
FX reserves constructed by Adler and others (2024, and Developing Economies, 2014–23
updated),4 Goldberg and Krogstrup (2023) estimated (Percent of group GDP)
the counterfactual adjustment in the exchange rate that 1.0
EM (excl. China)
would have occurred in the absence of the adjusted China
0.8
changes in FX reserves or policy rate changes. Total net inflows
0.6 (including reserves)
External pressure was considerably weaker and less
0.4
one-sided in 2023, compared to 2022, as monetary
policy divergence subsided, with tight conditions 0.2

persisting globally. Twelve External Balance Assessment 0.0

(EBA) economies (including Poland, Mexico and –0.2
Brazil) faced appreciating pressure in 2023—a signif- –0.4
icant increase from 2022.5 This potentially reflects –0.6
resilience of emerging markets to the ongoing tight- –0.8
ening cycle, including improved policy frameworks in –1.0
some economies, as indicated by the progress made in 2014 15 16 17 18 19 20 21 22 23
their fight against inflation and in reducing currency
Sources: Haver Analytics; IMF, International Financial Statistics database; and IMF
volatility, capital outflows, and other external pressures staff calculations.
(see the April 2024 Global Financial Stability Report). Note: Net capital inflows are calculated as gross inflow minus gross outflow.
Positive values indicate a net inflow. Total includes reserve accumulation with a
As in 2022, change in inflation during 2023 was pos- negative sign. Sample includes economies covered in the External Sector Report
itively linked to the Exchange Market Pressure index, and the External Balance Assessment regression model, subject to data
availability. Derivatives are excluded. EM = emerging market economies.
with lower pressure for depreciation in economies that
have reduced inflation by more.
Exchange rate changes were the main policy outlet Global Financial Flows
for addressing exchange market pressures, especially Net capital inflows to emerging markets recovered
where the pressures were more sizable. In some slightly from 2022 lows but remained negative in
emerging markets, as well as advanced economies, 2023, showing uphill capital flows (Figure 1.8).6 This
adjusted reserves changed. These changes occurred in aggregate emerging market trend hides important het-
both directions, with the adjusted change in reserves erogeneity across countries. While China continued to
decreasing the appreciation pressure in Brazil, India, account for a large share of negative net capital inflows
Poland, and Singapore, while the change absorbed during 2023, inflows to other emerging markets as a
depreciation pressure in Malaysia and Russia. With group were positive and increased. Turning to subcom-
inflation abating in major emerging markets, some ponents of the financial account (Figure 1.9):
central banks have commenced cutting interest rates. • Net foreign direct investment (FDI) inflows in 2023
During 2023, interest rate differentials vis-à-vis the declined relative to historical averages but remained
United States—which has yet to cut rates—have positive across emerging market groups. China was
declined (among ESR countries) for Brazil and Poland, an exception, where net FDI inflows stayed negative
as reflected in a negative interest rate component in and fell further in 2023.
Figure 1.7. • In both groups (China and other emerging mar-
kets), the more volatile net portfolio inflows were
less negative in 2023. At the same time, net other
4Adlerand others (2024) adjust changes in FX reserves for investment inflows were muted in 2023, with a turn
estimated valuation changes, income flows, and changes in other
foreign-currency balance sheet positions. This measure often
to positive net inflows in other emerging markets
reflects FX intervention, but it can sometimes be dominated by and a decline in China relative to 2022.
other changes in the central bank’s foreign currency position. • Reserve accumulation, presented in negative values
Central banks can also intervene through derivatives, which have
in Figure 1.9, has declined in China, while it has
been increasingly used in some economies. See country pages in
Chapter 3 for country-specific details on foreign exchange inter- increased in other emerging markets.
vention in 2023.
5Average depreciation pressure was 1.9 percent, with 12 out of 6The overall level of net capital inflows into EMDEs varies across

32 EBA currencies experiencing depreciating pressure in 2023; country samples. The focus in this section is on economies covered
in 2022 the average depreciation pressure was 12.8 percent, with in the External Sector Report and the EBA regression model, subject
29 currencies having depreciating (positive) pressure. to data availability.

6 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Figure 1.9. Net Capital Inflows to Emerging Market and Figure 1.10. Gross Capital Flows in Emerging Market and
Developing Economies by Component, 2014–23 Developing Economies, 2014–23
FDI Portfolio Other Reserves (–) Total FDI Portfolio Other Reserves Total
1. EM (excl. China): Net Inflows 2. China: Net Inflows 1. EM (excl. China): Gross Inflows 2. EM (excl. China): Gross Outflows
(Percent of group GDP) (Percent of GDP) (Percent of group GDP) (Percent of group GDP)
3 5 7 7
6 6
4 5 5
2 4 4
3
3 3
2 2 2
1
1 1 1
0 0
0 0 –1 –1
–2 –2
–1 –3 –3
–1 –4 –4
–2
–5 –5
–3

2014
15
16
17
18
19
20
21
22

2014
15
16
17
18
19
20
21
22
23

23
–2
–4
–3 –5 3. China: Gross Inflows 4. China: Gross Outflows
2014
15
16
17
18
19
20
21
22
23

2014
15
16
17
18
19
20
21
22
23 (Percent of GDP) (Percent of GDP)
7 7
6 6
Sources: Haver Analytics; IMF, International Financial Statistics database; and IMF 5 5
staff calculations. 4 4
Note: Net capital inflows are calculated as gross inflow minus gross outflow. 3 3
Positive values indicate a net inflow. Total includes reserve accumulation with a 2 2
negative sign. Sample includes economies covered in the External Sector Report 1 1
and the External Balance Assessment regression model, subject to data 0 0
availability. Derivatives are excluded. EM = emerging markets; FDI = foreign direct –1 –1
investment. –2 –2
–3 –3
–4 –4
–5 –5
These patterns in net inflows mask a decline in both
2014
15
16
17
18
19
20
21
22

2014
15
16
17
18
19
20
21
22
23

23
gross inflows (nonresident investment in EMDEs) and
gross outflows (EMDE residents’ investment abroad) Sources: Haver Analytics; IMF, International Financial Statistics database; and IMF
(Figure 1.10). staff calculations.
• In China, gross inflows have declined since 2021, Note: Sample includes economies covered in the External Sector Report and the
External Balance Assessment regression model, subject to data availability.
with gross other investment inflows staying negative in Derivatives are excluded. EM = emerging markets; FDI = foreign direct
2022–23. A sharp decline in gross FDI inflows stands investment.
out in historical context. On the gross outflow side,
China—the largest overseas investor among emerging
markets—saw comparable or even larger reductions other capital inflows. However, there was significant
during 2023 for portfolio flows and reserves, contrib- heterogeneity across large emerging markets, with
uting to the relative recovery in overall net inflows (see some gross inflow destinations recording sizable
Figure 1.9, panel 2). In contrast, China’s gross FDI increases (both for FDI and non-FDI inflows) rela-
outflows have remained broadly stable and in line with tive to prepandemic trends (see Box 1.1).
historical trends, resulting in large negative net inflows
for this capital flow component. Observed shifts in capital flows during 2023 can
• In other emerging markets in 2023, gross capital be attributed to push (global) and pull (local) factors.
inflows and outflows declined, with a more pro- Among global factors, continued disinflation efforts
nounced decline in the latter increasing the net and tight monetary policy in advanced economies set
flows (Figure 1.9, panel 1). The relative resilience a generally constraining capital flow environment,
of net FDI inflows is accounted for by a compa- as evidenced by reduced gross capital inflows and
rable decline in both gross FDI inflows and gross outflows. Local factors, such as interest differentials
FDI outflows. Gross portfolio inflows and outflows and less robust growth, may have depressed inflows to
increased in 2023. Other gross outflows moderated some countries. Geopolitical uncertainties may have
relative to 2022, contributing to a recovery of net played a role in reducing FDI (see Box 1.1).

International Monetary Fund | 2024 7

 2024 EXTERNAL SECTOR REPORT

Figure 1.11. High-Frequency Gross Portfolio Inflows to Figure 1.12. Gross Assets and Liabilities, 2000–23
Emerging Market and Developing Economies, (Percent of world GDP)
January 2023–March 2024
Financial center USA GBR
(Three-month moving sum, billions of US dollars)
DEU CHN IND
JPN AE commodity exporters EMDE debtor
100 0.9 Rest of Europe Oil exporters ROW debtor
0.8 250 ROW creditor

0.7 200 Assets

50
0.6 150
100
0.5
0 50
0.4
0
0.3
–50
–50 0.2
–100
China EM (excl. China)
0.1 –150
Total US financial conditions (right scale)
Liabilities
–100 0.0 –200
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sep.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.

–250
2023:Q1 Q2 Q3 Q4 2024:Q1 2000 02 04 06 08 10 12 14 16 18 20 22 23

Sources: Ajello and others (2023); Institute of International Finance; and IMF staff Sources: External Wealth of Nations database; IMF, April 2023 World Economic
calculations. Outlook; and IMF staff calculations.
Note: US financial conditions measured by the Financial Conditions Impulse on Note: Liabilities are shown on reverse scale. Data labels in the figure use
Growth index, with positive values indicate financial tightening. Gross portfolio International Organization for Standardization (ISO) country codes. Advanced
inflows are measure by nonresident portfolio inflows data from the International economies (AE) commodity exporters: Australia, Canada, and New Zealand.
Institute of Finance, with positive values indicting an inflow. EM = emerging Emerging market and developing economies (EMDE) debtors: Brazil, Chile,
market economies. Indonesia, Mexico, Peru, South Africa, and Türkiye. Financial centers: The
Bahamas, Barbados, Belgium, Cyprus, Hong Kong, Ireland, Luxembourg, Malta,
Mauritius, The Netherlands, Panama, Singapore, Switzerland, and Taiwan. Oil
exporters: Algeria, Angola, Azerbaijan, Bahrain, Brunei, Chad, Republic of Congo,
High-frequency gross portfolio inflows, a subset of Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kazakhstan, Kuwait, Libya, Nigeria,
Norway, Oman, Qatar, Russia, Saudi Arabia, South Sudan, Timor-Leste, Trinidad
the financial account, show an inflow to emerging mar- and Tobago, Turkmenistan, United Arab Emirates, Venezuela, and Yemen.
kets other than China in the first few months of 2024, ROW = rest of the world.
a continuation of the 2023 trend (Figure 1.11). China
has seen a decline in inflows in early 2024, partly
reversing the recovery in the fourth quarter of 2023 global GDP (Figure 1.12). Such gross holdings have
(also observed in aggregate gross portfolio inflows in remained large from a historical perspective and
Figure 1.10). These gross portfolio inflow dynamics can have increased in US dollar terms. Financial centers,
be linked to fluctuations in US financial conditions, including the United Kingdom, continued to play an
with optimism in financial markets and the limited outsized role in global balance sheets, representing
depreciation of the US dollar in the fourth quarter of 36 percent of global assets and liabilities but only
2023 helping rekindle capital inflows to emerging mar- 7 percent of global GDP.
kets in the fourth quarter of 2023 and the first quarter Despite the narrowing in the global current
of 2024. There have so far been fairly limited global account balance, net foreign creditor and debtor
spillovers in capital flows from increased tensions in the positions are estimated to have expanded in 2023,
Middle East, as inflows to the region decreased in the with broad-based increases in positions across
second half of 2023 but have since recovered. different country groups (Figure 1.13). The largest
debtor economy remains the United States, whose
net international investment position deteriorated
Global Balance Sheets and the Global Financial from –61 percent of GDP in 2022 to –71 percent
Safety Net in 2023 (Table 1.2). Other large debtor economies
Global cross-border holdings of financial assets include Brazil, France, and India, while the largest
and liabilities are estimated to have remained broadly creditor economies remain China, Germany, Hong
constant in 2023 relative to 2022 in percent of the Kong Special Administrative Region, and Japan.

8 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Figure 1.13. Net International Investment Positions, Figure 1.14. Valuation Changes and Net International
1990–2023 Investment Position, 2023
(Percent of world GDP) (Percent of GDP)

GBR AE commodity exporters EMDE debtor 20

Financial center Oil exporters ROW debtor NOR (309, 50)
USA CHN DEU 15
BEL
30 IND JPN Rest of Europe THA
ROW creditor Discrepancy 10 FIN ZAF
20 CZE
IND ITA CHN ISR
5 AUS CHL RUS
CHE
NZL
JPN

Valuation
10 PRT COL PER DEU
0
ESP IDN PHL KOR
GRC HUN HKG (469, –5)
0 –5 IRL BRA AUT ARG SWE NLD
POL
FRA DNK
–10 –10 USA

–20 –15 GBR SGP (172, –26)

–20
–30 –150 –120 –90 –60 –30 0 30 60 90 120 150
Net international investment position
–40
2000 02 04 06 08 10 12 14 16 18 20 22 23
Sources: IMF, International Financial Statistics database; and IMF staff
calculations.
Sources: External Wealth of Nations database; IMF, April 2023 World Economic Note: Valuation changes are calculated as the difference between the change in
Outlook; and IMF staff calculations. net international investment position over the 2022:Q4–23:Q4 period and current
Note: Liabilities are shown on reverse scale. Data labels in the figure use account balance, in percent of GDP. Sample includes economies covered in the
International Organization for Standardization (ISO) country codes. Advanced External Balance Assessment regression model, subject to data availability. Bubble
economies (AE) commodity exporters: Australia, Canada, and New Zealand. sizes are proportional to US dollar GDP. Data labels in the figure use International
Emerging market and developing economies (EMDE) debtors: Brazil, Chile, Organization for Standardization (ISO) country codes.
Indonesia, Mexico, Peru, South Africa, and Türkiye. Financial centers: Belgium,
Bermuda, Bahrain, The Bahamas, Barbados, British Virgin Island, Cayman Islands,
Curacao, Cyprus, Guernsey, Hong Kong, Ireland, Isle of Man, Jersey, Luxembourg,
Malta, Mauritius, The Netherlands Antilles, Panama, Singapore, Switzerland,
Taiwan, and Turks and Caicos. Oil exporters: Algeria, Angola, Azerbaijan, Bahrain, gain due to a US dollar depreciation over the first
Brunei, Chad, Republic of Congo, Ecuador, Guinea Equatorial, Gabon, Iran, Iraq, three quarters of 2023.
Kazakhstan, Kuwait, Libya, Nigeria, Norway, Oman, Qatar, Russia, Saudi Arabia,
South Sudan, Timor-Leste, Trinidad and Tobago, Turkmenistan, United Arab The global financial safety net continues to be a crit-
Emirates, Venezuela, and Yemen. ROW = rest of the world. ical component of the international monetary system.
It provides countries with insurance against shocks,
financing to mitigate their impact, and incentives
for sound macroeconomic policies (Aiyar and others
Financial centers have a large net creditor position as
2023). The global financial safety net is composed of
a group, around 6 percent of global GDP.
four layers: central banks’ foreign exchange reserves,
Persistent current account surpluses and deficits
central banks’ bilateral swap arrangements, regional
across creditors and debtors continued to shape the
financing arrangements, and the IMF. As of the end of
expanding net international investment positions
2023, it represented a combined firepower of around
during 2023. In addition, valuation changes have
$17.8 trillion (Figure 1.15). In addition, the Federal
contributed to increasing stock imbalances, with
Reserve’s temporary bilateral swap lines or repur-
creditor countries tending to have more positive
chase agreement facility for foreign and international
valuation changes (with a notable exception of The
monetary authorities played a key role in stabilizing
Netherlands) while larger debtors tended to experi-
global financial markets and capital flows to emerging
ence valuation losses (Figure 1.14). US equity prices,
market economies.7 There has been a rapid growth
in particular, led to a deterioration of US debtor
in the People’s Bank of China swap lines signed in
position and increases in net position of countries
the last 1½ decades (Bahaj, Fuchs, and Reis 2024),
holding these assets. Currency-induced valuation
both on the intensive margin, with the value of these
changes tended to partly offset the shifts due to asset
prices over this period. For instance, in the United
States, the valuation loss due to higher domestic 7See Aizenman, Ito, and Pasricha (2022) and Goldberg and

equity prices was only partially offset by a valuation Ravazzolo (2022) for more details.

International Monetary Fund | 2024 9

 2024 EXTERNAL SECTOR REPORT

Figure 1.15. Evolution of the Global Financial Safety Net, Figure 1.16. Bilateral Central Bank Swap Line Agreements
1995–2023 with the People’s Bank of China
(Billions of US Dollars)
45 Number of countries with active BSL agreements 4,500
4,500 Gross international reserves (eop, right scale) 16,000 Sum of active BSL amounts (billions of
BSLs, limited1 40 Chinese renminbi, right scale) 4,000
4,000 BSLs, advanced economies, unlimited2 14,000
35 3,500
RFAs3
3,500
IMF borrowed resources4 12,000 30 3,000
3,000 IMF quota resources5
10,000 25 2,500
2,500
8,000 20 2,000
2,000
6,000 15 1,500
1,500
10 1,000
4,000
1,000
5 500
500 2,000
0 0
0 0 2009 10 11 12 13 14 15 16 17 18 19 20 21 22 23
1995 97 99 2001 03 05 07 09 11 13 15 17 19 21 23
Sources: Bahaj, Fuchs, and Reis (2024); People’s Bank of China; and IMF staff
Sources: Central bank websites; Perks and others (2021); RFA annual reports; and calculations.
IMF staff estimates. Note: Number of countries and swap amounts based on data from Bahaj, Fuchs,
Note: BSLs = bilateral swap lines; eop = end of period; RFAs = regional financing and Reis (2024), which tracks public sources such as People’s Bank of China
arrangements. Two-way arrangements are counted only once. press releases regarding swap line agreements. A swap line agreement is
1
Limited-amount swap lines include all arrangements with an explicit amount limit classified as active if the date of observation falls between the enactment and
and exclude all the Chiang Mai Initiative Multilateralization arrangements, which expiration dates of the agreement. In cases when an existing deal is replaced with
are included under RFAs. another deal with a different amount during a given year, the amount of the later
2
Permanent swap lines among major advanced economy central banks (Federal deal is used. BSL = bank swap line.
Reserve, European Central Bank, Bank of England, Bank of Japan, Swiss National
Bank, Bank of Canada). The estimated amount is based on known past usage or, if
undrawn, on average past maximum drawings of the remaining central bank
members in the network, following the methodology in Denbee, Jung, and Paternò Methodology
2016.
3
Based on explicit lending capacity or limit (where available), committed The models in the EBA methodology produce
resources, or estimated lending capacity based on country access limits and
paid-in capital. medium-term current account and real exchange rate
4
After prudential balances. benchmarks (or norms) that are consistent with coun-
5
Quota for countries in the financial transaction plan after deducting prudential
balance.
try fundamentals and desired policies (Figure 1.17).9,10
The norms are compared with realized current account
and real exchange rate levels (after adjusting for cyclical
and other short-term factors) to derive gaps, a measure
agreements increasing markedly, and on the extensive
of excess external balances. The model inputs are then
margin, with the People’s Bank of China expanding
combined with other external indicators, analytically
the number of countries with active bilateral swap lines
grounded adjustments, and country-specific insights
agreements to 31 by 2023 (Figure 1.16).
to reach a holistic IMF staff assessment of external
sectors.
Assessment of External Positions in 2023
9The EBA current account norms reflect fundamental features
This report presents multilaterally consistent
affecting economies’ saving and investment decisions. Advanced
individual assessments of external positions for 30 of economies with higher incomes, older populations, and lower growth
the world’s largest economies (87.7 percent of global prospects tend to have positive norms, while most EMDEs, which
GDP).8 Annex Tables 1.1.2, 1.1.3, and 1.1.4 summa- tend to be younger and are expected to import capital to invest and
exploit their higher growth potential, have negative norms. Norms
rize the IMF staff–assessed current account and real also depend on desirable medium-term policies—that is, policies
effective exchange rate gaps and external sector assess- deemed appropriate by IMF staff once cyclical factors are accounted
ments for these economies. for. For instance, economies for which IMF staff recommend a rela-
tively loose fiscal policy will have lower norms than those evaluated
as needing fiscal consolidation.
10See Allen and others (2023) for details on the current vintage
8Although the ESR presents assessments for 30 systemic econo- of the EBA methodology. A detailed description of the external
mies, the IMF staff conduct an assessment of the external sector of assessment process can also be found in an IMF blog entry (Obstfeld
all members as part of bilateral surveillance. 2017).

10 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Figure 1.17 External Balance Assessment Current Account with The Netherlands, Poland, and Spain, which
Norms, 2023 entered the category in 2023.
(Percent of GDP) • Moderately weaker, weaker, or substantially weaker
7.5 than the level consistent with medium-term fundamen-
EBA norm1 Net foreign assets
Demographics Oil
tals and desirable policies: The nine economies with
Other fundamentals2 Desirable policies3 such positions were Argentina, Belgium, Canada,
5.0
Italy, and Türkiye, along with Korea, Saudi Arabia,
Switzerland, and the United Kingdom, which
2.5 entered the category in 2023.
• Broadly in line with the level consistent with medium-­
0.0 term fundamentals and desirable policies: The
11 economies with such positions were Australia,
–2.5 Brazil, China, the euro area, Hong Kong Special
Administrative Region, Indonesia, and Japan, along
–5.0
with France, Russia, South Africa, and the United
States, which entered this category in 2023.
CHE
KOR
NLD
JPN

DEU
BEL
CAN
RUS
SWE
CHN
ESP

EA4
ZAF
ARG

MYS
TUR
GBR
AUS
IDN
MEX

POL
IND
ITA

THA

FRA

BRA
USA
Source: IMF, External Balance Assessment estimates. Compared with those for 2022, assessments for
Note: Figure excludes Hong Kong SAR, Saudi Arabia, and Singapore, as they are 2023 changed for about half of the 30 ESR economies
not included in the EBA regression model. Data labels use International
Organization for Standardization (ISO) country codes. EA = euro area; (Figure 1.18), largely driven by changes in headline
EBA = External Balance Assessment.
1
current accounts. About half of the economies that
The EBA current account norm is multilaterally consistent and cyclically adjusted.
2
Other fundamentals include output per worker, expected GDP growth, and changed assessment moved farther away from the
International Country Risk Guide. “broadly in line” category. However, notable cases
3
Desirable policies include desirable credit gap, desirable fiscal balance, desirable
foreign exchange intervention, desirable health, and constant and multilaterally
of economies that moved into the “broadly in line”
consistent adjustment. category include France, Russia, South Africa, and the
4
The current account norm is corrected for reporting discrepancies in intra-area United States. At the aggregate level, the sum of the
transactions, since the current account of the entire euro area is about 1.3 percent
of GDP less than the sum of the individual 11 countries’ balances (for which no absolute values of IMF staff–assessed current account
such correction is available). gaps remained broadly unchanged relative to 2022—
close to 1 percent of ESR economy GDP (Figure 1.19,
panel 1)—as a decrease in staff gaps for the largest
IMF staff judgment plays a critical role in the
economies (China and the United States) was offset
assessments, as the models may not capture all relevant
by increases in some of the smaller ESR economies
country characteristics and potential policy distor-
(Figure 1.19, panel 2).
tions. Adjustors for country-specific factors, such as
Compared in terms of the sum of absolute values,
measurement issues, natural disasters, net international
headline current account balances decreased sizably in
investment position considerations, and lingering but
contrast to IMF staff–assessed current account gaps.
temporary effects of the pandemic, have been included.
For the ESR sample, the sum of the absolute values of
The size of such adjustors continued to shrink when
current account balances (akin to the global current
compared to 2022 (see Figure 1.3). Annex Table 1.1.3
account balance of Figure 1.2) decreased by about
reports the overall set of IMF staff adjustments.
0.6 percentage point to about 2.4 percent of ESR
GDP in 2023 compared to 2022 (see Figure 1.19,
Assessment Results for 2023 panel 1). Cyclical factors played a major role in the
large headline current account fluctuations.11 The
External positions compared with the levels consis-
summed absolute value of current account norms was
tent with medium-term fundamentals and desirable
stable at 1.6 percent of GDP in 2023.
policies in 2023 were as follows:
• Moderately stronger, stronger, or substantially stronger
than the level consistent with medium-term funda-
11IMF staff–assessed current account gaps are constructed once
mentals and desirable policies: The 10 economies
cyclical and short-term considerations are factored out and incorpo-
with such positions were Germany, India, Malaysia, rate staff adjustments for temporary factors; they therefore are less
Mexico, Singapore, Sweden, and Thailand, along volatile.

International Monetary Fund | 2024 11

 2024 EXTERNAL SECTOR REPORT

Figure 1.18. Evolution of External Sector Assessments, Figure 1.19. Evolution of Headline Current Account Balance
2012–23 and IMF Staff Gaps

2012 13 14 15 16 17 18 19 20 21 22 23 1. Current Account Balance of ESR Countries1

(Percent of ESR economy GDP)
Stronger than Implied by Fundamentals 4.0
Headline current account
Singapore
3.5 IMF staff–assessed CA gap
Sweden
The Netherlands 3.0
Germany
2.5
Thailand
Malaysia 2.0
Poland
1.5
Mexico
India 1.0
Spain
0.5
Broadly in Line with Fundamentals 0.0
Russia 2015 16 17 18 19 20 21 22 23 24
Australia
Euro Area 2.Change in IMF Staff CA Gaps, 2023–22
China (Percent of GDP)2
Japan 6

2023–22 change in IMF staff–assessed CA gap

Indonesia 5 NLD
Hong Kong SAR
4
Brazil POL
3 USA BRA AUS
France ZAF
EA SWE SGP
2 ESP
United States BEL FRA
IDN IND DEU
South Africa 1
CAN
0
Weaker than Implied by Fundamentals ITA THA
–1 MEX
Korea TUR ARG
–2 RUS MYS
Canada KOR JPN
Saudi Arabia –3 HKG CHN
GBR CHE
Switzerland –4
United Kingdom –5
Türkiye –6
SAU
Italy –7
Argentina -- -- -- -- -- –8
Belgium –6 –5 –4 –3 –2 –1 0 1 2 3 4 5 6
2022 IMF staff–assessed CA gap
Moderately Substantially
Stronger Source: IMF staff calculations.
Broadly in line Note: Data labels in the figure use International Organization for Standardization
Weaker (ISO) country codes. CA = current account; EA = euro area; ESR = External Sector
Report.
1
Source: IMF staff assessments. The headline CA for 2024 is a projection.
2
Note: Grouping and ordering are based on economies’ excess imbalance during Bubble sizes are proportional to 2023 GDP in US dollars.
2023. Coverage of Argentina in the External Sector Report started in 2018.

Most of the excess balance in 2023 (measured by Outlook and Risks

the sum of absolute values of IMF staff–assessed cur-
rent account gaps) pertained to advanced economies. Outlook
Among economies in the “weaker-than-warranted” The global balance is projected to narrow further
categories, the largest contributors to lower-than-­ over the medium term, with some heterogeneity
warranted current account balances as a share of across countries (Figure 1.20, Table 1.1). Current
ESR economy GDP were, in descending order, the account surpluses in China and oil exporters are
United Kingdom, Italy, and Canada. Among econo- projected to continue to decline as imports of services
mies in the “stronger-than-warranted” categories, the continue to grow in China and as energy prices
largest contributors to larger-than-warranted current continue to moderate. The current account deficit of
account balances as a share of ESR economy GDP the United States is also projected to contribute to the
were (again, in descending order) Germany, India, and narrowing of the global balance as the trade deficit
The Netherlands. continues to decline toward prepandemic levels.

12 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Figure 1.20. Global Current Account Balance, 2000–29 Figure 1.21. Fiscal Policy and Global Current Account
(Percent of world GDP) Balance, 2024–28
CHN DEU/NLD JPN 1. Fiscal Policy Changes 2. Impact of Fiscal Policy on Global
Surplus AEs Other surplus Oil exporters (Cyclically adjusted fiscal Current Account Balance
USA GBR Deficit EMDEs balance, percentage points (Percent of world GDP)
AE commodity exporters Other deficit EA (other) of potential GDP; change
Discrepancy Overall balance since 2023)
3 (right scale) 6
Current account WEO baseline
2.5 deficit economies Risk scenario with 2.8
2 4 Current account fiscal impact
surplus economies
2.0 2.7
1 2

0 0 1.5 2.6

–1 –2
1.0 2.5

–2 –4
0.5 2.4
–3 –6
2000 02 04 06 08 10 12 14 16 18 20 22 24 26 28
0.0 2.3
2023 24 25 26 27 28 2023 24 25 26 27 28
Sources: IMF, International Financial Statistics database; IMF, World Economic
Outlook database; and IMF staff calculations. Sources: IMF, World Economic Outlook (WEO) database; and IMF staff estimates
Note: Data labels in the figure use International Organization for Standardization (Group of Twenty model simulations).
(ISO) country codes. AEs = advanced economies; EA = euro area;
EMDEs = emerging market and developing economies.

Risks Surrounding the Outlook

The decline in the global balance is dampened by Several key assumptions underpin the baseline
the projected widening of the current account deficit projection for current account balances, including
in several deficit emerging markets, including Brazil, the implementation of sizable medium-term fiscal
India, Indonesia, and Mexico. In terms of macroeco- consolidation in current account deficit countries, no
nomic factors, the narrowing of the medium-term further escalation of geoeconomic tensions, moderat-
global balance is supported by moderating commodity ing commodity prices, and continued global financial
prices and projected medium-term fiscal consolidation stability. Risks to the outlook are sizable and tiled
in current account deficit countries, including the toward a widening global balance, linked to potential
United States (Figure 1.21), outweighing a projected delays in fiscal consolidation in current account deficit
gradual recovery in global trade volumes. The medi- countries, external sector spillovers from continued real
um-term global balance has decreased by 0.2 percent estate slowdown and rebalancing in China, and rising
of world GDP relative to the path reported in the commodity prices. Risks that could narrow the global
2023 External Sector Report. balance include intensifying geoeconomic fragmen-
Creditor and debtor stock positions are projected tation and tightening of global financial conditions.
to continue to expand moderately over the medium Several of the risks surrounding the outlook, including
term. As projections of exchange rates and asset prices delayed fiscal consolidation and intensifying geoeco-
are highly uncertain, global stock balances could devi- nomic fragmentation, have the potential to disrupt the
ate substantially from baseline projections. Never- relative stability in external sector that has returned
theless, the debtor position of European economies after the pandemic years.
is projected to improve over the medium term on Divergence from projected medium-term fiscal
the back of persistent current account surpluses and consolidation plans: Current account deficit countries
declining deficits. Risks of external stress persist for provided outsized fiscal support during the pandemic
economies where gross external liabilities are histori- (see the 2021 External Sector Report). After sustain-
cally high (see Chapter 2 of the 2020 External Sector ing elevated expenditure levels during 2022–23,
Report). partly due to new global geoeconomic shocks, these

International Monetary Fund | 2024 13

 2024 EXTERNAL SECTOR REPORT

Figure 1.22. Number of Net Harmful Trade Restrictions by current account balance expands relative to the base-
Policy Instrument, 2009–23 line until 2026 and thereafter shrinks faster and lower
than the baseline (Figure 1.21, panel 2). Beyond the
2,500
Trade examined risk scenario, delayed fiscal consolidation
Trade–COVID-19
2,000 IP could magnify fiscal vulnerabilities by increasing sov-
IP–COVID-19 ereign spreads and public debt, more so in countries
1,500 with current account deficits. Heightened fiscal vul-
nerabilities, in turn, increase the risk of external stress
1,000 events, which have been shown to lead to larger out-
put losses and sharper current account adjustments
500 (see Chapter 2 and Box 2.1 in the 2020 External
Sector Report). Given the global scale of the projected
0 fiscal consolidation, a widespread delay could also
deteriorate global risk sentiment and elevate global
–500
2009 10 11 12 13 14 15 16 17 18 19 20 21 22 23 financial stress, which can further heighten economic
costs to debtor as well as creditor countries, with the
Sources: Global Trade Alert database; and IMF staff calculations. latter experiencing substantial valuation losses.
Note: Industrial policy (IP) and trade interventions are based on the reported policy
instrument used. COVID-19 interventions are defined as those with explicit Intensifying geoeconomic fragmentation hampering
mention of COVID-19 or related words in the intervention’s state act title. The global trade and finance: Geoeconomic fragmentation
reported time series is adjusted for time-series comparison. This adjustment
consists of only reporting the interventions announced by the government and remains a major concern, aggravated by the recent
documented in the data set within the same year. The reported net interventions geopolitical tensions stemming from US–China trade
are only those catalogued as harmful (“Red”) minus those reported as liberalizing
(“Green”) in the published Global Trade Alert database. Results are based on data relations and Russia’s war in Ukraine. In an extreme
published on May 16, 2024. scenario, the world could splinter into geoeconomic
blocs, with profound effects on cross-border trade and
the international monetary system (Aiyar and others
economies are projected to embark on a gradual 2023). Policy measures that restrict global trade have
fiscal consolidation of 2 percent of GDP over the continued to accumulate in terms of trade interven-
medium-term horizon (Figure 1.21, panel 1). No tions, as well as increasingly in the form of industrial
systematic consolidation relative to 2023 is projected policies targeting national security, economic resilience,
for current account surplus countries. However, de-risking of supply chains, and climate objectives
implementing the consolidation could prove challeng- (Figure 1.22). Recent empirical evidence suggests that
ing, for example, due to elections or political pressure fragmentation of trade and investment along geopo-
to increase subsidies and reduce taxes (see Chapter litical lines following Russia’s invasion of Ukraine has
1 of the April 2024 World Economic Outlook). To already materialized, albeit to a relatively small extent
examine such risks, an alternative scenario assumes (Gopinath and others 2024). Model-based scenarios
that fiscal consolidation envisaged for 2024–25 is of trade and financial fragmentation suggest that an
postponed until 2026 (see Box 1.2 of the April 2024 intensification of geoeconomic fragmentation could
World Economic Outlook for further details).12 Under reduce trade flows and narrow the global balance
this risk scenario, analyzed using the IMF’s Group of over the medium term (see Box 1.2).13 Geoeconomic
Twenty model, current account deficit countries run fragmentation adversely impacts effective productivity
higher deficits in fiscal and current accounts initially by distorting trade in intermediate goods, more so for
and then engage in sharper fiscal consolidation after those countries closely integrated in global value chains
2026 than under the baseline. As a result, the global across un-friendly blocs. Importantly, the negative
economic consequences of the intensifying frag-
12The April 2024 World Economic Outlook scenario focuses on mentation could extend beyond the politically more
fiscal consolidation efforts in advanced economies, which, for the distant blocs. Output, investment, and trade openness
purpose of external sector analysis of this section, have been recast decline also in the systemically important group of
in terms of current account deficit and surplus countries, with
advanced economies, and the United States in particular, accounting
for a disproportionate share of global current account deficits. No 13See also Box 1.3 in the 2023 External Sector Report for a related
deviations from the fiscal baseline are assumed for China. analysis of trade costs and current account imbalances.

14 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

non-aligned emerging and developing economies. Fur- Figure 1.23. Capital Flows at Risk for Emerging Markets
ther geoeconomic fragmentation would unambiguously (Conditional probability distribution)
reduce welfare, including through its effects on FDIs, 0.25
the diffusion of technology, and flows of goods and Baseline
September 2023
capital (Aiyar and others 2023; April 2023 World Eco- May 2024
0.20
nomic Outlook, Chapter 4; April 2023 Global Financial
Stability Report, Chapter 4). Increased fragmentation
would also weaken international policy coordination 0.15

Probability
on vital global public goods, such as climate change
mitigation and pandemic resilience (see Chapter 2 of 0.10
the 2022 External Sector Report).
Global spillovers from a prolonged real estate slowdown 0.05
in China: A depreciation of China’s housing value—a
dominant store of wealth for households—and the sub-
0.00
sequent rebuilding of the stock of wealth in China could –10 –9 –8 –7 –6 –5 –4 –3 –2 –1 0 1 2 3 4 5 6 7 8 9 10
contribute to a saving glut with global spillovers. Such a Gross portfolio debt inflows, percent of GDP

scenario would likely drive up China’s current account Source: IMF staff calculations.
surpluses vis-à-vis the rest of the world and widen the Note: The x-axis represents the expected average of gross portfolio debt inflows to
global current account balance (Box 1.3). Increased GDP over the next three quarters into 18 emerging market economies (Brazil,
Bulgaria, Chile, Colombia, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Peru,
production in goods sectors, due to increased subsidies Philippines, Poland, Romania, Russia, Thailand, Türkiye, South Africa). Probability
or rapid productivity gains, could also generate inter- densities are estimated for different sets of data with the baseline representing the
average across time. Please see Gelos and others (2022) for more detail.
national spillovers, widening the global balance. This
highlights the importance of domestic rebalancing and
broad-based structural reform efforts in China, includ-
ing efforts to boost productivity growth and strengthen Rising commodity prices: Energy price hikes could be
social safety nets to reduce precautionary saving. triggered by renewed supply chain pressures precipi-
An abrupt tightening of financial conditions: Given tated by the war in Ukraine, the Middle East conflict,
very low financial volatility concurrent with elevated terrorism disruptions to trade, or climate disasters.
macroeconomic uncertainty, a sudden repricing of risk EMDEs that are energy importers and have low buffers
could lead to a sharp tightening of financial condi- are particularly vulnerable to a prolonged elevation in
tions. Additionally, correlations across asset classes are commodity prices, which could lead to capital outflows,
historically high, increasing the risk of contagion (see exchange rate depreciations, fiscal pressures, and debt
the April 2024 Global Financial Stability Report). This distress. Rising commodity prices have historically been
could trigger capital outflows, sharp exchange rate linked to a widening global balance, but risks such as
adjustments, and balance-of-payments crises for coun- intensification of regional conflicts could also depress
tries with weak buffers and high foreign currency debt. trade in goods and services as well as financial flows.
A particular financial risk stems from higher-for-longer Climate change and clean energy transition: As risks
policy rates in the United States, which could reduce of climate change are materializing, natural disasters
policy rate differentials in emerging markets (see the could become more widespread, increasingly affecting
April 2024 Global Financial Stability Report). Resulting larger countries, especially in the long term. Empirical
global spillovers could include disruptive exchange estimates for disaster-prone economies show a deteri-
market pressures, capital outflows, and reduced trade oration of the current account after a climate disaster
flows, likely translating into a lower global balance. (see Box 1.3 of the 2022 External Sector Report). More-
In IMF staff estimates of capital flows at risk, three- over, the global balance could be significantly impacted
quarter-ahead portfolio debt outflows across emerging by implementation of climate mitigation policies (see
markets (excluding China) at the fifth percentile will Chapter 2 of the 2022 External Sector Report). The
be 2.3 percent of GDP, with a probability of outflows transition to clean energy could also reshape commod-
at about 27 percent (Figure 1.23). This represents a ity prices and trade flows, with potentially diverging
marginal improvement from last year, related to a more impacts on current accounts between exporters of fossil
positive investor sentiment. fuels and green metals (see Chapter 2 and Box 2.4).

International Monetary Fund | 2024 15

 2024 EXTERNAL SECTOR REPORT

Table 1.1. Selected Economies: Current Account Balance, 2021–24

Billions of US Dollars Percent of World GDP Percent of GDP
2024 2024 2024
2021 2022 2023 Projection 2021 2022 2023 Projection 2021 2022 2023 Projection
Advanced Economies
Australia 48 18 21 9 0.05 0.02 0.02 0.01 2.9 1.1 1.2 0.5
Belgium 8 −6 −6 −3 0.01 −0.01 −0.01 0.00 1.3 −1.0 −1.0 −0.5
Canada 0 −8 −16 7 0.00 −0.01 −0.01 0.01 0.0 −0.4 −0.7 0.3
France 11 −57 −23 −9 0.01 −0.06 −0.02 −0.01 0.4 −2.0 −0.7 −0.3
Germany 330 172 263 322 0.34 0.17 0.25 0.30 7.7 4.2 5.9 7.0
Hong Kong SAR 44 37 35 36 0.04 0.04 0.03 0.03 11.8 10.2 9.2 8.8
Italy 52 −33 11 18 0.05 −0.03 0.01 0.02 2.4 −1.6 0.5 0.8
Japan 196 90 150 143 0.20 0.09 0.14 0.13 3.9 2.1 3.6 3.5
Korea 85 26 35 50 0.09 0.03 0.03 0.05 4.7 1.5 2.1 2.9
The Netherlands 125 94 113 104 0.13 0.09 0.11 0.10 12.1 9.3 10.1 9.1
Singapore 86 90 99 95 0.09 0.09 0.09 0.09 19.8 18.0 19.8 18.0
Spain 11 9 41 42 0.01 0.01 0.04 0.04 0.8 0.6 2.6 2.5
Sweden 45 32 40 37 0.05 0.03 0.04 0.03 7.1 5.4 6.8 6.0
Switzerland 56 77 68 77 0.06 0.08 0.06 0.07 6.9 9.4 7.6 8.2
United Kingdom −15 −96 −110 −91 −0.02 −0.10 −0.11 −0.08 −0.5 −3.1 −3.3 −2.6
United States −831 −972 −819 −852 −0.86 −0.97 −0.78 −0.78 −3.5 −3.8 −3.0 −3.0
Emerging Market and
Developing Economies
Argentina 7 −4 −22 4 0.01 0.00 −0.02 0.00 1.4 −0.7 −3.4 0.6
Brazil −46 −48 −30 −32 −0.05 −0.05 −0.03 −0.03 −2.8 −2.5 −1.4 −1.4
China 353 402 253 236 0.36 0.40 0.24 0.22 2.0 2.3 1.4 1.3
India1 −39 −67 −29 −55 −0.04 −0.07 −0.03 −0.05 −1.2 −2.0 −0.8 −1.4
Indonesia 4 13 −2 −13 0.00 0.01 0.00 −0.01 0.3 1.0 −0.1 −0.9
Malaysia 15 13 6 11 0.02 0.01 0.01 0.01 3.9 3.1 1.5 2.4
Mexico −4 −18 −6 −15 0.00 −0.02 −0.01 −0.01 −0.3 −1.2 −0.3 −0.8
Poland −9 −17 13 6 −0.01 −0.02 0.01 0.01 −1.2 −2.4 1.6 0.7
Russia 122 238 51 56 0.13 0.24 0.05 0.05 6.6 10.5 2.5 2.7
Saudi Arabia 42 152 34 5 0.04 0.15 0.03 0.00 4.8 13.7 3.2 0.5
South Africa 15 −2 −6 −7 0.02 0.00 −0.01 −0.01 3.7 −0.5 −1.6 −1.8
Thailand −10 −16 7 9 −0.01 −0.02 0.01 0.01 −2.0 −3.2 1.4 1.7
Türkiye −6 −46 −45 −31 −0.01 −0.05 −0.04 −0.03 −0.8 −5.1 −4.0 −2.8
Memorandum Items:2
Euro Area 417 −85 260 368 0.4 −0.1 0.2 0.3 2.8 −0.6 1.7 2.3
Global Current Account 3,448 4,079 3,192 3142 3.6 4.1 3.1 2.9 ... ... ... ...
Balance
Statistical Discrepancy 917 445 551 453 0.9 0.4 0.5 0.4 ... ... ... ...
Overall Surpluses 2,183 2,260 1,874 1852 2.3 2.2 1.8 1.7 ... ... ... ...
Of which: Advanced 1,436 1,060 1,238 1311 1.5 1.1 1.2 1.2 ... ... ... ...
Economies
Overall Deficits −1,265 −1,816 −1,324 −1399 −1.3 −1.8 −1.3 −1.3 ... ... ... ...
Of which: Advanced −894 −1,265 −974 −1002 −0.9 −1.3 −0.9 −0.9 ... ... ... ...
Economies
Sources: IMF, April 2024 World Economic Outlook; and IMF staff calculations.
Note: “. . .” indicates that data are not available or not applicable; SAR = Special Administrative Region.
1For India, data are presented on a fiscal year basis.
2The global current account balance is the sum of absolute deficits and surpluses. Overall surpluses and deficits (and the “of which” advanced economies)

include non–External Sector Report economies.

16 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Table 1.2. Selected Economies: Net International Investment Position, 2020–23

Billions of US Dollars Percent of World GDP Percent of GDP
2020 2021 2022 2023 2020 2021 2022 2023 2020 2021 2022 2023
Advanced Economies
Australia −786 −600 −655 −556 −0.9 −0.6 −0.7 −0.5 −57.6 −36.2 −38.0 −31.9
Belgium 262 389 338 410 0.3 0.4 0.3 0.4 49.9 64.7 57.9 65.0
Canada 887 1,103 841 1,236 1.0 1.1 0.8 1.2 53.6 55.0 38.9 57.7
France −831 −874 −659 −885 −1.0 −0.9 −0.7 −0.8 −31.4 −29.5 −23.7 −29.2
Germany 2,640 2,782 2,881 3,120 3.1 2.9 2.9 3.0 68.0 65.0 70.5 70.0
Hong Kong SAR 2,122 2,111 1,765 1,757 2.5 2.2 1.8 1.7 615.2 572.2 492.0 468.0
Italy 18 162 96 167 0.0 0.2 0.1 0.2 0.9 7.5 4.7 7.4
Japan 3,465 3,678 3,091 3,372 4.1 3.8 3.1 3.2 68.5 73.1 72.6 80.0
Korea 487 685 771 780 0.6 0.7 0.8 0.7 29.6 37.7 46.1 45.5
The Netherlands 1,095 919 760 802 1.3 0.9 0.8 0.8 120.5 89.1 75.2 71.8
Singapore 1,093 1,005 890 859 1.3 1.0 0.9 0.8 312.8 231.5 178.4 171.4
Spain −1,084 −1,027 −851 −835 −1.3 −1.1 −0.8 −0.8 −84.9 −71.0 −60.0 −52.8
Sweden 45 115 183 197 0.1 0.1 0.2 0.2 8.2 17.9 31.0 33.2
Switzerland 906 832 756 838 1.1 0.9 0.8 0.8 122.2 102.4 92.3 94.7
United Kingdom −250 −440 −443 −1,037 −0.3 −0.5 −0.4 −1.0 −9.3 −14.0 −14.3 −31.0
United States −14,721 −18,783 −16,172 −19,768 −17.3 −19.4 −16.1 −18.9 −66.8 −76.2 −61.2 −70.7
Emerging Market and Developing Economies
Argentina 122 122 116 109 0.1 0.1 0.1 0.1 31.7 25.1 18.4 17.0
Brazil −552 −601 −824 −976 −0.6 −0.6 −0.8 −0.9 −37.4 −36.0 −42.2 −44.9
China 2,287 2,186 2,427 2,914 2.7 2.3 2.4 2.8 15.4 12.3 13.6 16.5
India −345 −353 −373 −370 −0.4 −0.4 −0.4 −0.4 −13.3 −11.4 −11.1 −10.6
Indonesia −280 −277 −250 −260 −0.3 −0.3 −0.2 −0.2 −26.4 −23.4 −19.0 −19.0
Malaysia 20 22 12 27 0.0 0.0 0.0 0.0 5.7 5.8 3.0 6.8
Mexico −552 −554 −615 −732 −0.6 −0.6 −0.6 −0.7 −49.2 −42.2 −42.0 −40.9
Poland −273 −258 −233 −272 −0.3 −0.3 −0.2 −0.3 −45.5 −37.8 −33.7 −33.5
Russia 517 485 760 847 0.6 0.5 0.8 0.8 34.7 26.3 33.4 42.4
Saudi Arabia 701 709 786 785 0.8 0.7 0.8 0.7 95.4 81.2 70.9 73.5
South Africa 112 102 80 106 0.1 0.1 0.1 0.1 33.2 24.4 19.7 28.1
Thailand 40 32 −17 43 0.0 0.0 0.0 0.0 7.9 6.3 −3.4 8.3
Türkiye −382 −249 −315 −285 −0.4 −0.3 −0.3 −0.3 −53.1 −30.4 −34.7 −25.5
Memorandum Items:
Euro Area −449 −22 470 637 −0.5 0.0 0.5 0.6 −3.4 −0.1 3.3 4.1
Statistical Discrepancy −3,882 −6,926 −5,154 −6,810 −4.6 −7.2 −5.1 −6.5 ... ... ...
Overall Creditors1 20,170 21,006 20,095 22,197 23.7 21.7 20.0 21.2 ... ... ...
Of which: Advanced 16,089 17,063 15,610 17,283 18.9 17.6 15.5 16.5 ... ... ...
Economies
Overall Debtors1 −24,052 −27,932 −25,249 −29,007 −28.3 −28.9 −25.1 −27.8 ... ... ...
Of which: Advanced −19,345 −23,241 −20,252 −23,838 −22.7 −24.0 −20.2 −22.8 ... ... ...
Economies
Sources: IMF, April 2024 World Economic Outlook; US Bureau of Economic Analysis; and IMF staff calculations.
Note: “. . .” indicates that data are not available or not applicable; SAR = Special Administrative Region.
1Overall creditors and debtors (and the “of which” advanced economies) include non–External Sector Report economies.

International Monetary Fund | 2024 17

2024 EXTERNAL SECTOR REPORT

Policy Priorities for Promoting External inflation expectations, it may be appropriate to resort
Rebalancing to temporary FX interventions or loosen capital flow
Current account surpluses and deficits are not an management measures on inflows to keep the FX
undesirable phenomenon to the extent that they reflect market functioning smoothly while keeping monetary
differences in countries’ fundamentals and desir- and fiscal policy at their appropriate settings. Mac-
able medium-term policies. However, excess current roprudential policies, including pre-emptive capital
account balances could reflect an inefficient allocation flow management measures/macroprudential mea-
of resources and, when combined with negative net sures where appropriate, should help reduce financial
international investment positions, could exacerbate vulnerabilities from large exposure to foreign currency
the risks of sudden stops and reversals in capital denominated debt. Temporary FX interventions and
inflows. Moreover, excess balances could contribute to capital flow management measures should not substi-
fuel discontent toward multilateralism, exacerbating tute for warranted macroeconomic adjustments or the
geoeconomic fragmentation and raising trade barriers. development of domestic macroprudential policies.
Therefore, correcting excess balances can improve wel- Coordinated policy efforts and multilateral coop-
fare, reduce the risk of disruptive capital flow reversals, eration will help address a host of complex challenges
and preserve the support for multilateralism. facing the world and preserve the benefits of multilat-
Promoting external rebalancing requires both excess eralism. As discussed in the April 2024 World Economic
current account surplus and deficit economies to act Outlook, geoeconomic fragmentation, which is already
collectively. As the April 2024 World Economic Outlook affecting international trade, could intensify. In this
emphasizes, policymakers will need to calibrate policies context, cross-border cooperation will be paramount
to help deliver a smooth landing to the global econ- to mitigate fragmentation and strengthen the resilience
omy. In this context, central banks will need to ensure of the international monetary system. Policymakers
right timing of monetary policy easing, ensuring that should maintain stable and transparent trade policies
wage and price pressures are clearly dissipating before and avoid discriminatory policies that induce trade and
announcing moves to a less restrictive stance. Fiscal investment distortions, including by safeguarding the
consolidation, where warranted, would help rebuild transportation of critical minerals, restoring the World
budgetary room to deal with future shocks and curb Trade Organization’s ability to settle trade disputes, and
the rise of public debt as appropriate. In addition to ensuring the responsible use of potentially disruptive
being consistent with these objectives, the policy prior- new technologies such as artificial intelligence. Interna-
ities set out in the April 2024 World Economic Outlook tional coordination and dialogue will also be beneficial
would also help rebalance excess external positions and to help ensure an appropriate use and design of indus-
contain risks to external balances, including via fiscal trial polices—including by identifying their unintended
consolidation in several large economies with excessive consequences across borders, facilitating an orderly
deficits on fiscal and external accounts (such as Italy resolution of debt problems in an increasingly complex
and the United Kingdom). creditor landscape, and mitigating the effects of climate
As central bank policies become less synchronous, change and facilitate the green energy transition.
divergences in interest rates across countries could Maintaining liquidity in the global financial system
spur capital flow movements and high volatility in will be essential to manage risks related to less synchro-
foreign exchange markets. In this context, policy nous monetary policies and geoeconomic fragmenta-
responses should be guided by the IMF’s Integrated tion of the financial system. This will help ensure that
Policy Framework and the revised Institutional View economies at risk of external shocks can make full use of
on Capital Flows (IMF 2023), depending on country-­ the global financial safety net, including through IMF
specific circumstances. If those risks materialize, precautionary financial arrangements. In this context,
adjusting the policy rate and allowing exchange rate the IMF Board of Governors’ conclusion of the 16th
flexibility would be appropriate for economies with Review of Quotas is a welcome step that needs to be fol-
deep foreign exchange markets, low foreign currency lowed up by members providing their consent to their
mismatches, and well-anchored inflation expecta- respective quota increase. Once implemented, the quota
tions. On the other hand, in economies where foreign increase will increase IMF liquidity, ensure the primary
exchange markets are shallow, FX mismatches are large, role of quotas in IMF resources, reinforce the IMF’s
or a sudden exchange rate depreciation may de-anchor role at the center of the global financial safety net, and

18 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

strengthen the IMF’s capacity to help safeguard global account balance toward its norm. In Sweden, as
financial stability and respond to members’ needs. inflation recedes, there is a need to increase private
Policies to promote external rebalancing differ and public investment in the green transition and
based on individual economies’ positions and needs, the health sector, thus lowering the external balance,
as detailed in the individual economy assessments in helping the country meet its ambitious climate
Chapter 3 (and summarized in Annex Table 1.1.6). goals and prepare for demographic challenges. In
• Economies with weaker-than-warranted external posi- some emerging markets (such as Malaysia, Mexico,
tions should focus on policies that boost saving and and Thailand), reforms to tackle informality and
competitiveness. Where the assessment partly reflects expand social safety nets, including when appro-
the need to reduce high public debt levels (as in priate through public health care, would encourage
Belgium and Italy), policies in the near and medium investment and—by supporting consumption—help
terms should focus on a credible fiscal consolidation, reduce precautionary saving, thus also helping with
which would also create space to support green and external rebalancing.
digital transformations. Fiscal consolidation would • Economies with external positions broadly in line with
also help reduce vulnerabilities in economies with fundamentals should continue to address domestic
low reserves and elevated gross external financing imbalances to prevent excessive external imbalances.
needs (as in Türkiye) and should be implemented in Some economies (such as China) should address
a way that protects critical infrastructure investment policy distortions, including through accelerating
and well-targeted social spending to help tackle market-based structural reforms, shifting fiscal policy
poverty and inequality (for example, in Argentina). support toward strengthening social protection to
Countries with competitiveness challenges also reduce high household savings and rebalance toward
need to address structural bottlenecks through labor private consumption, and gradually increasing
market and other structural reforms to promote exchange rate flexibility to help the economy better
green, digital, and inclusive growth while boosting absorb external shocks. In the United States, fiscal
productivity. consolidation over the medium term would broadly
• Economies with stronger-than-warranted external stabilize the public debt-to-GDP ratio and maintain
positions should prioritize policies aimed at pro- an external position consistent with medium-term
moting investment and diminishing excess saving fundamentals and desirable policies. In economies
to support external rebalancing while also pursuing with negative net international investment positions
domestic objectives. For example, in Germany, (such as Brazil), keeping current account balances
higher fiscal deficits than currently planned are in line with their norms will require efforts to raise
likely to be required over the medium term to national savings, which will also provide room for
ensure adequate public investment in the green a sustainable expansion in investment. Reforms
transition, digitalization, and transport infrastruc- to boost productivity would also improve com-
ture to achieve domestic climate, digital, and energy petitiveness while facilitating the green and digital
security goals, while also helping reduce the current transitions.

International Monetary Fund | 2024 19

2024 EXTERNAL SECTOR REPORT

Box 1.1. Cross-Country Variation in Gross Capital Inflows to Large Emerging Market and
Developing Economies
This box discusses cross-country heterogeneity Figure 1.1.1. Gross Capital and FDI Inflows
behind the overall decline in gross capital inflows to (Percent of GDP)
emerging market and developing economies during
2022–23, highlighting its patterns and challenges with 1. Gross Capital Inflows 2. Gross FDI Inflows
10 6
measurement.
POL POL 5
Relative to a 2017–19 baseline, gross capital inflows 8

Average 2022:Q1–23:Q4

Average 2022:Q1–23:Q4
in emerging markets declined during 2022–23 for 6 TUR 4
IND ARG MYS BRA
aggregate capital flows as well as foreign direct invest- MYS 3
BRA ARG SAU
4 ZAF MEX
ment (FDI; Figure 1.1.1). However, these aggregate SAU 2
IDN
trends hide large cross-country variation. Some of 2 IDN THA
TUR 1
the larger emerging markets, including China, India, THA CHN IND
0 0
CHN
and Russia, drive the aggregate decline. Meanwhile, –2 ZAF MEX
RUS –1
other emerging markets, such as Malaysia, Poland, and RUS
–4 –2
Türkiye, have seen increases in gross capital inflows for –4 –2 0 2 4 6 8 10 –2 –1 0 1 2 3 4 5 6
both FDI and non-FDI flows, relative to prepandemic Average 2017:Q1–19:Q4 Average 2017:Q1–19:Q4
trends.
The observed heterogeneity in gross capital flows Source: IMF, Balance of Payments database.
Note: Sample includes emerging market economies covered in the
could reflect recent geoeconomic fragmentation trends.1 External Sector Report, subject to data availability. Last observation
Data on outward bilateral FDI flows from three key for Malaysia is 2023:Q3. The line indicates the 45-degree line.
source economies—the euro area, Japan, and the United Bubble size is based on GDP in US dollars. Data labels in the figure
use International Organization for Standardization (ISO) country
States—reveal a systematic difference in FDIs to rival codes. FDI = foreign direct investment.
geopolitical blocs (Figure 1.1.2). For all three source
countries, FDI to the Western bloc increased relative
to a 2017–19 baseline. This increase is largely driven However, destination-based analysis of capital flows
by FDI to Europe and the United States. Flows to is severely hindered by the outsized role of financial
the Eastern bloc declined or stagnated, driven by FDI centers in intermediating capital flows. The comprehen-
into China and Russia. The results for the nonaligned sive nature of bilateral balance-of-payments data reveals
countries are more mixed, with increases in Mexico as that besides the geoeconomic trends for the destination
a destination for US investment, Türkiye for the euro of outward FDI flows, a significant share of FDI flows
area, and Malaysia and Vietnam for Japan. Notably, to financial centers and hence cannot be allocated to its
for the United States and Japan, the nonaligned group ultimate destination (Figure 1.1.2, right bar).2 These
outperformed the Eastern bloc. These findings are findings call for caution in interpreting available data on
consistent with previous work (Chapter 4 of April 2023 cross-country allocation of capital flows and the need to
World Economic Outlook; Gopinath and others 2024) improve measurement of such flows.
but extend the analysis to more comprehensive bilateral
balance-of-payments data.
2As
previously documented in Lane and Milesi-Ferretti (2018)
This box was prepared by Cian Allen. and Damgaard, Elkjaer, and Johannesen (2024), for instance.
1Other potential explanations include varying policy frame- See also Coppola and others (2021) and Chapter 4 of the April
works, changes in medium-term expected GDP growth, or 2024 World Economic Outlook for details on the role of financial
delayed postpandemic recoveries in some economies. centers in bilateral portfolio investment.

20 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Box 1.1 (continued)

Figure 1.1.2. Bilateral FDI Abroad in the Balance of Payments
(Change 2022–23 versus 2017–19)

1. United States 2. Euro Area 3. Japan

(Billions of US dollars) (Billions of euros) (Billions of US dollars)
60 80 30
50 60 20
40 10
40 20
0
30 0
–10
20 –20
–40 –20
10 –60 –30
0 –80 –40
Eastern bloc

Nonaligned
Western bloc
(excl. FC)

FC

Eastern bloc

Nonaligned
Western bloc
(excl. FC)

FC

Eastern bloc

Nonaligned
Western bloc
(excl. FC)

FC
Sources: Bureau of Economic Analysis, US International Transactions; European Central Bank, Balance of Payments; and
Japan, Ministry of Finance, Regional Balance of Payments.
Note: The bars correspond to the change between the average flow between 2022–23 and the average over the 2017–19
period. Geopolitical blocs correspond to a broad definition of geopolitical blocs in Gopinath and others (2024). Using the
narrow definition yields very similar results. The list of FCs is based on Lane and Milesi-Ferretti (2018), along with data
availability. For the United States, the aggregate category “Other Western Hemisphere,” which includes the Cayman
Islands, is included in FC. FC = financial centers.

International Monetary Fund | 2024 21

2024 EXTERNAL SECTOR REPORT

Box 1.2. Geoeconomic Fragmentation and the Global Balance

Geoeconomic fragmentation poses a risk to decades Figure 1.2.1. Trade Fragmentation Impact on the
of trade and financial integration. This box uses the Current-Account-to-GDP Ratio
IMF’s Global Integrated Monetary and Fiscal (GIMF) (Percentage point deviation from baseline)
model1 to analyze trade and financial fragmenta-
tion scenarios between hypothetical US and China 1.0
blocs, focusing on implications for the global current 0.5
account balance.2
0.0
Trade Fragmentation –0.5
Trade fragmentation is modeled as an increase in –1.0
symmetric nontariff trade barriers (NTBs) between –1.5 China bloc
the US bloc and the China bloc. NTBs capture the US bloc
–2.0 Nonaligned
fallout from fragmentation that is more general than
direct trade restrictions, extending to industrial policies –2.5
AS2 ROW CHN EUR OAE USA LAT AS1
targeting national security, economic resilience, and
de-risking of supply chains. The shock is calibrated Source: IMF staff calculations.
as a permanent 50 percent increase in NTBs over Note: The US bloc includes the US, European Union and
10 years. NTBs act as a negative productivity shock, Switzerland (EUR), and other advanced economies (OAE). The
China bloc includes China, emerging Southeast Asia (AS2), and
reducing investment, trade volumes, and output remaining countries (ROW). Latin American countries (LAT) and
globally, while simultaneously increasing the price of Indonesia and India (AS1) are not aligned. EUR, OAE, CHN, AS2,
imported goods, including consumption, investment, and ROW have current account surpluses. USA, AS1, and LAT
have current account deficits.The percentage point deviation
and intermediate goods. from the baseline plotted is for the fifth period of the shock. Data
NTBs significantly impact medium-term cur- labels in the figure use International Organization for Standard-
rent accounts across the blocs. If the two blocs were ization (ISO) country code.
symmetric, reciprocal NTBs need not induce external
sector adjustments. However, there are large structural
asymmetries. Countries that are more open to trade a further decline in saving. On the investment side,
and have major trading partners outside their blocs are any decline in volumes is largely compensated by the
disproportionately impacted by NTBs. The emerging NTB-induced price increase, limiting the decline in
Southeast Asia region is the most open to both the investment rate. On balance, the current account
China bloc and the US bloc and more specialized in decreases (Figure 1.2.1). Nonaligned countries are
global value chain (GVC) goods. As fragmentation at the other end of the spectrum. They are only
exacerbates (more than in other countries), import indirectly exposed to the NTB shock through input
and consumption prices gradually increase and the linkages, leading to a small decline in investment and
real exchange rate appreciates, which, via the uncov- income. In the absence of NTBs, their tradable goods
ered interest parity condition, temporarily lowers the become relatively abundant, leading to a real exchange
region’s real interest rate. Consequently, consump- rate depreciation in the short to medium term and a
tion declines less in the short to medium term (in temporary increase in the real interest rate, which in
anticipation of higher future price of consumption), turn increases saving and the current account. Current
reducing saving. In addition, the reduced output in account responses for the model’s other countries can
the region’s GVC sector lowers national income, which be similarly explained through the asymmetric expo-
in the presence of rigidities in consumption induces sure to the NTBs. The United States runs a current
account surplus because it is the least exposed to the
This box was prepared by Rudolfs Bems, Benjamin Carton, NTBs across the two blocs, with prices increasing rela-
and Racha Moussa. tively less than in the emerging Southeast Asia region,
1See Kumhof and others (2010) and Anderson and others
its real exchange rate depreciating, its real interest rate
(2013) for details on the GIMF model. rising temporarily, and saving increasing. China is less
2See Chapter 4 of the April 2023 World Economic Outlook and

Online Annex 4.4 for the version of the GIMF model used here.
exposed than the emerging Southeast Asia region but
The scenarios discussed in this box are based on those in Box 2.2 more so than countries in the US bloc, leading to a
of the April 2023 World Economic Outlook. moderate current account deficit.

22 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Box 1.2 (continued)

Figure 1.2.2. Impact of Trade Fragmentation on How is the global balance impacted?3 All regions
Global Balance contribute to narrowing the global balance except
(Percent of global GDP) for OAE and EUR in the US bloc, since they are
surplus regions where the current account increases
0.06
OAE (Figure 1.2.2). Overall, quantitative results show that
0.04
a 50 percent increase in NTBs decreases the global
Contribution to the change in

Widening
0.02 global balance EUR balance by 0.36 percentage point of global GDP over
0.00
global balance

the medium term. However, this narrowing comes at a

–0.02 AS1
Narrowing high economic cost, as trade restrictions reduce output
–0.04 AS2
global balance growth through efficiency losses and resource misallo-
–0.06 LAT CHN
cation. Global medium-term real output declines by 3
–0.08
USA percent relative to the baseline, with a fall in all regions.
–0.10
ROW The fall in global trade volumes is even starker, with a
–0.12
–1.0 –0.8 –0.6 –0.4 –0.2 0.0 0.2 0.4 0.6 0.8 decline of about 9 percent relative to the baseline.
Current account in 2023
Financial Fragmentation
Sources: IMF, World Economic Outlook database; and IMF staff In recent decades, capital market integration has
calculations.
Note: The contribution to the change in global balance is allowed advanced economies—the United States in
calculated as the difference between the absolute value of the particular—to benefit from a saving glut in emerging
current account after the trade fragmentation shock and the markets, which has helped bring down the interest
absolute value of the current account in 2023, all in percent of
global GDP. The current account after the trade fragmentation rate in the United States while lifting it in surplus
shock is calculated as the current account to global GDP in 2023 countries in Asia and the Middle East and widening
plus the percentage point deviation of the current account to the global current account balance (Bernanke 2005;
global GDP after the trade fragmentation shock. The medium
term corresponds to the fifth period of the shock. Data labels in Caballero, Farhi, and Gourinchas 2008, 2016, 2017a,
the figure use International Organization for Standardization (ISO) 2017b, 2021) (see dashed black lines in Figure 1.2.3).
country codes. AS1 = India and Indonesia; AS2 = emerging
Southeast Asia; EUR = the European Union and Switzerland;
LAT = Latin America; OAE = other advanced economies; 3The global balance is calculated as the sum of the absolute
ROW = rest of the world.
values of the current-account-to-global-GDP ratio of regions.
Medium term is defined as model responses five years out.

Figure 1.2.3. The Global Interest Rate after a Financial Fragmentation Shock

r IA(r) SA(r) r
IB(r) SB(r)

λA`>0 rA`
r* λB`<0 rB`

S, I S, I

CAA<0 CAB>0
CAA’ > CAA CAB’ < CAB

Source: Based on Metzler (1968).

International Monetary Fund | 2024 23

2024 EXTERNAL SECTOR REPORT

Box 1.2 (continued)

Financial fragmentation could reverse this process and Figure 1.2.4. Impact of Financial Fragmentation
reduce the flow of capital between the China and US on Global Balance
blocs (see the shift from dashed black to red lines in (Percent of global GDP)
Figure 1.2.3, where financial fragmentation is captured
0.20
with a wedge λ).
0.15 OAE EUR
To quantify these potential outcomes and their

Contribution to the change in

Widening
0.10 global balance
impact on the global balance, financial fragmenta-
0.05 AS1

global balance
tion is modeled as a decline in the premium paid by LAT
0.00
the China bloc on US Treasuries by 50 basis points. Narrowing
–0.05 AS2
Consistent with the illustrative Metzler diagram in global balance
–0.10
Figure 1.2.3, the model simulation finds that financial USA ROW
–0.15
fragmentation increases medium-term investment and
–0.20 CHN
decreases saving and the interest rate in the China
–0.25
bloc, leading to a decline in the current account. In

–1.0

–0.8

–0.6

–0.4

–0.2

0.0

0.2

0.4

0.6

0.8
the US bloc, the impact is the opposite with invest-
Current account in 2023
ment decreasing and the interest rate and saving
increasing, and consequently the current account Sources: IMF, World Economic Outlook database; and IMF staff
increasing. These effects are present in all regions calculations.
within both blocs. Medium-term impacts on non- Note: The contribution to the change in global balance is
calculated as the difference between the absolute value of the
aligned regions are relatively minor. current account after the financial fragmentation shock and the
Given the present global constellation of current absolute value of the current account in 2023, all in percent of
account surpluses and deficits, these external sector global GDP. The current account after the financial fragmentation
shock is calculated as the current account to global GDP in 2023
responses imply that all regions in the China bloc plus the percentage point deviation of the current account to
contribute to narrowing the global balance, as does the global GDP after the financial fragmentation shock. The medium
declining current account deficit in the United States term corresponds to the fifth period of the shock. Data labels in
the figure use International Organization for Standardization
(Figure 1.2.4). The remaining current account surplus (ISO) country codes. AS1 = India and Indonesia; AS2 = emerging
regions in the US bloc widen the global balance in the Southeast Asia; EUR = the European Union and Switzerland;
medium term. The contribution of the nonaligned LAT = Latin America; OAE = other advanced economies;
ROW = rest of the world.
regions is negligible. The overall medium-term impact
on the global balance is a narrowing of 0.24 percent of
global GDP, with the largest contributions from China the countries that contribute depend on the nature
and the United States. of the fragmentation process, with trade restrictions
To summarize, this box shows that fragmentation compressing trade flows and reducing the dispersion
through trade and financial channels could narrow of external balances globally, while financial fragmen-
the global current account balance over the medium tation generates more heterogeneous external sector
term. However, the magnitude of the narrowing and responses.

24 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Box 1.3. China Real Estate Slowdown and the Global Balance
Economic growth in China has slowed in the past Figure 1.3.1. Medium-Term Impact of China Real
five years, in large part due to an ongoing housing Estate Slowdown on the External Sector
sector slowdown. This box uses the IMF Global (Deviations from baseline)
Integrated Monetary and Fiscal Model to analyze a
prolonged China real estate slowdown scenario and 1. Saving 2. Investment
(Percent of GDP) (Percent of GDP)
its impact on the global current account balance.1
2.0 2.0
To capture a rebalancing of the real estate sector, an
illustrative scenario is constructed based on three 1.5 1.5
components. First, the existing stock of buildings is
depreciated due to a large inventory overhang in the 1.0 1.0
property market. Second, financial conditions (equity
premium) tighten in the real estate sector, leading to a 0.5 0.5
sharp decline in construction activity and a reduction
0.0 0.0
of households’ wealth. Third, households increase pre-
cautionary saving.2 Additional households’ saving aims
–0.5 –0.5
at rebuilding their stock of wealth, which has been China United Rest China United Rest
dominated by housing. States of the States of the
and euro world and euro world
Following a near-term decline in private investment, area area
private consumption, and GDP, the resulting mac-
roeconomic adjustment in China entails a persistent 3. Current Account 4. REER
(Percent of GDP) (Percent)
medium-term surge in saving, which reduces domestic
2.0 0.5
demand. Demand for imports falls and trade balance
increases. Added saving decreases the real interest rate, 1.5
0.0
which in turn increases the investment rate in the
medium term. However, the adjustment in the invest- 1.0
ment rate is a fraction of the increase in saving, and –0.5
China’s current account surplus expands (Figure 1.3.1). 0.5
Given China’s size, the scenario generates global –1.0
0.0
spillovers. To accommodate the persistent surge in
saving and China’s current account surpluses, the
–0.5 –1.5
medium-term real interest rate falls globally and China United Rest China United Rest
China’s real effective exchange rate depreciates. This States of the States of the
and euro world and euro world
relative price adjustment reflects income compression area area
in China and facilitates external sector adjustment
through expenditure switching at both import and Source: IMF staff calculations.
export margins. The lower global interest rate increases Note: The figure shows medium-term responses for select macro
variables, captured in the model at the five-year horizon. All
investment and decreases saving in other regions, responses are reported as percentage point deviations from
with corresponding declines in the current account baseline. Reported model responses are aggregated into three
(Figure 1.3.1).3 The global current account balance countries/regions: (1) China, (2) the euro area and the United States
as a region, and (3) the rest of the world. REER = real effective
exchange rate, with a decrease representing a depreciation.
This box was prepared by Rudolfs Bems and Dirk Muir.
1See Carton and Muir (forthcoming) for more details.
2The illustrative calibration for the three shocks is as follows:

(i) the economic value of existing buildings is depreciated by

widens, chiefly because of the widening current
10 percent, (ii) the equity premium in the real estate sector account surplus in China and the widening current
increases by 4 percentage points for five years, and (iii) households’ account deficit in the United States (Figure 1.3.2). It is
precautionary saving increases by 2 percent of GDP for five years. worth stressing that the surge in saving and the result-
There are other possible configurations of the shocks, but here the ing global macroeconomic adjustment are distinct
focus is on the impacts from a significant domestic slowdown.
3Given limited variability across model regions, responses have from the rise in goods’ production, for example, in
been aggregated into China, the euro area and the United States electric vehicle or solar energy sectors, due to increased
as a region, and the rest of the world. subsidies and/or rapid productivity gains.

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2024 EXTERNAL SECTOR REPORT

Box 1.3 (continued)

Figure 1.3.2. Medium-Term Impact on Global Figure 1.3.3. Real Effective Exchange Rate
Balance Response to China Real Estate Slowdown
(Deviations from baseline, percent of world GDP) Scenarios
(Percent deviation from baseline)
USA CHN EA OAE JPN
0.35 AS1 LAT ROW Total 2
0.30
1
0.25
0.20 0
0.15
0.10 –1
0.05
–2
0.00
China slowdown
–0.05 –3 China slowdown + tariffs
–0.10
–0.15 –4
China slowdown China slowdown + tariffs China United States and Rest of the world
euro area
Source: IMF staff calculations.
Note: Medium term is captured in the model at a five-year Source: IMF staff calculations.
horizon. EA includes Austria, Belgium, Cyprus, Germany, Estonia, Note: Medium term is captured in the model at a five-year
Finland, France, Greece, Ireland, Italy, Lithuania, Luxembourg, horizon. All responses are reported as percentage point
Malta, The Netherlands, Portugal, Slovakia, Slovenia, and Spain. deviations from baseline. Reported model responses are
OAE includes Australia, Bulgaria, Canada, Czech Republic, aggregated into three countries/regions: (1) China, (2) the euro
Denmark, Iceland, Israel, New Zealand, Norway, Poland, Russia, area and the United States as a region, and (3) the rest of the
Sweden, Switzerland, Taiwan, and the United Kingdom. AS1 world.
includes Bangladesh, Brunei Darussalam, Cambodia, India,
Indonesia, Korea, LAO P.D.R., Malaysia, Myanmar, the
Philippines, Singapore, Thailand, and Vietnam. LAT includes
Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, and Peru. exchange rate depreciates even further, with offset-
Data labels use International Organization for Standardization
(ISO) country codes. AS1 = other Asia; EA = euro area; ting appreciations for the euro area and the United
LAT = Latin America; OAE = other advanced economies; States. There is only a very limited reduction in the
ROW = rest of the world. global balance, amounting to 0.01 percent of world
GDP (Figure 1.3.2). At the same time, the imposed
tariffs significantly reduce global growth and lower
One often-discussed policy response to counter cross-border trade flows, as global production effi-
current account surpluses and the widening global bal- ciency declines.
ance would be to impose trade tariffs on China. The Broad-based domestic structural reforms could help
box next extends the scenario to analyze the impact address the saving–investment imbalance in China,
of such a policy response. In particular, to counter the including efforts to boost productivity growth and
spillovers from China’s real estate slowdown, the euro strengthen social safety nets to reduce precautionary
area and the United States are assumed to impose a saving. Separately, in the current context of heightened
10 percent trade tariff on China. geopolitical tensions between China and the United
The results of this expanded scenario reveal that States, a rising current account surplus in China could
tariffs have a limited impact on containing external potentially be concurrent with a decline in demand for
sector spillovers. Saving, investment, and current US assets. This could lead to a financial fragmentation,
accounts remain broadly unchanged, mainly because with real interest rates in China and the United States
tariffs induce further relative price adjustments in the diverging toward their autarkic levels. Such a scenario,
model (Figure 1.3.3). To accommodate the internal analyzed in Box 1.2, would attenuate global spillovers
saving–investment imbalance, China’s real effective from a prolonged slowdown in China’s housing sector.

26 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Annex Table 1.1.1. Selected Economies: Foreign Reserves, 2020–231

IMF Staff–Estimated Change
Gross Official Reserves2 in Official Reserves3 Gross Official
Reserves, 2023
(Billions of US Dollars) (Percent of GDP) (Percent of GDP) (Percent of FXI Data
2020 2021 2022 2023 2020 2021 2022 2023 2020 2021 2022 2023 ARA metric)4 Publication
Advanced Economies
Australia 43 58 57 62 3.1 3.5 3.3 3.5 0.1 1.0 −0.1 0.1 ... Yes, daily
Canada 90 107 107 118 5.5 5.3 4.9 5.5 0.1 1.0 0.5 0.0 ... Yes, monthly
Euro Area 1,078 1,196 1,185 1,267 8.2 8.1 8.3 8.1 0.1 1.1 0.3 −0.2 ... Yes, quarterly
Hong Kong SAR 492 497 424 418 142.6 134.7 118.2 111.0 9.8 −0.3 −13.1 −2.7 ... Yes, daily
Japan 1,395 1,406 1,100 1,295 27.6 27.9 25.8 30.7 0.3 1.1 −1.1 0.6 ... Yes, daily
Korea 443 463 423 420 27.0 25.5 25.3 24.5 1.0 0.4 −1.7 −0.5 ... Yes, quarterly
Singapore 362 418 289 351 103.6 96.3 58.1 70.0 32.0 4.6 −26.4 10.7 ... Yes,
semiannually
Sweden 58 62 65 60 10.6 9.7 11.0 10.1 −0.1 0.9 1.3 0.1 ... Yes, weekly
Switzerland 1,083 1,110 947 805 146.2 136.6 115.7 90.9 15.6 7.2 −1.8 −15.4 ... Yes, quarterly
United Kingdom 180 194 176 178 6.7 6.2 5.7 5.3 −0.1 0.9 0.0 0.1 ... Yes, monthly
United States 627 712 707 777 2.8 2.9 2.7 2.8 0.0 0.5 0.0 0.0 ... Yes, quarterly
Emerging Market and Developing Economies
Argentina 39 40 45 23 10.2 8.1 7.1 3.5 −3.1 0.7 −2.5 −2.2 37 Yes, daily
Brazil 356 362 325 355 24.1 21.7 16.6 16.3 −2.3 −0.8 −1.2 0.9 130 Yes, daily
China 3,357 3,428 3,307 3,450 22.6 19.3 18.5 19.5 0.2 1.1 0.6 −0.2 112 No
India 590 638 567 623 22.1 20.2 16.9 17.4 4.7 1.6 −1.6 1.6 109 Yes, monthly
Indonesia 136 145 137 146 12.8 12.2 10.4 10.7 0.5 1.3 −0.3 0.2 123 No
Malaysia 108 117 115 113 31.9 31.3 28.2 27.3 1.1 2.4 −1.7 −0.6 114 No
Mexico 199 208 201 214 17.8 15.8 13.7 12.0 1.1 0.8 −0.1 0.4 126 Yes, monthly
Poland 154 166 167 194 25.7 24.4 24.2 24.0 3.1 2.8 1.9 2.6 164 No
Russia 597 632 582 599 40.1 34.3 25.6 30.0 −1.0 3.5 −0.3 0.0 343 Yes, daily
Saudi Arabia 454 455 460 437 61.8 52.1 41.5 40.9 −6.3 0.2 0.4 −0.1 208 No
South Africa 55 58 61 63 14.5 14.7 15.5 16.6 0.0 0.7 0.8 0.5 97 No
Thailand 258 246 217 224 51.6 48.6 43.7 43.6 2.4 −0.4 −2.9 0.1 237 No
Türkiye 94 111 129 141 13.0 13.6 14.2 12.6 −10.0 2.7 0.4 −0.8 97 No
Memorandum Items:
Aggregate5 12,248 12,827 11,791 12,332 14.4 13.2 11.7 11.8 0.4 0.9 −0.2 0.0 ... ...
AEs 5,852 6,223 5,480 5,750 6.9 6.4 5.4 5.5 0.4 0.5 −0.2 −0.1 ... ...
EMDEs 6,397 6,604 6,311 6,582 7.5 6.8 6.3 6.3 0.0 0.4 0.0 0.0 ... ...
Sources: IMF, Assessing Reserve Adequacy data set; IMF, International Financial Statistics; IMF, International Reserves and Foreign Currency Liquidity; IMF, April 2024 World Economic
Outlook; and IMF staff calculations.
Note: “. . .” indicates that data are not available or not applicable. AE = advanced economy; ARA = assessment of reserve adequacy; EMDE= emerging market and developing
economy; FX = foreign exchange; FXI = foreign exchange intervention; SAR = Special Administrative Region.
1Sample includes External Sector Report economies excluding individual euro area economies. Euro area is reported as aggregate.
2Total reserves from International Financial Statistics; includes gold reserves valued at market prices.
3This item is not necessarily equal to actual FXI, but it is used as an FXI proxy in External Balance Assessment model estimates. The estimated change in official reserves is equivalent to

the change in reserve assets in the financial account series from the World Economic Outlook (which excludes valuation effects but includes interest income on official reserves) plus the
change in off-balance-sheet holdings (short and long FX derivative positions and other memorandum items) from International Reserves and Foreign Currency Liquidity minus net credit
and loans from the IMF.
4The ARA metric reflects potential balance of payments FX liquidity needs in adverse circumstances and is used to assess the adequacy of FX reserves against potential FX liquidity drains

(see IMF 2015). The ARA metric is estimated for selected EMDEs and includes adjustments for capital controls for China. For Argentina, the adjusted measure uses a four-year average
to smooth the temporary effect of the sharp reductions in short-term debt and exports, and a collapse in the valuation of debt portfolio investments in the wake of the sovereign debt
restructuring. Additional adjusted figures are available in the individual country pages in Chapter 3.
5The aggregate is calculated as the sum of External Sector Report economies only. The percent of GDP is calculated relative to total world GDP.

International Monetary Fund | 2024 27

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Annex Table 1.1.2. External Sector Report Economies: Summary of External Assessment Indicators, 2023
Current
Account
(Percent of IMF Staff CA Gap IMF Staff REER International Investment CA NFA
GDP) (Percent of GDP) Gap (Percent) Position (Percent of GDP) Stabilizing SE of CA
Cycl. (Percent Norm
Economy Overall Assessment Actual Adj. Midpoint Range Midpoint Range Net Liabilities Assets of GDP) (Percent)
Argentina Weaker −3.4 −3.6 −2.6 ±1 22.5 ±2.5 17 51 68 1.1 0.5
Australia Broadly in line 1.2 0.3 0.9 ±0.6 −5.3 ±3.4 −32 181 149 −1.8 0.6
Belgium Weaker −1.0 −0.6 −3.6 ±0.4 5.2 ±0.5 65 358 423 3.1 0.4
Brazil Broadly in line −1.4 −1.7 0.2 ±0.5 −1.7 ±4.2 −45 91 47 −2.4 0.5
Canada Moderately weaker −0.7 −1.0 −1.8 ±0.4 6.7 ±1.6 58 253 310 2.9 0.4
China Broadly in line 1.4 1.2 −0.1 ±0.6 0.7 ±4.3 17 38 54 1.1 0.6
Euro Area1 Broadly in line 1.7 1.7 0.6 ±0.6 −1.7 ±1.7 4 239 243 0.2 0.6
France Broadly in line −0.7 −0.9 −0.9 ±0.4 3.3 ±1.6 −29 364 335 −1.4 0.4
Germany Stronger 5.9 5.9 2.7 ±0.5 −7.5 ±1.4 70 232 302 3.0 0.5
Hong Kong SAR Broadly in line 9.2 8.8 −0.9 ±0.9 2.3 ±2.3 468 1,152 1,620 ... ...
India Moderately stronger −0.8 −0.5 1.7 ±0.6 −9.4 ±3.3 −11 39 28 −1.0 0.6
Indonesia Broadly in line −0.1 −0.3 0.8 ±0.5 −5.0 ±2.9 −19 54 35 −1.5 0.5
Italy Weaker 0.5 0.8 −3.0 ±0.7 11.5 ±2.7 7 162 169 0.3 0.7
Japan Broadly in line 3.6 3.7 −0.3 ±1.1 1.7 ±6.3 80 168 248 3.2 1.1
Korea Moderately weaker 2.1 2.3 −2.0 ±0.9 6.1 ±2.7 46 88 134 2.5 0.9
Malaysia Stronger 1.5 1.8 2.1 ±0.5 −4.1 ±1 7 125 132 0.5 0.5
Mexico Moderately stronger −0.3 0.1 1.4 ±0.4 −4.5 ±1.4 −41 84 44 −2.2 0.4
The Netherlands Substantially stronger 10.1 10.3 4.3 ±0.5 −6.6 ±0.8 72 859 931 3.7 0.5
Poland Stronger 1.6 1.4 3.6 ±0.5 −8.4 ±1.1 −34 93 60 −1.7 0.5
Russia Broadly in line 2.5 2.6 0.3 ±0.8 −1.8 ±4.9 42 35 77 2.0 0.8
Saudi Arabia Weaker 3.2 3.3 −2.6 ±2 12.1 ±9.2 74 60 134 ... ...
Singapore Substantially stronger 19.8 20.1 7.0 ±1.8 −14.0 ±3.6 171 951 1,122 ... ...
South Africa Broadly in line −1.6 −2.2 −0.9 ±0.9 3.6 ±2.7 28 100 128 1.3 0.9
Spain Moderately stronger 2.6 2.8 1.8 ±0.8 −6.4 ±2.8 −53 248 196 −2.6 0.8
Sweden Substantially stronger 6.8 6.6 5.5 ±0.4 −17.0 ±6.5 33 281 314 1.8 0.4
Switzerland Weaker 7.6 7.7 −2.8 ±0.8 5.2 ±1.4 95 537 631 4.9 0.8
Thailand Stronger 1.4 1.3 2.6 ±0.7 −5.3 ±1.4 8 112 120 0.5 0.7
Türkiye Weaker −4.0 −3.0 −2.6 ±0.6 9.6 ±2.3 −25 55 29 −1.7 0.6
United Kingdom Weaker −3.3 −3.3 −2.4 ±1 9.2 ±3.8 −31 534 503 −1.5 0.3
United States Broadly in line −3.0 −2.6 −0.7 ±0.7 5.8 ±5.8 −71 194 124 −3.8 0.7
Sources: IMF, International Financial Statistics; IMF, April 2024 World Economic Outlook; US Bureau of Economic Analysis; and IMF staff assessments.
Note: “. . .” indicates that data are not available or not applicable. CA = current account; Cycl. Adj. = cyclically adjusted; NFA = net foreign assets; REER = real effective exchange rate;
SAR = Special Administrative Region; SE = standard error.
1The IMF staff–assessed euro area CA gap is calculated as the GDP-weighted average of IMF staff–assessed CA gaps for the 11 largest euro area economies.

28 International Monetary Fund | 2024

 CHAPTER 1 External Positions and Policies

Annex Table 1.1.3. External Sector Report Economies: Summary of IMF Staff–Assessed Current Account Gaps and
IMF Staff Adjustments, 2023 (Percent of GDP)
IMF IMF Staff Adjustments3
Actual Cycl. Adj. Staff–
Other
CA CA EBA CA EBA CA Assessed
Balance Balance Norm Gap1 CA GAP2 Total CA Norm
Economy [A] [B] [C] [D = B − C] [E = D + F] [F = G − H] [G] [H] Comments on Adjustments
Argentina −3.4 −3.6 0.4 −3.9 −2.6 1.3 2.4 1.1 Drought (CA), weak reserve coverage/external
sustainability (norm)
Australia 1.2 0.3 −0.6 0.9 0.9 0.0 0.0 0.0
Belgium −1.0 −0.6 3.0 −3.6 −3.6 0.0 0.0 0.0
Brazil −1.4 −1.7 −1.9 0.2 0.2 0.0 0.0 0.0
Canada −0.7 −1.0 2.3 −3.3 −1.8 1.5 1.5 0.0 Measurement biases
China 1.4 1.2 0.9 0.3 −0.1 −0.4 −0.4 0.0 Travel adjustor
Euro Area4 1.7 1.7 0.7 1.0 0.6 −0.4 −0.4 0.0 Country-specific measurement bias adjustments
France −0.7 −0.9 0.0 −0.9 −0.9 0.0 0.0 0.0
Germany 5.9 5.9 3.1 2.7 2.7 0.0 0.0 0.0
India −0.8 −0.5 −2.2 1.7 1.7 0.0 0.0 0.0
Indonesia −0.1 −0.3 −0.8 0.5 0.8 0.3 0.0 −0.3 Demographics (high mortality rate, norm)
Italy 0.5 0.8 3.8 −3.0 −3.0 0.0 0.0 0.0
Japan 3.6 3.7 4.0 −0.3 −0.3 0.0 0.0 0.0
Korea 2.1 2.3 4.4 −2.0 −2.0 0.0 0.0 0.0
Malaysia 1.5 1.8 −0.3 2.1 2.1 0.0 0.0 0.0
Mexico −0.3 0.1 −1.3 1.4 1.4 0.0 0.0 0.0
The Netherlands 10.1 10.3 4.3 6.1 4.3 −1.8 −1.8 0.0 Measurement biases
Poland 1.6 1.4 −2.2 3.6 3.6 0.0 0.0 0.0
Russia 2.5 2.6 2.3 0.3 0.3 0.0 0.0 0.0
South Africa −1.6 −2.2 0.6 −2.8 −0.9 1.9 1.4 −0.5 Demographics (high mortality rate, norm),
measurement biases, and SACU transfers
Spain 2.6 2.8 0.9 1.8 1.8 0.0 0.0 0.0
Sweden 6.8 6.6 1.1 5.5 5.5 0.0 0.0 0.0
Switzerland 7.6 7.7 6.4 1.3 −2.8 −4.1 −4.1 0.0 Measurement biases
Thailand 1.4 1.3 0.8 0.5 2.6 2.1 2.1 0.0 Travel and transport adjustors
Türkiye −4.0 −3.0 −0.3 −2.6 −2.6 0.0 0.0 0.0
United Kingdom −3.3 −3.3 −0.4 −2.9 −2.4 0.5 0.5 0.0 Measurement biases
United States −3.0 −2.6 −1.9 −0.7 −0.7 0.0 0.0 0.0

Hong Kong SAR 9.2 8.8 ... ... −0.9 12.2 0.7 −11.5
Singapore 19.8 20.1 ... ... 7.0 2.5 −2.2 −4.7 Measurement biases, NFA composition, health
spending
Saudi Arabia 3.2 3.3 ... ... −2.6 0.0 0.0 0.0

Absolute sum of excess ... ... ... 1.0 0.9 ... ... ...
surpluses and deficits5
Discrepancy6 ... ... ... ... −0.15 ... ... ...
Source: IMF staff estimates.
Note: “. . .” indicates that data are not available or not applicable; CA = current account; Cycl. Adj. = cyclically adjusted; EBA = external balance assessment; ESR = External Sector
Report; NIIP = net international investment position; SACU = Southern African Customs Union.
1Minor discrepancies between constituent figures and totals are due to rounding.
2Refers to the midpoint of the IMF staff–assessed CA gap.
3Total IMF staff adjustments include rounding in some cases. The last column explains country-specific adjustments to the CA and norm.
4The EBA euro area CA norm is calculated as the GDP-weighted average of norms for the 11 largest euro area economies, adjusted for reporting discrepancies in intra-area transactions.

The IMF staff–assessed CA gap is calculated as the GDP-weighted average of IMF staff–assessed gaps for the 11 largest euro area economies.
5Sum of absolute value of IMF staff–assessed CA gaps in percent of aggregate GDP for economies included in the ESR exercise.
6Sum of IMF staff–assessed CA gaps in percent of aggregate GDP for economies included in the EBA and/or ESR exercise.

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2024 EXTERNAL SECTOR REPORT

Annex Table 1.1.4. External Sector Report Economies: Summary of IMF Staff–Assessed Real Effective Exchange
Rate and External Balance Assessment Model Gaps, 2023
REER Gap Implied REER
IMF by IMF EBA EBA (Percent change)
Staff–Assessed Staff–Assessed REER-Level REER-Index CA/REER Average 2023/ April 2024/
Economy REER Gap1 CA Gap2 Gap Gap Elasticity3 Average 2022 Average 2023
Argentina 22.5 21.7 5.0 19.9 0.12 0.5 −2.7
Australia −5.3 −5.3 20.6 −10.6 0.17 −0.6 1.8
Belgium 5.2 5.2 20.6 8.8 0.69 1.3 0.8
Brazil −1.7 −1.7 −11.2 −25.1 0.12 4.6 −0.5
Canada 6.7 6.7 −12.9 0.5 0.27 −3.6 −1.3
China 0.7 0.7 3.4 5.1 0.14 −8.2 −2.7
Euro Area −1.7 −1.7 3.9 5.5 0.35 3.5 −0.4
France 3.3 3.3 2.9 −5.1 0.27 1.9 −0.5
Germany −7.5 −7.5 −9.3 8.0 0.36 3.5 −0.5
India −9.4 −9.4 5.2 5.9 0.18 −1.6 1.8
Indonesia −5.0 −5.0 −15.9 0.8 0.16 −3.7 −2.4
Italy 11.5 11.5 10.8 8.9 0.26 2.8 −1.7
Japan 1.7 1.7 −31.7 −35.5 0.18 −4.9 −6.9
Korea 6.1 6.1 −3.1 −4.1 0.33 2.1 −2.0
Malaysia −4.1 −4.1 −30.1 −27.2 0.51 −2.6 −2.7
Mexico −4.5 −4.5 27.6 8.1 0.31 21.0 9.0
The Netherlands −6.6 −6.6 2.8 18.9 0.65 0.8 0.6
Poland −8.4 −8.4 −11.7 11.8 0.43 11.3 5.2
Russia −1.8 −1.8 −18.6 3.3 0.17 −3.5 −3.7
South Africa 3.6 3.6 −15.8 −20.7 0.25 −8.3 1.8
Spain −6.4 −6.4 18.6 3.8 0.28 0.3 1.0
Sweden −17.0 −14.1 −23.9 −20.9 0.39 −1.9 0.2
Switzerland 5.2 5.2 17.7 12.8 0.54 3.4 −1.1
Thailand −5.3 −5.3 −1.4 7.4 0.49 1.1 −5.0
Türkiye 9.6 9.6 −55.7 −45.7 0.27 2.4 7.0
United Kingdom 9.2 9.2 4.4 −5.9 0.26 2.5 2.8
United States 5.8 5.8 16.7 8.3 0.12 −0.5 2.0

Hong Kong SAR 2.3 2.3 ... ... 0.40 2.6 2.6
Singapore −14.0 −14.0 ... ... 0.50 7.2 2.0
Saudi Arabia 12.1 12.1 ... ... 0.20 0.7 0.7

Discrepancy4 1.7 ... ... ... ... ... ...

Sources: IMF, Information Notice System; and IMF staff estimates.
Note: “. . .” indicates that data are not available or not applicable; CA = current account; EBA = External Balance Assessment; REER = real effective exchange rate.
1 Refers to the midpoint of the IMF staff–assessed REER gap.
2 Implied REER gap = –(IMF staff–assessed CA gap/CA-to-REER elasticity).
3 CA-to-REER semielasticity used by IMF country teams.
4 GDP-weighted average sum of IMF staff–assessed REER gaps.

30 International Monetary Fund | 2024

 Annex Table 1.1.5. Selected External Sector Report Economies: External Balance Assessment Current Account Regression Policy Gap Contributions, 2023
(Percent of GDP)
Foreign Exchange Intervention and
Fiscal Gap Public Health Expenditure Gap Private Credit Gap Capital Controls Gap
EBA Gap Domestic Domestic Domestic Domestic
Economy Total1 Identified Dom2 Residual Total1 Dom3 Coeff P P* Total1 Dom3 Coeff P P* Total1 Dom3 Coeff P P* Total1 Dom3 Coeff FXI P FXI P* KC P KC P*
Argentina −3.9 −1.8 −2.5 −2.1 0.0 −1.3 0.3 −4.1 0.0 −0.1 0.0 −0.3 6.5 6.5 −0.4 0.1 −0.1 −0.7 0.0 −1.3 −1.3 0.6 −2.2 1.5 0.7 0.3
Australia 0.9 2.1 1.5 −1.2 0.9 −0.3 0.3 −1.1 0.0 −0.1 −0.1 −0.3 7.5 7.2 1.4 1.9 −0.1 −19.7 0.0 0.0 0.0 0.6 0.1 0.0 0.1 0.1
Belgium −3.6 2.0 1.4 −5.6 0.0 −1.2 0.3 −5.0 −1.1 −0.1 0.0 −0.3 8.0 7.9 2.0 2.5 −0.1 −26.5 0.0 0.0 0.0 0.6 0.5 0.0 0.1 0.1
Brazil 0.2 −0.4 −1.1 0.6 −0.2 −1.4 0.3 −8.2 −3.5 0.1 0.2 −0.3 3.9 4.4 −0.6 −0.1 −0.1 0.6 0.0 0.3 0.3 0.6 0.9 0.0 0.5 0.3
Canada −3.3 1.4 0.8 −4.7 1.2 −0.1 0.3 −0.6 −0.4 −0.5 −0.5 −0.3 8.6 7.0 0.8 1.3 −0.1 −13.3 0.0 0.0 0.0 0.6 0.0 0.0 0.1 0.1
China 0.3 −0.6 −1.3 0.9 −0.2 −1.4 0.3 −6.7 −2.2 0.0 0.0 −0.3 3.9 4.0 −0.3 0.2 −0.1 −1.6 0.0 −0.1 −0.1 0.6 −0.2 0.0 0.8 0.3
Euro Area4 1.0 0.5 −0.2 0.5 0.4 −0.8 0.3 −3.5 −0.9 −0.2 −0.2 −0.3 8.9 8.4 0.3 0.8 −0.1 −8.4 −0.3 0.0 0.0 0.6 −0.1 0.0 0.1 0.1
France −0.9 0.1 −0.6 −1.0 0.0 −1.2 0.3 −5.0 −1.1 −0.3 −0.3 −0.3 10.2 9.3 0.4 0.9 −0.1 −9.2 0.0 0.0 0.0 0.6 −0.7 0.0 0.1 0.1
Germany 2.7 −0.2 −0.9 2.9 1.0 −0.2 0.3 −1.9 −1.3 −0.5 −0.4 −0.3 10.9 9.6 −0.8 −0.3 −0.1 3.3 0.0 0.0 0.0 0.6 0.0 0.0 0.3 0.3
India 1.7 0.6 −0.1 1.1 0.3 −0.9 0.3 −8.7 −5.8 0.1 0.1 −0.3 1.4 1.8 −0.6 −0.1 −0.1 0.8 0.0 0.8 0.8 0.6 1.6 0.0 0.8 0.3
Indonesia 0.5 1.7 1.0 −1.2 1.3 0.1 0.3 −1.6 −2.0 0.6 0.7 −0.3 0.8 3.0 −0.3 0.2 −0.1 −2.4 0.0 0.1 0.0 0.6 0.2 0.0 0.5 0.3
Italy −3.0 −0.2 −0.9 −2.8 −1.2 −2.4 0.3 −7.5 0.5 0.0 0.0 −0.3 6.7 6.8 1.0 1.5 −0.1 −15.7 0.0 0.0 0.0 0.6 0.2 0.0 0.0 0.0
Japan −0.3 −1.5 −2.2 1.2 −0.3 −1.5 0.3 −5.8 −1.0 −0.1 0.0 −0.3 9.3 9.1 −1.2 −0.7 −0.1 14.1 7.3 0.0 0.0 0.6 0.6 0.0 0.1 0.1
Korea −2.0 0.6 −0.1 −2.6 0.9 −0.3 0.3 −0.9 0.0 0.7 0.8 −0.3 5.9 8.5 −1.1 −0.6 −0.1 5.8 0.0 0.0 0.0 0.6 −0.5 0.0 0.1 0.1
Malaysia 2.1 0.9 0.3 1.2 0.6 −0.6 0.3 −4.5 −2.5 0.6 0.6 −0.3 2.0 4.1 −0.1 0.4 −0.1 −4.6 0.0 −0.2 −0.2 0.6 −0.6 0.0 0.6 0.3
Mexico 1.4 0.6 0.0 0.8 0.7 −0.5 0.3 −4.5 −2.7 0.0 0.1 −0.3 3.2 3.6 −0.2 0.3 −0.1 −3.0 0.0 0.1 0.1 0.6 0.4 0.0 0.4 0.3
The Netherlands 6.1 3.7 3.1 2.3 1.4 0.2 0.3 −1.4 −2.0 0.1 0.1 −0.3 8.4 8.8 2.2 2.7 −0.1 −28.5 0.0 0.0 0.0 0.6 0.5 0.0 0.0 0.0
Poland 3.6 1.8 1.1 1.8 0.3 −1.0 0.3 −5.1 −2.0 0.1 0.2 −0.3 5.9 6.6 0.7 1.2 −0.1 −17.6 −5.0 0.7 0.7 0.6 2.6 0.0 0.4 0.3
Russia 0.3 1.5 0.9 −1.2 0.8 −0.4 0.3 −2.5 −1.0 0.2 0.3 −0.3 4.6 5.5 0.5 1.0 −0.1 −10.9 0.0 0.0 0.0 0.6 0.0 0.0 0.4 0.3
South Africa −2.8 0.7 0.0 −3.5 0.2 −1.0 0.3 −6.4 −3.1 0.7 0.8 −0.3 4.0 6.6 −0.1 0.4 −0.1 −3.7 0.0 −0.1 −0.1 0.6 −0.3 0.0 0.6 0.3
Spain 1.8 0.3 −0.3 1.5 0.4 −0.8 0.3 −3.7 −1.0 −0.3 −0.2 −0.3 7.2 6.5 0.2 0.7 −0.1 −7.9 −1.0 0.0 0.0 0.6 0.4 0.0 0.2 0.2
CHAPTER 1

Sweden 5.5 3.0 2.3 2.6 1.1 −0.1 0.3 0.0 0.3 −0.1 0.0 −0.3 9.2 9.0 2.0 2.4 −0.1 −25.5 0.0 0.0 0.0 0.6 0.1 0.0 0.2 0.2
Switzerland 1.3 −1.0 −1.7 2.3 1.7 0.5 0.3 0.5 −1.0 −0.1 −0.1 −0.3 8.3 8.0 −0.7 −0.2 −0.1 2.3 0.0 −1.8 −1.8 0.6 −15.4 0.0 0.2 0.2
Thailand 0.5 0.3 −0.4 0.3 1.2 0.0 0.3 −2.9 −2.8 0.2 0.2 −0.3 3.6 4.4 −1.1 −0.7 −0.1 6.8 0.0 0.0 0.0 0.6 0.1 0.0 0.5 0.3
Türkiye −2.6 1.5 0.8 −4.1 0.6 −0.6 0.3 −6.3 −4.3 0.1 0.1 −0.3 3.1 3.6 1.2 1.7 −0.1 −18.0 0.0 −0.4 −0.4 0.6 −0.8 1.2 0.4 0.3
United Kingdom −2.9 1.9 1.2 −4.7 0.0 −1.2 0.3 −6.3 −2.4 0.2 0.2 −0.3 7.1 7.9 1.7 2.1 −0.1 −22.4 0.0 0.0 0.0 0.6 0.1 0.0 0.1 0.1
United States −0.7 −0.7 −1.4 0.0 −0.8 −2.0 0.3 −8.5 −2.0 0.1 0.1 −0.3 8.0 8.4 0.0 0.5 −0.1 −4.9 0.0 0.0 0.0 0.6 0.0 0.0 0.2 0.2
Source: IMF staff estimates.
Note: Coeff = coefficient; Dom = domestic; EBA = External Balance Assessment; FXI = foreign exchange intervention; KC = capital controls; P = actual level; P* = desired level.

International Monetary Fund | 2024

1 Total contribution after adjusting for multilateral consistency. Total foreign exchange intervention and capital controls contribution = Coeff * [(FXI × KC) − (desirable FXI × desirable KC)].
2 Includes the contribution of domestic policy gaps to the identified gap. The total foreign policy gap contribution is constant and equal to 0.7 percent for all countries. Foreign contributions are estimated as follows (in percent of GDP):

fiscal = 1.2; public health = −0.1; private credit = −0.5; foreign exchange intervention = 0.0.
External Positions and Policies

31
3 Total domestic contribution is equivalent to coefficient * (P − P*).
4 The euro area EBA current account gap and policy gap contributions are calculated as the GDP-weighted averages of EBA current account gaps and policy gap contributions for the 11 largest euro area economies.
32
Annex Table 1.1.6. 2023 Individual Economy Assessments: Summary of Policy Recommendations
Economy Overall 2023 Assessment Policy Recommendations
Argentina Weaker Continue the implementation of the ambitious stabilization plan, centered on a strong fiscal anchor and relative price corrections. Implement
structural reforms to boost Argentina’s competitiveness and export capacity. As stability and confidence are reestablished, a gradual conditions-
based easing of CFM measures will be needed, while any remaining MCPs and exchange restrictions should be phased out as early as possible.
Australia Broadly in line Maintain fiscal and monetary restraint; implement structural policies that boost investment by rebalancing taxes from direct to indirect taxes,
executing planned infrastructure investment, streamlining product market regulation, and promoting R&D and innovation investment.
Belgium Weaker Strengthen competitiveness through significant structural reforms, including of the wage indexation system, pension and social benefits, tax, and the
labor and product markets. Rebuild fiscal buffers through a credible, expenditure-led consolidation, while preserving public investment.
2024 EXTERNAL SECTOR REPORT

Brazil Broadly in line Implement efforts to raise national savings, providing room for a sustainable expansion in investment. Fiscal consolidation should continue contributing to
increase net public savings. Structural reforms that improve efficiency and reduce the cost of doing business would help strengthen competitiveness.
Canada Moderately weaker Tighter near-term fiscal policies as well as a medium-term fiscal consolidation plan would help in stabilizing debt and supporting external

International Monetary Fund | 2024

rebalancing; boost services exports and nonfuel goods exports through improved labor productivity, removal of nontariff trade barriers, promotion
of FDI, and investment in R&D, physical capital, and green transformation.
China Broadly in line Accelerate market-based structural reforms—a further opening up of domestic markets, ensuring competitive neutrality between state-owned and
private firms, scaling back wasteful and distorting industrial policies; shift fiscal policy support toward strengthening social protection to reduce
high household savings and rebalance toward private consumption; gradually increase exchange rate flexibility to help the economy better absorb
external shocks.
Euro Area Broadly in line Improve productivity through increased public investment, reskilling and upskilling of the labor force, and encouraging private investment and technology
diffusion; strengthen the EU Single Market by harmonizing regulations, reducing administrative barriers, and streamlining trade procedures; avoid
trade-distorting measures; see additional member country–specific recommendations on reducing internal and external imbalances.
France Broadly in line Maintaining the external position in line with medium-term fundamentals and desirable policies will require sustained fiscal consolidation efforts as
well as structural reforms to support productivity and attract higher private investment to facilitate the green and digital transitions.
Germany Stronger Implement policies aimed at promoting investment and diminishing excess saving, including through higher fiscal deficits than currently planned in the
medium term to ensure adequate public investment in the green transition, digitalization, and transport infrastructure. Implement structural reforms to
foster innovation and enhance employability of older workers, which could also extend working lives and reduce the need for excess saving.
Hong Kong SAR Broadly in line Implement a gradual fiscal consolidation in the near term while taking measures to ensure fiscal sustainability over the medium to long term;
maintain policies that support wage and price flexibility; continue to implement robust and proactive financial supervision and regulation.
India Moderately stronger Focus on raising investment by continuing to increase public investment and incentivize private investment. Reforms should include further liberalization of
the investment regime; reductions in import tariffs, especially on intermediate goods; and implementation of measures to improve the business climate.
Indonesia Broadly in line Implement structural reforms to enhance productivity and facilitate post-COVID-19 sectoral adjustments, including higher infrastructure investment
and higher social spending to foster human capital development and strengthen the social safety net, a reduction of restrictions on inward FDI and
external trade, and promotion of greater labor market flexibility. Maintain flexibility of the exchange rate.
Italy Weaker Implement comprehensive structural reforms to encourage an increase in private investment; increase public sector saving, supported by a front-
loaded fiscal adjustment program and improved budget efficiency, containing social benefit spending, undertaking comprehensive and progressive
tax reform and fully implementing the National Recovery and Resilience Plan.
Japan Broadly in line Policies should focus on structural reforms and fiscal sustainability—a credible and specific medium-term fiscal consolidation plan. Priority should
be given to labor market and fiscal reforms that support private demand, raise potential growth, and promote digital and green investment.
Korea Moderately weaker Implement restrictive monetary and fiscal policy stance in the short term. Over the medium term, implement policies to encourage an increase in
aging-related precautionary savings and orderly deleveraging of private debt, and to mitigate risks arising from geopolitical tensions. Exchange
rate flexibility, with intervention limited to preventing disorderly market conditions, would help the economy absorb external shocks.
Malaysia Stronger Implement medium-term policies to strengthen social safety nets and public health care; implement structural policies to encourage private
investment and improve productivity growth; preserve exchange rate flexibility.
 Annex Table 1.1.6 (continued)
Economy Overall 2023 Assessment Policy Recommendations
Mexico Moderately stronger Implement structural reforms to address investment obstacles, including by encouraging female labor force participation and promoting financial
deepening. Maintain a prudent fiscal stance. The floating exchange rate should continue to serve as a shock absorber, with FX interventions employed
only in exceptional circumstances. The IMF’s Flexible Credit Line with Mexico continues to provide an added buffer against global tail risks.
The Netherlands Substantially stronger Foster investment in physical and human capital, including by facilitating access to finance for small and medium-sized enterprises. Continue
structural policies to safeguard energy security, allay housing market shortages, reinforce the education system, advance the climate transition,
and further promote digitalization.
Poland Stronger Boost investment by easing regulatory hurdles to private investments in the energy sector. Strengthen the pension system in a financially sustainable
manner to reduce pressures on precautionary savings for households.
Russia Broadly in line ...
Saudi Arabia Weaker Implement additional fiscal consolidation over the medium term, including through enhanced revenue mobilization and energy price reforms.
Implement a structural reform agenda to diversify the economy, lift productivity, and boost the non-oil tradable sector.
Singapore Substantially stronger Execute the planned major green infrastructure projects; strengthen social safety nets; implement higher public investment over the medium term,
including spending on health care, green and other physical infrastructures, and human capital.
South Africa Broadly in line Implement bold structural reforms and ambitious fiscal consolidation. Structural reform should focus on addressing the energy and logistics crises;
improving governance, product market efficiency, and the functioning of labor markets; and bolstering worker skills. Fiscal consolidation should
be expenditure based, while providing space for critical infrastructure investment and well-targeted social spending. A flexible rand exchange rate
should remain the main shock absorber.
Spain Moderately stronger Implement sustained fiscal consolidation to rebuild fiscal space and raise aggregate saving. Implement structural reforms and investment in
strategic areas to boost growth and raise aggregate investment. Continue efforts to enhance education outcomes, encourage innovation, and
reduce energy dependence from abroad, including through adequate implementation of the Recovery, Transformation and Resilience Plan.
Sweden Substantially stronger Once inflation recedes, increase private and public investment in the green transition and the health sector.
Switzerland Weaker Fiscal policy should balance the need to avoid creating headwinds to growth, while creating fiscal space to address accumulating spending
pressures. A comprehensive medium-term plan will be needed to address mounting structural spending needs on aging, climate, and defense.
Monetary policy should remain data-dependent and avoid the risk of inflation settling at very low rates. Commitment to free trade and
cooperation, as shown by abolition of industrial tariffs in 2024 and efforts to expand trade relations, should continue in order to build resilience.
Thailand Stronger Implement policies aimed at promoting investment, diminishing precautionary savings, and supporting domestic demand. Focus public expenditures
on targeted social transfers to continue to support the most vulnerable, as well as infrastructure investment to support a green recovery and
CHAPTER 1

reorientation of affected sectors. Continue efforts to reform and expand social safety nets and address widespread informality.
Türkiye Weaker Tighten the monetary and fiscal policy stance; accelerate financial liberalization to reduce market distortions and improve monetary policy transmission.
Enhance competition through open trade policies, including by removing discretionary credit allocation that favors exports. Collectively, these policies
would improve confidence and help sustain capital inflows which would allow for a much-needed accumulation of international reserves.
United Kingdom Weaker Implement gradual fiscal consolidation while preserving key public services and protecting the vulnerable. Implement structural reforms to boost
competitiveness, including by upgrading the labor skill base to support labor reallocation to fast-growing sectors. Continue to support an open
trade environment, including by addressing remaining barriers to trade with the European Union.
United States Broadly in line Implement medium-term fiscal consolidation. Implement structural policies to increase competitiveness while maintaining full employment,

International Monetary Fund | 2024

including by upgrading infrastructure; enhancing the schooling, training, apprenticeship, and mobility of workers; supporting the working poor; and
implementing policies to increase growth in the labor force. Roll back tariff barriers and resolve trade and investment disagreements supporting
an open, stable, and transparent global trading system.
Source: IMF, 2023 Individual External Balance Assessments.
External Positions and Policies

33
Note: “. . .” indicates that data are not available or not applicable. CFM = capital flow management measure; FDI = foreign direct investment; FX = foreign exchange; MCP = macroprudential measure; R&D = research and
development.
2024 EXTERNAL SECTOR REPORT

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Peterman, John W. Schindler IV, and Nitish R. Sinha. 2023. Financial Stability Paper 36, Bank of England, London.
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Daniel Leigh, Pau Rabanal, Cyril Rebillard, and others. 2023. Goldberg, Linda S., and Fabiola Ravazzolo. 2022. “The Fed’s
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International Monetary Fund | 2024 35

 2
CHAPTER

NAVIGATING THE TIDES OF COMMODITY PRICES

Commodity prices are subject to large and recurrent They are also key drivers of individual countries’ terms
volatility. This chapter explores the external sector impli- of trade, which play a critical role for external adjust-
cations of energy price swings for the global economy and ment as well as economic growth and business cycle
individual countries, differentiating among drivers behind fluctuations.3
the price swings as well as accounting for countries’ energy Looking ahead, commodity-trading countries and
importer or exporter status. Energy-importing countries the global economy will face two new challenges. The
bear the brunt of negative oil supply shocks. Nonethe- first is the clean energy transition, which requires a
less, they can resort to several policy tools to mitigate the major transformation of the energy system with a shift
adverse effects. Two newly emerging challenges arise from away from fossil fuels to an increasing use of some crit-
the clean energy transition and the possible shift in the ical metals, such as copper. The transition is expected
correlation between the oil price and the US dollar. to bring about permanent changes in the price of fossil
fuels and critical metals and reshape trade flows, as the
concentration in the production of most metals is even
Introduction higher than that of fossil fuels. Second, the negative
Commodity prices are one of the most volatile. correlation between the oil price and the dollar has
Since 2000, real aggregate commodity prices have turned positive since 2020. If persistent, this shift in
undergone three episodes of continuous rising by more the correlation could carry substantial macroeconomic
than 30 percent.1 Most recently, real commodity prices implications for the global economy and individual
rose by about 150 percent between April 2020 and commodity-trading countries.
August 2022, led by a fivefold increase in the average A better understanding of the causes and conse-
price of energy commodities (oil, natural gas, coal).2 quences of commodity price developments would
This surge in energy prices was driven by the robust improve the diagnosis of and responses to future vola-
post-pandemic recovery and disruptions caused by tile commodity price movements (see Chapter 1). With
Russia’s invasion of Ukraine. that aim, this chapter first documents the key charac-
Commodity price swings carry broad implications teristics of the price swings of 42 commodities. It then
for the global economy. Commodities, most notably zooms in on energy price swings, the most volatile and
energy commodities, account for a significant share of prominent internationally traded group of commod-
global trade, reflecting the fact that they are universally ities. Reflecting the prominence of oil among energy
used and demanded while their production is geograph- commodities, the chapter focuses on two key drivers
ically concentrated. Their price swings often exhibit a of oil prices: global economic activity and oil supply
negative correlation with the US dollar (Figure 2.1). shocks. The chapter examines their effects on the global
economy and individual countries that are grouped into
The authors of the chapter are Lukas Boer, Jiaqian Chen (lead), energy importers and exporters. For energy importers
Keiko Honjo, Ting Lan, Roman Merga, and Cyril Rebillard, with that face adjustment challenges due to limited inter-
contributions by Geoffroy Dolphin, Rafael Portillo, and Pedro
Rodriguez, under the guidance of Jaewoo Lee. Santiago Gomez,
national risk sharing, the chapter analyzes how their
Jair Rodriguez, Xiaohan Shao, and Brian Hyunjo Shin provided policies and country characteristics could mitigate
research support and Jane Haizel provided editorial assistance.
Christiane Baumeister was the external consultant. The chapter
has also benefited from comments by Gian-Maria Milesi-Ferretti, 3For the impact of terms-of-trade shocks on growth, see Dehn

Andrea Pescatori, Martin Stuermer, internal seminar participants, (2000) and Collier and Goderis (2012). On business cycle fluctua-
and reviewers. tions, see Mendoza (1995); Kose (2002); Aghion and others (2010);
1Following the literature, real commodity prices are calculated by Fernández, Schmitt-Grohé, and Uribe (2017); and Schmitt-Grohé
deflating the nominal price series from the IMF Primary Commod- and Uribe (2018). On real exchange rate movements, see Chen and
ity Price System by the US consumer price index. Rogoff (2003); Cashin, Céspedes, and Sahay (2004); and Ricci,
2See Box 2.1 for a discussion on the impact of the recent energy Milesi-Ferretti, and Lee (2013). On international reserves, see
price shock on the EU manufacturing sector. Aizenman, Edwards, and Riera-Crichton (2012).

International Monetary Fund | 2024 37

 2024 EXTERNAL SECTOR REPORT

Figure 2.1. Commodity and the US Dollar the adverse effects of energy price swings. Moreover,
the chapter discusses the potential implications of a
1. Real Commodity Prices
(Index, 2016:M1 = 100)
permanent shift to a positive correlation between the oil
450 All commodities price and the US dollar on exchange rate policies and
400 Energy discusses potential effects of the clean energy transition
Oil
350 on the exporters of fossil fuels and critical metals.
300 The chapter’s main findings are as follows:
250 • Commodity prices exhibit substantial swings, most
200
prominently for the group of energy commodities.
150
For 42 commodities, the chapter identifies about
100
360 upswings and downswings since 1960. While
50
0
price swings have comparable durations across com-
1970 75 80 85 90 95 2000 05 10 15 20 modities, the energy commodity group exhibits the
most pronounced price swings, with prices almost
2. Commodity Trade
(Percent of world GDP) tripling during a typical upswing and falling by as
Crude oil Gold Fish (salmon) Oranges much during a downswing.
Natural gas Aluminum Wheat Soybean oil • The effects of energy price swings on individual econo-
Coal Copper Beef Tea
Iron ore Soybeans Sunflower oil mies vary both with an economy’s importer/exporter sta-
Nickel Coffee Barley tus in energy trade and with the source of energy price
Zinc Maize (corn) Olive oil
Lead Swine (pork) Groundnuts changes. Higher energy prices are accompanied by
3.0 Tin Sugar (peanuts) current account improvements for energy exporters
Uranium Palm oil Lamb
2.5 Soybean meal Fishmeal
and deteriorations for energy importers, regardless of
Poultry (chicken) the source of energy price changes. However, when
2.0 Rice Softwood energy prices rise owing to stronger global economic
Shrimp Hardwood
1.5 Cocoa beans Cotton activity or higher demand for oil consumption
Bananas Rubber or inventories, output and consumption rise for
1.0 Hides
Wool both exporters and importers, despite the negative
0.5
terms-of-trade effect for importers. When energy
0.0 prices rise owing to a negative oil supply shock,
Energy Metals Food Agricultural
exporters’ output increases but importers’ output
3. Energy Price and the US Dollar and consumption fall, although some risk sharing
Real energy price (index, 2016 = 100) occurs including via valuation gains in importers’
Nominal broad US dollar index (right scale) net foreign assets.4
350 140
• Energy importers’ exposure to shocks to energy prices
300 120 varies with their economic characteristics, as well as
250 100 with global financial conditions. The adverse effects
200 80 of negative oil supply shocks on energy importers
150 60 are mitigated by greater exchange rate flexibility,
lower government debt, more anchored inflation
100 40
expectations, stronger external positions, lower
50 20
intensity of energy imports, and looser global finan-
0 0 cial conditions, which allow a smaller decline in
1992 95 2000 05 10 15 20
consumption and a larger external borrowing (i.e.,
Source: IMF staff calculations. decline in the current account). Foreign investments
Note: The real price index for a commodity group is the trade-weighted average of
the global US dollar prices of the commodities in the group deflated by the US
4It is left for future research to investigate the external implications
consumer price index. Energy commodity group includes oil, natural gas, and coal.
Oil price refers to crude oil (petroleum), Brent, in US dollar. Commodity trade is the of supply and demand shocks to nonenergy commodities. See, for
average of global gross commodity exports and imports. For panel 2, legend only example, Di Pace, Juvenal, and Petrella (forthcoming) and De Winne
displays selected commodities for clarity. The grey areas in panel 3 denote years and Peersman (2021) for the effects of nonenergy commodity price
when the US dollar and the real energy prices are positively correlated. shocks on economic activity.

38 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

in major oil-exporting economies represent another Bodenstein, Erceg, and Guerrieri (2011), who analyze
mitigating factor, which enables importing econo- the repercussions of a negative oil supply shock on the
mies to partake of the economic improvement in United States (then a large net oil importer) using a
exporting economies. two-country structural model. The chapter also illus-
• Following two decades of negative correlations, the trates the main transmission channels via multiregion
relationship between the US dollar and the oil price model simulations for a set of key empirical findings.
has turned positive since 2020. This change coincided This chapter’s econometric approach uses a large
with the shift of the United States from a net oil panel of exporters and importers to strengthen the
importer to a modest oil exporter in early 2020. It estimation of the average impact of different drivers of
also coincides with periods of high global risk aver- oil prices. Last, this chapter explores how the impact
sion, as well as a shift in foreign investor behavior: varies across importers’ structural characteristics and
following an increase in the oil price, foreign inves- policy regimes in a comprehensive manner relative to
tors tend to increase their holdings of US assets, the extant literature.
in contrast to periods with a negative correlation. The rest of the chapter is structured as follows. The
If permanent, this shift to a positive US dollar–oil first section presents stylized facts on key features of
price correlation could have several important commodity price swings. The second section estimates
implications. It would bring about, everything else the impact of oil supply and global activity shocks—
being equal, larger terms-of-trade shocks due to oil two prominent drivers of energy price swings—on
prices for net oil importers with a floating exchange energy importers and exporters. The empirical analysis
rate and greater financial stability risks for importers is complemented by model-based simulations, allowing
with short (net) exposure to the US dollar. for a fuller discussion of the transmission mechanisms.
• The clean energy transition is likely to pose challenges The third section discusses the correlation between the
for both fossil fuel and critical metal exporters. A oil price and the US dollar, while also discussing the
permanently lower price for fossil fuel commodi- implications of the clean energy transition for fossil
ties brings about weaker GDP growth and initial fuel and critical metal exporters, underscoring potential
improvement in the current account for exporters. challenges and benefits for the latter. The final section
A permanently higher price for critical metals would concludes.
trigger an initial investment boom in exporting
countries that worsens their current accounts and
gradually improves output. Features of Commodity Price Swings
This section documents real commodity price
These findings add to the literature on macroeco- swings and their key features, including the duration
nomic analyses of oil prices in several dimensions. and magnitude for all commodities from the IMF
First, empirical evidence on the impact of oil supply Primary Commodity Price System and four commod-
and global economic activity shocks on an extensive ity groups (energy, metals, food, agricultural).5 The
list of macro and external sector variables is provided. analysis adopts the standard business cycle (Burns and
In particular, the empirical literature on external sec- Mitchell 1946; Bry and Boschan 1971; Harding and
tor effect provides mixed results. For instance, Kilian, Pagan 2002) and commodity price swings (Cashin and
Rebucci, and Spatafora (2009) find oil supply shocks McDermott 2002) dating procedures to define the
to have opposite effects on current account balances upswing and downswing phases with three modifi-
of oil importers and exporters which are statisti- cations. First, the time series is not filtered to avoid
cally significant only after four years, while Allegret, the potential loss of some large, but short-lived, price
Mignon, and Sallenave (2015) find the effect to be of fluctuations and to be independent of the filtering
opposite sign for two net oil importers, China and the methods. Second, the analysis imposes no mini-
euro area, and Lebrand, Vasishtha, and Yilmazkuday mum duration, thereby capturing the sharp oil price
(2024) find effects of the same sign for both import-
ers and exporters. This chapter provides empirical 5Commodity group prices are calculated as the weighted average of
evidence that is in line with the more consensual individual commodity prices based on the average of global import
results derived from the theoretical literature, such as share of 2014–16.

International Monetary Fund | 2024 39

 2024 EXTERNAL SECTOR REPORT

Figure 2.2. Real Oil Price Swings Zooming In on Energy Price Swings
(Index, 2016 = 100)

350 Empirical Analysis: Sources of Energy Price

Upswings Downswings Real oil price
Peaks Troughs Swings and Impact
300
Energy prices are determined by the global inter-
250 play of supply and demand conditions. The effects
of energy price changes on macroeconomic variables
200
depend on their underlying drivers, as shown in the
150 seminal paper by Kilian (2009) for oil prices. Fol-
lowing this literature (see, also, Kilian and Murphy
100 2014; Baumeister and Hamilton 2019; and Känzig
50 2021), the chapter focuses on the impact of under-
lying drivers of oil prices. The focus on oil prices
0 is motivated by the observed strong co-movement
1960 65 70 75 80 85 90 95 2000 05 10 15 20
between the prices of energy commodities (Box 2.2).
Sources: Bureau of Economic Analysis; IMF, Primary Commodity Price System Underlying drivers of oil prices are uncovered from
database; and IMF staff calculations. the structural vector autoregression (VAR) for the
Note: Real oil prices are calculated by deflating the nominal price series by the US
consumer price index. global crude oil market in Baumeister and Hamilton
(2019).7 The VAR is estimated with monthly data on
global crude oil production, real oil prices, inventories,
downswing during the global financial crisis, which and global industrial production from January 1995
lasted only six months. Third, as a consequence from to May 2023.8 To identify the structural shocks, the
the absence of a minimum duration, a larger window VAR leverages insights from the economic theory on
(±24 months compared to around ±5 months in the how its variables respond to a given structural shock
business cycle literature and ±2 months in Cashin (sign restrictions) and existing empirical estimates on
and McDermott 2002) is used to identify peaks and oil demand and supply elasticity—how production
troughs. and consumption respond to exogenous price changes
Amid a strong co-movement among commodity (prior information; see Baumeister and Hamilton 2019
prices, the energy commodity group displays the for further detail). It uncovers four structural drivers of
most pronounced swings. The chapter identifies oil prices: a global economic activity shock that alters
362 upswing and 363 downswing phases for 42 com- the demand for all commodities, including oil; an oil
modities over the period from 1960 to 2023 and consumption demand shock that could, for instance,
documents strong co-movements between commodity capture changes in the preference for oil relative to
prices (Box 2.2). While price swings have comparable other energy inputs; an oil inventory demand shock
durations across commodities, energy commodities that reflects changes in demand due to precautionary
stand out regarding the magnitude of price swings, concerns about future oil supply and demand condi-
which tend to be more pronounced than for other
commodities. Energy prices typically triple during an
upswing episode and fall almost as much in a down- 7Most empirical analyses reported in this chapter are robust to
swing (Figure 2.2). In contrast, other commodity the use of alternative global economic activity and oil supply shocks
prices “only” double and nearly halve during upswings identified in the oil market VAR literature, including Baumeister
and Hamilton (2023), Känzig (2021), and an updated identification
and downswings.6
along the lines of Kilian and Murphy (2014) as described by Zhou
(2020) (see Online Annex 2.6). This chapter relies on Baumeister
and Hamilton (2019) as the baseline, since it is the most recent
comprehensive global oil market model estimated in the literature
6The magnitude of a commodity price increase (decrease) during and relies on the global industrial production index instead of a
a typical upswing (downswing) increases with the window size that freight rate index–derived measure for global economic activity, con-
is used to identify the upswing (downswing), as, typically, the larger sidering that the COVID-19 shock created a break in the historical
the window size, the longer the average duration. However, the relationship between global activities and freight rates.
findings—that commodity price swings tend to display similar dura- 8The data are adjusted to account for extreme observations during

tion, and energy prices exhibit larger swings than other commodity the COVID-19 pandemic (see Lenza and Primiceri 2022 and Online
prices—are robust to different window sizes. Annex 2.3 for more information).

40 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

tions; and an oil supply shock that is determined by an Figure 2.3. Effects of Oil Supply and Global Activity Shocks
exogenous change in the production of oil. (Percent)
The rest of the chapter focuses on two of the identi-
Global activity shock Oil supply shock (right scale)
fied structural shocks. First, it focuses on global activity 1. Real Energy Price
shocks, as those are highly correlated with the global 80 80
factor that accounts for a significant share of the vari-
ation of a broader set of commodity prices (Box 2.2; 60 60

Delle Chiaie, Ferrara, and Giannone 2022). Second, it

40 40
focuses on oil supply shocks as they pose adjustment
challenges for energy importers, which constitute the 20 20
majority of world economies.9
A local projections (LP) approach is used to estimate 0 0

normalized impulse responses to different drivers of

–20 –20
energy price variation (Jordà 2005; Jordà, Schularick, 0 4 8 12
and Taylor 2015; Stock and Watson 2018). This chap- Quarter

ter’s approach, detailed in the online annexes, uncovers 2. Oil Production

impulse responses to the structural shocks that are scaled 8 6
to increase the energy price by 10 percent on impact. In 6
contrast to the conventional VAR practice, this approach
directly regresses the macroeconomic variables at future 4 3

horizons on the current (and lagged) shocks, instead of 2

extrapolating them from estimated VAR coefficients,
0 0
and normalizes the unit effect of the structural shock
rather than its unit standard deviation.10 –2

–4 –3
Responses of Real Energy Prices, Oil Production, and 0 4 8 12
Global Industrial Production Quarter

The first set of regressions estimates the propagation 3. Global Industrial Production
of oil supply and global economic activity shocks to 15 5
real energy prices, global oil production, and global 12 4
industrial production over the 1996:Q1 to 2023:Q2 9 3
sample period.11 The regression controls for four lags 6 2
of the log changes in the global variable of interest, as 3 1
well as for contemporaneous and one-quarter lag of the 0 0
other shocks in the global oil market VAR. The results –3 –1
are presented in Figure 2.3. –6 –2
The shocks have transitory, though persistent, effects –9 –3
0 4 8 12
on energy prices and other global variables. Following
Quarter
a positive global activity shock that increases the real
energy price by 10 percent on impact, global industrial Source: IMF staff calculations.
production increases by about ¾ percent on impact, Note: Impulse responses show the effects of oil supply (in red) and global activity
(in blue) shocks that increase real energy price by 10 percent on impact with
68 and 90 percent confidence intervals.
9The effects of oil consumption demand and inventory demand
shocks on global variables and on energy exporters and importers are
similar to those of global activity shocks and are reported in Online peaking after one year before converging to zero after
Annex 2.5.
10See Online Annexes 2.1, 2.2, and 2.3 for technical details,
another year. The strong global activity leads to a period
including on the use of instrumental variables local projections (LP- of elevated energy prices, with the effect peaking three
IV) for the unit effect normalization (Stock and Watson 2018). See quarters after the shock and remaining (statistically)
Li, Plagborg-Møller, and Wolf (2024) for a discussion of advantages significant for about eight quarters. In response, oil
and disadvantages of LP vis-à-vis VAR.
11Quarterly oil shock series are computed as averages of the production picks up gradually and remains positive and
monthly shocks following Kilian, Rebucci, and Spatafora (2009). statistically significant for about six quarters. In contrast,

International Monetary Fund | 2024 41

2024 EXTERNAL SECTOR REPORT

a negative oil supply shock brings about a decline in Figure 2.4. Effects of Global Activity Shocks on Energy
global industrial production by 1 percent after eight Exporters and Importers
quarters, following some uptick in the initial quarter.12
Exporters Importers
Oil production falls somewhat more persistently, with
1. Current Account
the effects remaining statistically significant for three (Percent of GDP)
years, probably reflecting the long-lasting effect of 3
supply disruptions. Nonetheless, the response of energy 2
prices resembles the tapering (or hump-shaped) response 1
as in the case of global activity shock, with the peak
0
effect reached slightly earlier.
Given the transitory or tapering effects of underly- –1

ing shocks on energy prices and production, exporters’ –2

current accounts can be expected to improve follow- –3
ing an energy price increase, as saving would increase –4
to smooth consumption, and vice versa for energy 0 4 8 12
Quarter
importers. This expectation is borne out in the subse-
quent empirical results.13 2. Real Output
(Percent)
Impact on Exporters versus Importers 8
7
This subsection examines the impact of the two
6
shocks on individual economies, grouped into energy
5
exporters and importers.14 Adding a country fixed effect
4
to the previous specification, the effects on real, external,
3
and financial variables are estimated across a large
sample of net energy exporters and importers covered by 2

the IMF’s External Balance Assessment. The substantial 1

cross-sectional dimension helps tighten the estimation of 0

0 4 8 12
average effects for exporters and importers. Quarter
When energy prices increase by 10 percent (on
3. Real Consumption
impact) owing to a positive global activity shock, the (Percent)
average of exporters’ current account balances as a 10
share of GDP improves by 1 percentage point after
8

12This initial uptick appears to be the combined outcome of energy 6

exporters benefiting from favorable terms-of-trade effects and import-
ers initially running down their inventories to mitigate the adverse 4
effects of higher energy prices.
13In addition to these familiar effects of transitory shocks, classical
2
intertemporal models imply that an exporter’s current account
balance could deteriorate initially if shocks were to have permanent 0
positive effects on energy prices. For analogous examples discussed 0 4 8 12
for permanent productivity shocks, see Obstfeld and Rogoff (1995) Quarter
or Aguiar and Gopinath (2007). Arzeki, Ramey, and Sheng (2017) is
a case of large oil discoveries. Source: IMF staff calculations.
14A country is classified as a net energy exporter (importer) if Note: Impulse responses show the effects of a global activity shock that increases
its median net energy export share over the sample period is above real energy price by 10 percent on impact with 68 and 90 percent confidence
(below) zero. In total, our sample encompasses 11 net energy export- intervals.
ers and 33 net energy importers (see Online Annex Table 2.4.1 for
the full list of sample countries). As a robustness check of the coun-
four quarters (Figure 2.4). Importers’ current account
try group, the baseline local projection estimations are rerun using a
sample of large (top 25th percentile) and small (bottom 25th percen- balances gradually decline to reach a comparable size
tile) net energy importers. The estimation results suggest the analysis (−1 percentage point) in two years. Reflecting con-
is robust to a more selective criterion for importers. Specifically, the sumption smoothing, exporters’ saving increases tem-
impact of an oil supply shock on importers is broadly proportional
to the importer’s net energy trade balance, with no evidence of porarily with higher export revenues, thereby offsetting
nonlinearity (see Online Annex 2.4). the effects of gradually increasing investment on

42 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

Figure 2.5. Effects of Oil Supply Shocks on Energy Exporters modest increase in consumption, investment, and
and Importers output for energy importers. Consequently, import-
ers’ interest rates rise to a lesser extent, resulting in
Exporters Importers
depreciation of their exchange rates relative to energy
1. Current Account 2. Real Output
(Percent of GDP) (Percent) exporters.
2 1.0 In contrast, when energy prices increase by 10 per-
0.5
cent due to a negative oil-supply shock, importers bear
1 the brunt of the shock, given the inelastic demand
0.0 for energy and limited international risk sharing.
–0.5 Current account balance decreases (increases) for
0
energy importers (exporters), reflecting the negative
–1.0
(positive) terms-of-trade effects. The average import-
–1 –1.5 er’s current account balance as a share of GDP falls
0 4 8 12 0 4 8 12
Quarter Quarter by about 0.5 percentage point two quarters after the
shock, accompanied by a decline in saving that reflects
3. Change in NIIP Due to 4. Real Consumption consumption smoothing. Exchange rate depreciations
Valuation (Percent)
4 (Percent of GDP) 1.5 help improve the nonenergy trade balance and bring
3 1.0 about positive valuation effects on the net international
2 0.5 investment position. Capital inflows to the private
1 0.0 sector, in the form of portfolio debt, aid the adjust-
0 –0.5
ment, while capital inflows to the public sector decline
–1 –1.0
–2 –1.5
despite a higher fiscal deficit. Despite several insulating
–3 –2.0 channels against higher energy prices, importers’ real
–4 –2.5 consumption, investment, and output fall by about
0 4 8 12 0 4 8 12
Quarter Quarter
1.5, 2.5, and, 0.8 percent, respectively, after two years.
In contrast, exporters’ consumption remains broadly
5. Exchange Rate 6. Real Investment unchanged for the first two years, indicating a limit to
(Percent) (Percent)
4 3 international risk sharing (Figure 2.5).
2 2
Energy Importers under Oil Supply Shocks
1
0
0 Given the significant adverse effects of oil supply
–2 shocks on importers, this subsection explores pol-
–1
–4
–2 icy and economic factors that influence the ease of
–6 –3 adjustment by energy importers. Following Ramey and
–8 –4 Zubairy (2018) and Jordà (2023), a state-dependent
0 4 8 12 0 4 8 12 local projection approach is used, allowing for differen-
Quarter Quarter
tial responses evaluated at different policy and country
Source: IMF staff calculations. characteristics. A wide range of policy and country
Note: Impulse responses show the effects of an oil supply shock that increases characteristics can be explored, thanks to the large vari-
real energy price by 10 percent on impact with 68 and 90 percent confidence
intervals. The exporter’s nominal exchange rate is measured as the local currency ation in the panel data.15 Considering that negative oil
against the US dollar, while the importer’s nominal exchange rate is measured as supply shocks could be associated with tighter global
the local currency against the Norwegian krone. Valuation changes are calculated
as the difference between change in net international investment position (NIIP) financial conditions, this subsection also explores how
and current account. these effects differ under various financial conditions.
Tighter global financial conditions weaken importers’
capacities to borrow, necessitating greater adjustments
current account balances. Meanwhile, importers’ saving
changes little while consumption and investment
increase gradually. Despite the contrasting responses in 15State-dependent responses are estimated either by splitting the

external balances, other macro variables that include sample into corresponding subgroups or by interacting energy price
real output, consumption, investment, inflation, and changes with the continuous variable of interest and evaluating
the impulse responses using the variable’s value at its 75th and
fiscal balances increase for exporters and importers 25th percentiles. Online Annex 2.2 reports details of the regression
alike. However, higher energy prices lead to a more specification as well as additional results.

International Monetary Fund | 2024 43

2024 EXTERNAL SECTOR REPORT

to the higher energy prices, including sharper reductions and indirectly via second-round effects. When inflation
in consumption and investment. The current account expectations are better anchored, second-round effects
deteriorates by less, reflecting the weaker domestic are better contained and the central bank can adopt
demand (Figure 2.6).16 Financial tightening associated a more accommodative policy stance. This supports
with US monetary shocks leads to a more gradual investment and consumption better and allows the
downward adjustment in consumption and investment exchange rate to depreciate more to absorb the shock
than financial tightening associated with higher global (Figure 2.6).
risk aversion, reflecting a more gradual transmission of Importers with stronger external positions expe-
monetary policy shocks (Online Annex 2.7). rience larger capital inflows, shallower declines in
Cross-border investment in energy-exporting consumption and investment, and larger deteriorations
countries allows importing economies to share the in their current account balances. Stronger external
economic gains. Importers with higher foreign direct positions, measured by the IMF staff current account
investment in energy-exporting countries are found gap greater or equal to −1 percent of GDP, can reduce
to experience more positive valuation effects on their financing risks associated with running more negative
net foreign assets. This positive wealth effect allows current account balances, thereby allowing importers
importers to reduce consumption and investment to mitigate the impact of rising energy prices (Online
by less, together with a larger decline in the current Annex Figure 2.8.1).
account (Figure 2.6). Among other examined country characteristics, a
Lower government debt allows greater borrowing for lower dependence on energy imports mitigates the
energy importers, facilitating a smoother adjustment negative effects for importers.18 Importers with a lower
to the higher energy prices, including a more moderate dependence on energy imports experience smaller
decline in consumption and investment. Importers terms-of-trade effects and less deterioration in energy
with lower government debt experience a smaller trade balance. Their consumption, investment, and real
increase in borrowing costs and higher capital inflows output decline less (Figure 2.6).
to both the private and the public sectors, keeping the
credit to the nonfinancial sector broadly unchanged.
The lower decline in consumption and investment is Model Simulations: Shocks and Price Swings
accompanied by a larger decline in the current account This subsection uses the IMF’s Flexible System of
(Online Annex Figure 2.8.1). Global Models (FSGM) to examine the impact of two
More flexible exchange rate regimes allow the structural shocks—an increase in global demand and a
exchange rate to play a greater shock-absorbing role.17 decrease in global oil supply—on the global economy
Importers with more flexible exchange rate regimes and on a net oil exporter and importer. It also explores
exhibit a sharper currency depreciation, higher exports, how two characteristics—lower government debt
and shallower declines in consumption and output. and less flexible exchange rate regimes—can change
The central bank raises interest rates by less, helping the effect of oil supply shocks on oil importers. The
reduce a decline in the credit to the nonfinancial sector model-­based simulations illustrate the main trans-
(Online Annex Figure 2.8.1). mission channels and complement the analysis in the
Better-anchored inflation expectations enable central previous subsection, which empirically looks at the
banks to adopt a more accommodative policy stance, impact of these shocks.
providing more support to the real economy. Higher FSGM is an annual multiregion model of the global
energy prices increase importers’ inflation both directly economy that combines micro-founded and reduced-
form formulations of economic sectors and relation-
16Following Juvenal and Petrella (2024), this analysis uses BAA
ships. The analysis presented in this chapter uses the
spread as an indicator of global financial conditions. It measures the G20MOD module of the FSGM, which includes every
difference between the yield of 10-year US treasuries and Baa-rated Group of Twenty (G20) economy and five additional
corporate bonds. regions to cover the remaining countries in the world.
17Using a measure of exchange rate flexibility developed by Ilzetzki,

Reinhart, and Rogoff (2019), an importer is categorized as having a

flexible exchange rate if its currency floats freely. The analysis reclas- 18This chapter explores a range of other characteristics for which

sifies euro area countries as having a flexible exchange rate regime. no conclusive results are obtained. These characteristics include
Importers who are using the US dollar as a currency anchor are income per capita, institutional quality, default risks, external debt,
excluded from the analysis. and bond yields.

44 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

Figure 2.6. Effects of Oil Supply Shocks and Selected Country Characteristics
1. Current Account 2. Real Output 3. Private Inflows
(Percent of GDP) (Percent) (Percent of lagged total liabilities)

2 High BAA spread High BAA spread 1 High BAA spread 4

Low BAA spread Low BAA spread Low BAA spread
1 0 2

0 –1 0

–1 –2 –2

–2 –3 –4
0 4 8 12 0 4 8 12 0 4 8 12
Quarter Quarter Quarter

4. Current Account 5. Real Output 6. Valuation Changes Due to Asset Prices and
(Percent of GDP) (Percent) Others
(Percent of GDP)
High FDI in energy-exporting countries High FDI in energy-exporting countries High FDI in energy-exporting countries
Lower FDI in energy-exporting countries Lower FDI in energy-exporting countries Lower FDI in energy-exporting countries
1.5 1.0 4
1.0 0.5 2
0.0
0.5 0
–0.5
0.0 –2
–1.0
–0.5 –1.5 –4
–1.0 –2.0 –6
0 4 8 12 0 4 8 12 0 4 8 12
Quarter Quarter Quarter

7. Current Account 8. Real Output 9. Policy Rate

(Percent of GDP) (Percent) (Percentage point)
0.5 Better anchored Better anchored 1.0 Better anchored 1.0
Less anchored Less anchored 0.5 Less anchored
0.0 0.5
0.0 –0.5
–1.0 0.0
–0.5 –1.5
–2.0 –0.5
–2.5
–1.0 –3.0 –1.0
0 4 8 12 0 4 8 12 0 4 8 12
Quarter Quarter Quarter

10. Current Account 11. Real Output 12. Terms of Trade

(Percent of GDP) (Percent) (Percent)
1.0 High energy dependence High energy dependence 0.5 High energy dependence 1.0
Low energy dependence Low energy dependence Low energy dependence 0.5
0.5 0.0
0.0
0.0 –0.5 –0.5
–1.0
–0.5 –1.0
–1.5
–1.0 –1.5 –2.0
0 4 8 12 0 4 8 12 0 4 8 12
Quarter Quarter Quarter

Source: IMF staff calculations.

Note: Impulse responses show the effects of an oil supply shock that increases real energy price by 10 percent on impact with 68 and 90 percent confidence
intervals. High/low BAA spread represents the impact of an oil supply shock evaluated with BAA spread at its 75th/25th percentile. High FDI in energy-exporting
countries refers to importers with FDI in Saudi Arabia as a share of GDP above the median of all importers. Valuation changes due to asset prices and other statistical
changes reflect the change in valuation excluding changes due to exchange rate movements (see Allen, Gautam, and Juvenal 2023). Better/less anchored inflation
expectations refer to energy importers with their measure in Bems and others (2021) at the 75th/25th percentile. High/low dependence denotes importers with their
median energy import share at the 75th/25th percentile of the sample median. FDI = foreign direct investment.

International Monetary Fund | 2024 45

2024 EXTERNAL SECTOR REPORT

The following model features are particularly relevant Figure 2.7. Impulse Responses to an Oil Supply and a Global
for the chapter’s analysis (see Andrle and others 2015 Activity Shock in the Flexible System of Global Models
for a detailed discussion of the FSGM).
Oil supply shock Oil exporter Importer (managed floating)
• Commodity sector. The model incorporates three Global demand shock Oil importer Importer (low debt)
types of commodities—oil, food, and metals, 1. Real Oil Prices 2. World Real Output
whose prices are determined by global supply and (Percent change) (Percent change)
12 1.4
demand conditions. Commodity prices affect real 1.2
10
economic activity primarily through three channels: 1.0
8 0.8
(1) higher commodity prices lead to higher inflation 6 0.6
4 0.4
which deflates real household income and wealth, 0.2
2
(2) higher commodity prices increase cost of pro- 0
0.0
–0.2
duction and decrease hiring by firms, and (3) higher –2 –0.4
commodity prices can trigger second-round effects, 2024 25 26 27 28 29 2024 25 26 27 28 29

leading central banks to tighten monetary policy. 3. Current Accounts under 4. Real Output under
Commodities are priced in US dollars. Global Activity Shocks Global Activity Shocks
(Percentage point of (Percent change)
• Monetary authorities and interest rates. For most GDP change)
countries, monetary policy is represented by an 0.7 1.4
interest rate reaction function (an inflation-­forecast- 0.6 1.2
0.5 1.0
based rule), operating under a flexible exchange rate 0.4 0.8
regime. The reaction function can be also adjusted 0.3 0.6
0.2 0.4
to replicate less flexible exchange rate regimes. Inter- 0.1 0.2
est rates, including those relevant for consumption 0.0 0.0
–0.1 –0.2
and investment, are related to the monetary policy 2024 25 26 27 28 29 2024 25 26 27 28 29
rate but subject to various risk premiums.
5. Current Accounts under 6. Real Output under
• External sector. Domestic and foreign trading part- Global Activity Shocks Oil Supply Shocks
ners’ demand and exchange rate determine exports (Percentage point of (Percent change)
and imports. Investment decisions of firms, saving GDP change)
0.20 0.15
decisions of households, and fiscal policy determine 0.15 0.10
0.10 0.05
the current account. Exchange rates are determined 0.00
0.05
by the interest rate parity condition in the short run 0.00 –0.05
–0.10
and by external sustainability in the long run. –0.05 –0.15
–0.10 –0.20
–0.15 –0.25
The model simulations consider a temporary shock –0.20 –0.30
2024 25 26 27 28 29 2024 25 26 27 28 29
to private domestic demand that is applied equally to
all countries and an exogenous temporary reduction in 7. Current Accounts under 8. Real Output under
oil supply that is applied equally to all oil-producing Oil Supply Shocks Oil Supply Shocks
(Percentage point of (Percent change)
countries, leading to a temporary increase in oil prices. GDP change)
Both shocks are calibrated such that real global oil 0.2 0.2
prices increase by 10 percent on impact. Figure 2.7 0.1 0.1
presents the simulation results on key variables for 0.0 0.0
–0.1 –0.1
an oil exporter and importer, both with a flexible
–0.2 –0.2
exchange rate regime.
–0.3 –0.3
The global activity shock is associated with an
–0.4 –0.4
increase in output for both exporters and importers, 2024 25 26 27 28 29 2024 25 26 27 28 29
while raising oil prices. Higher oil prices improve the
Source: IMF staff calculations.
current account of oil exporters and initially deteriorate Note: The panels depict the impact of oil supply and global activity shocks on real
the current account of oil importers, while output and oil prices, world real output, and on a representative oil exporter and importer.
Moreover, the impact of oil supply shocks on importers with lower government
consumption of both exporters and importers increase debt and more fixed exchange rate regime (managed floating) are illustrated in
on the force of global activity (demand) shock. Higher panels 7 and 8.
aggregate demand raises inflation, prompting monetary

46 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

authorities to raise policy rates. For oil importers, banks to implement a more accommodative monetary
however, higher oil prices lead to a more moderate policy and allow the exchange rate to act more force-
improvement in consumption, investment, and output. fully as a shock absorber that provides support to the
Their exchange rates depreciate vis-à-vis oil exporters, domestic economy. Lower government debt and stron-
because their interest rates rise less. The depreciation ger external positions help maintain investors’ confi-
improves the non-oil trade balance of importers, albeit dence, thereby enhancing importers’ ability to borrow
falling short of offsetting the decline in the oil trade and mitigate the adverse effect on consumption and
balance. investment, with less need to curtail domestic demand.
A negative shock to oil supply raises oil prices while Finally, policies aimed at reducing energy imports,
lowering global output, thereby creating a divergence such as improvements to energy efficiency, would help
between oil importers and exporters. Faced with a limit importers’ exposure to energy price swings.
higher headline inflation and a weaker terms of trade,
oil importers experience a decline in household real
income and consumption, lower investment by firms, Looming Challenges
and a negative output gap. The central bank eases in Energy price swings have traditionally been posing
response to economic downturn, also reflecting a limited a greater adjustment challenge for energy importers
pass-through of oil prices to core inflation. Despite the than for exporters. While importers had to grapple
currency depreciation and weak growth that help with with limiting the adverse consequences of negative
net exports, the current account balance deteriorates due supply shocks, exporters have benefited from the boost
to a higher energy import bill. In contrast, higher oil to prices that added to their buffers. In the coming
prices bring about increased consumption, investment, years, however, two emerging changes could alter the
output, and current account in oil-exporting countries. landscape of the global energy and critical metal mar-
An importer with lower government debt tends to kets, potentially posing new adjustment challenges to
experience tapered adverse effects following negative exporters of these commodities as well as to importers.
oil supply shocks. Faced with lower borrowing costs One is the reversal of the traditional negative correla-
(reflecting lower risk premiums due to lower govern- tion between the oil price and the US dollar, which
ment debt), firms reduce investment and employ- would most likely amplify the volatility of terms of
ment to a lesser extent, resulting in higher real wages trade resulting from energy price swings, as energy
and household consumption than those with higher commodities are priced primarily in US dollars. The
government debt. Consequently, the stronger domestic other is the clean energy transition that can have lasting
demand, compared with importers that have higher effects on the exporters of fossil fuels and several critical
government debt, leads to higher inflation and mone- metals. This section discusses several leads on external
tary tightening, which in turn appreciates the currency. sector developments and potential policy implications
The stronger currency and domestic demand dampen of these two emerging changes, while they harbor large
exports and strengthen imports, worsening net exports uncertainty and would be intertwined with individual
and expanding external borrowing. country characteristics, calling for further analysis.
Importers with less flexible exchange rate regimes
(managed floating) are associated with larger adverse
effects. In response to the exchange rate depreciation Oil Price and the US Dollar
following oil supply shocks, the central banks raise Following two decades of stable and negative cor-
policy rates to stabilize the exchange rate. Higher relation, the correlation between the oil price and the
interest rates dampen consumption and output and US dollar has turned positive since 2020 (Figure 2.8).
reduce the depreciation of importer currency, with the The observed change can be related to three develop-
latter reducing the medium-term improvement in the ments without excluding complementary or alternative
current account. explanations (Box 2.3).19 First, the shift of the United
The econometric and model analyses illustrate
the policies that importers can use to mitigate some 19Another possible explanation could be related to the strong US

adverse spillovers from energy price swings (see also economy in the recent period, which has led to higher interest rates
and a stronger US dollar, while the strong US economy could have
Box 2.1). More anchored inflation expectations and contributed to raising oil prices via positive spillovers to the global
a more flexible exchange rate regime enable central economy.

International Monetary Fund | 2024 47

 2024 EXTERNAL SECTOR REPORT

Figure 2.8. US Oil Trade Balance and Rolling Correlations diversification, the change in the correlation will likely
between Oil Price and the US Dollar add the stabilizing role to the traditional benefit of
pegging in terms of providing a robust nominal anchor
1
US oil trade balance (percent of GDP) (Frankel 2019).
Correlation between US dollar and oil price
On the downside, the shift in the US dollar–oil price
0 correlation from negative to positive numbers could call
for a reassessment on the currency composition of gov-
–1 ernment’s external assets and liabilities, in terms of the
trade-off among multiple objectives. For countries with
–2 sovereign wealth funds long on the US dollar, owing
to the higher share of dollar-denominated assets, the
valuation change of their external wealth moves in the
–3
same direction as the oil price, which will likely increase
the cost (in US dollar terms) of fiscal stimulus when the
–4
2000:M1 05:M1 10:M1 15:M1 20:M1 oil price falls (compared to the situation with a negative
correlation between the US dollar and the oil price).20
Sources: Federal Reserve Board; IMF, Primary Commodity Price System database; For net oil importers with a floating exchange rate,
Trade Data Monitor; and IMF staff calculations.
Note: The red line illustrates the rolling correlation between oil price and the US the positive US dollar–oil price correlation would
dollar with a 36-month window spanning from January 2000 to May 2023. The amplify the terms-of-trade shock due to oil prices.
blue line represents the US oil trade balance.
They face the dual challenge of rising oil prices (in US
dollar terms) and a weaker local currency vis-à-vis the
States to a net exporter of oil since early 2020 offers dollar. A tighter monetary policy than under a negative
one potential explanation. Second, the BAA spread US dollar–oil price correlation could be needed to
also helps to account for the positive correlation since head off higher inflation in spite of larger real income
2020, suggesting a relevant role of global risk aver- falls. The negative consequences on output are likely to
sion. Another contributing factor (potentially related be larger in countries with larger second-round effects
to the second) can be found in the change in foreign that would require tighter monetary policy (see Chap-
investors’ purchases of US assets. Since 2020, foreign ter 2 of the October 2022 World Economic Outlook).
investors tended to increase their holdings of US Downward pressure on activity will be partly offset
assets—predominantly US treasuries—following an by the export stimulus coming from the depreciated
oil price increase. This increase in the demand for US currency (vis-à-vis the dollar), especially if exports are
assets can exert upward pressure on the US dollar, all priced in the producer currency. This offset via exports
else being equal. If this change in investment behavior will be curtailed if exports are predominantly priced in
were due to the heightened risk aversion following the US dollar. On the other hand, the import-reducing
the COVID-19 pandemic, its effect on the positive effect of the depreciated currency would be larger if
correlation could dissipate, while there could be other imports are priced in the US dollar rather than in local
more persistent causes of the change in investment currency or non-US-producer currency (Gopinath and
behavior. In contrast, the transition of the United Itskhoki 2022).
States to a net energy exporter would likely have a For oil importers with short (net) exposure to the
more persistent effect. US dollar, the positive US dollar–oil price correlation
If the shift to a positive correlation between the US means that a depreciation of the local currency (vis-
dollar and the oil price were to be permanent, it could à-vis the dollar) will tend to have a negative valuation
strengthen the stabilizing role of the exchange rate for effect, leading to a higher cost of servicing foreign
an oil exporter that pegs its currency to the dollar. As currency–denominated liabilities (Krugman 1999).
the currency appreciates with the oil price increases, These negative balance sheet effects can also threaten
it helps cool the economy and stave off inflation pres-
sure. There arises less need for fiscal tightening. The 20For some of the Gulf Cooperation Council countries (Kuwait,

reverse channel operates when the oil price decreases. Qatar, Saudi Arabia, United Arab Emirates) and other oil exporters
(Iraq, Libya) during oil price drops in 1978, 2008, and 2014, fiscal
While the strength of this channel depends on country policies turned procyclical due to lack of fiscal space (see Mazarei
characteristics, including the degree of economic 2024).

48 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

financial stability (Bruno and Shin 2015). According to new sectors. More generally, structural reforms to
to Allen, Gautam, and Juvenal (2023) and the 2023 create a policy environment in which the private sector
External Sector Report, the share of emerging mar- can respond more dynamically to opportunities would
kets falling in this category, on the basis of aggregate facilitate the growth of private businesses in other
balance sheets, has been shrinking over the past two less-carbon-intensive and emerging green sectors (see
decades. However, vulnerabilities remain in some Budina and others 2023; Mesa Puyo and others 2024
countries, in particular with currency mismatches in for further discussion). Critical mineral exporters,
portfolio debt. For net oil importers with their cur- on the other hand, should mitigate the risks of the
rency pegged to the US dollar, the positive correlation resource curse by improving their fiscal capacity to
will hamper the exchange rate’s ability to cushion the prudently manage the windfalls from higher commod-
effects from oil price swings. ity exports and reducing structural barriers to promote
economic diversification (IMF 2012; Chapter 4 of the
April 2012 World Economic Outlook).
Clean Energy Transition
The clean energy transition requires a major trans-
formation of the energy system from fossil fuels to Conclusion
renewable energy. Global fossil fuel production and This chapter documents the key characteristics of
consumption would need to decrease substantially commodity price swings and takes an in-depth look
to limit global temperature increases below 2 degrees into the consequences of shocks to energy prices, given
Celsius by 2050. At the same time, the clean energy their high volatility and the critical role of energy
transition would substantially boost the demand for commodities in the global economy. While commodi-
critical metals such as copper, nickel, cobalt, and ties generally experience comparable durations of price
lithium, which are key materials for renewable energy swings, energy commodities exhibit more pronounced
facilities and electric cars (see, for example, Chapter 3 swings, with prices nearly tripling during a typical
of the October 2023 World Economic Outlook). upswing and falling by as much during a subsequent
The transition would entail a mix of policies that downswing. Many countries rely on imports for their
constitute shocks to commodity markets. Given the critical need for energy, given its high geographic con-
large uncertainty around policies and technological centration of production. As a result, shocks to energy
changes, a stylized analysis in Box 2.4 models the prices have appreciable effects on the global economy
energy transition as a permanent change in the relative and the adjustment in external balances.
price of fossil fuels and critical metals, which results The effect of energy price swings varies both with
from a mix of policies that reduce the demand for the source of shocks to energy prices and with the
fossil fuels and increase demand for critical metals. characteristics of individual economies. When hit by a
The clean energy transition is likely to bring about negative oil supply shock, energy prices increase, and
initially stronger current account balances and grad- energy importers face the unenviable challenge of cush-
ually weakening economic performance for fossil fuel ioning the adverse effects on the economy and trade
(for example, oil) exporters and the opposite effects for balances. Possible mitigating policy responses include
critical metal (for example, copper) exporters. greater exchange rate flexibility, lower government
In light of major shifts in energy-related global com- debt, and having a stronger external buffer, among
modity trade arising from the clean energy transition, others. Policies that promote greater financial integra-
exporters need to formulate adequate policy responses tion, including strengthening the global financial safety
to address the economic consequences. For fossil fuel net, could foster greater international risk sharing and
exporters, the transition will involve a reallocation of reduce the adverse effects on energy importers. When
resources across sectors, as the extractive industries, hit by other shocks that increase energy prices, such
as well as those that rely heavily on carbon-intensive as stronger global activity, importers fare worse than
inputs, would be the most affected (Chen and others exporters but do not face as large adverse conse-
2020). Policymakers will need to facilitate this reallo- quences, with output and consumption still rising,
cation of resources, including via active labor market though less than those of exporters.
policies focused on job search assistance and retraining Going forward, close attention is warranted for the
to help workers in the fossil fuel industry transition evolving correlation between the US dollar and the

International Monetary Fund | 2024 49

2024 EXTERNAL SECTOR REPORT

oil price and for the implications of the clean energy oil prices and be subject to larger financial stability
transition for affected commodity exporters. Were the risks in countries with net short exposure to the US
correlation between the US dollar and the oil price to dollar. Were the clean energy transition to proceed at
permanently change to a positive one (in a break from the desired speed, fossil fuel exporters would need to
the negative correlation over the last two decades), facilitate the reallocation of resources toward low-­
dollar-pegging oil exporters could see a marginal carbon sectors, while critical mineral exporters should
increase in the cost of conducting countercyclical fiscal enhance their fiscal capacity to manage windfalls from
policies during a decline in oil prices. Oil importers higher commodity exports, complemented by struc-
would experience larger terms-of-trade shocks due to tural policies to promote economic diversification.

50 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

Box 2.1. Impact of the Recent Energy Price Shock on the EU Manufacturing Sector
The European Union, as a significant net energy Figure 2.1.2. Energy Cost in European
importer, faced a monumental challenge when Russia’s Manufacturing
invasion of Ukraine triggered an unprecedented increase (US dollars per unit of gross value added)
in energy prices amid supply disruptions. At their
peak in August 2022, the wholesale prices of natural 1. Manufacturing (aggregate), 2000–22
gas, coal, and electricity skyrocketed by 1,100 percent, 0.20 Energy (price)
600 percent, and 1,600 percent, respectively, compared Energy (tax)
to their 2019–21 average (Figure 2.1.1). This box delves 0.15
into the repercussions of this energy price upheaval
on the energy costs—measured by the share of energy 0.10
expenditures in gross value added—of the manufactur-
ing sector—one of the sectors most profoundly affected
0.05
by such shocks—across a multitude of European econo-
mies. This box makes a compelling case study to explore
the ramifications of supply-driven energy price swings 0.00

France
Germany
Japan
United Kingdom
United States
France
Germany
Japan
United Kingdom
United States
France
Germany
Japan
United Kingdom
United States
France
Germany
Japan
United Kingdom
United States
France
Germany
Japan
United Kingdom
United States
on a major net energy importer.
The impact goes through several steps and depends
on various factors, including energy mix and intensity,
2000 2010 2020 2021 2022
which vary across countries and sectors, thereby having
differential effects on manufacturing output (André and 2. Manufacturing Subsectors, 2022
others 2023). The first step is the pass-through from 0.80 Energy (price)
wholesale to retail energy prices. In the case of natural Energy (tax)
gas, the correlation between contemporary wholesale 0.60
and (pretax) retail prices is 0.81 in our sample of Euro-
pean countries. The second step is how the differences
0.40

0.20
Figure 2.1.1. Wholesale Energy Prices in Europe
(Index; average January 2019–September 2021 = 100)
1,800 0.00
Natural gas
France
Germany
Japan
United Kingdom
United States

France
Germany
Japan
United Kingdom
United States

France
Germany
Japan
United Kingdom
United States

France
Germany
Japan
United Kingdom
United States
1,600 Electricity
1,400 Coal
1,200 Oil
1,000 Mineral Basic Chemicals Paper
800 products metals
600
400 Sources: International Energy Agency (2023a, 2023b, 2023c);
and IMF staff calculations.
200 Note: The calculation of the energy cost accounts for the
0 composition of the energy mix and the energy intensity of a
–200 sector. Energy prices used in the calculation are end-use
Jan. 2021
Apr. 21
Jul. 21
Oct. 21
Jan. 22
Apr. 22
Jul. 22
Oct. 22
Jan. 23
Apr. 23
Jul. 23
Oct. 23
Jan. 24

(after-tax) prices for industry. Data for the “chemicals” and

“paper” sectors in Japan are unavailable.

Sources: Argus Media; Ember; Haver Analytics; and IMF staff in taxes and levies impact the after-tax retail energy
calculations. prices (Sato and others 2019). For instance, for electric-
Note: Natural gas refers to the Dutch TTF natural gas forward
index; electricity refers to the average wholesale price of
ity in 2021, taxes and charges represented 4 percent of
electricity in Central Western Europe; oil refers to Brent Crude retail prices in the United Kingdom and 48 percent in
Oil; coal refers to coal ARA 6000 kcal NAR cif London close Germany. The final step is to combine information on
(midpoint) contract.
the retail energy price with that on energy consumption
mix and energy intensity to calculate the energy cost of
This box was prepared by Geoffroy Dolphin. manufacturing sectors (Figure 2.1.2, panel 1).

International Monetary Fund | 2024 51

2024 EXTERNAL SECTOR REPORT

Box 2.1 (continued)

Energy cost in European countries increased by the energy price shock. Despite the much larger energy
3 percentage points on average in 2022 from 7 percent price increase in Europe, the average increase in manu-
of the gross value added in 2021. Natural gas and elec- facturing sector energy costs is broadly comparable with
tricity prices were the main drivers, mainly reflecting that of other non-EU countries. Reductions in taxes
their high share in the manufacturing energy mix. For alleviated the burden on manufacturing firms, attenuat-
instance, they together account for 70 and 80 percent ing the overall impact.
of energy consumed by manufacturing sectors in Historically, taxes account for a sizable share of
France and Germany, respectively. the increase in the energy cost incurred by European
There is a large heterogeneity across manufacturing manufacturing firms. In 2021, the cost incurred as
subsectors and countries (Figure 2.1.2, panel 2). Sub- a result of taxes and fees ranged between 4 percent
sectors such as basic metals production, characterized by (United Kingdom) and 40 percent (Germany) of
high energy intensity, incur significantly higher energy the total energy cost. These values reduced to 3 to
costs, amounting to 60 to 70 percent of the gross value 10 percent in 2022–23 as governments reduced taxes
added. Likewise, the increase in energy costs also varies and introduced other mechanisms to help manufactur-
across countries. For example, the German manufac- ing sectors cope with the increased energy prices. The
turing sector experienced the largest increase (pretax), fiscal measures provided important short-term relief,
while the smallest was observed in France. Government but—if sustained—would reduce firms’ incentives to
interventions played a role in mitigating the impact of improve their energy efficiency.

52 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

Box 2.2. Co-Movements between Commodity Prices

This box provides new empirical evidence on Figure 2.2.2. Correlation of First Principal
the co-movement between commodity prices. To Component with Commodity Prices
investigate commodity price co-movements, the box
1.0
employs a principal components analysis (PCA) of 39 0.8
monthly real commodity prices over the period from 0.6
1980 to 2023.1 The first two components explain 0.4
a significant share of the variance of commodity 0.2
0.0
prices: 40 percent for the first component alone and
–0.2
60 percent for the first two components. This result –0.4 Total Energy
holds across commodity subgroups (food versus other Metals Food
–0.6
Agricultural
commodities) and over subperiods. In particular, –0.8
unlike Delle Chiaie, Ferrara, and Giannone (2022), –1.0

All commodities
Coal
Crude oil
Natural gas
Tin
Copper
Gold
Iron ore
Lead
Uranium
Nickel
Zinc
Aluminum
Soybean oil
Soybeans
Maize corn
Fishmeal
Palm oil
Soybean meal
Sunflower oil
Rice
Barley
Groundnut
Cocoa beans
Bananas
Sugar
Wheat
Beef
Poultry chicken
Coffee
Oranges
Tea
Fish salmon
Olive oil
Shrimp
Lamb
Rubber
Wool
Cotton
Hardwood
Hides
Softwood
Swine pork
who focus on pre- versus post-2000, we do not find a
trend increase in co-movement over time, noting the
co-movement between commodity prices is sensitive
to the selection of the sample period (Figure 2.2.1). Source: IMF staff calculations.

Further, we characterize the first component of

the principal components analysis through simple shocks followed by oil consumption demand, oil
correlations. As shown in Figure 2.2.2, we find that inventory demand, and oil supply shock. There are
the first component is highly correlated with energy several reasons why commodity prices co-move:
prices (0.79 on average), with metals prices (0.74 on • Energy is a crucial input for production and trans-
average), and with food prices (0.50). In contrast, portation of all commodities. Agriculture and mining
other components are much less correlated with are now mostly mechanized. At the global level, oil,
commodity prices. Moreover, the first factor displays natural gas, and coal represent around 80 percent of
the highest correlation with the global activity total energy consumption. In addition, natural gas is
a key input for the production of fertilizer and most
chemical products. Therefore, changes in the price
Figure 2.2.1. Cumulative Explanatory Power of of energy commodities (oil, natural gas, coal) prices
Components tend to pass through to other commodity prices.
(Percent)
• Substitution effects between similar commodities
100 (such as oil and natural gas or wheat and corn)
90 tend to equalize prices between these commodities.
Competition between uses can have the same effect:
80
land can be used to grow crops for either food or
70 bio-fuel demand, creating a transmission channel
1980–2023
60 1980s between oil and crop prices (see, for example, Bau-
50 1990s meister and Kilian 2014).
2000s • Commodity prices share common drivers, namely
40 2010s
global activities. For instance, China’s demand in
30 particular has played a growing role, given its rapid
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
development and urbanization, which has resulted
Source: IMF staff calculations. in higher demand for many commodities such as
Note: The vertical axis displays percentage of the model explained by oil, copper, and iron ore (see, for example, Gauvin
the principal component analysis. The horizontal axis displays the and Rebillard 2018).
number of components used in the model.
• Finally, commodities have been increasingly used as
financialized assets (Tang and Xiong 2012). Index
This box was prepared by Cyril Rebillard.
investment into commodities has triggered an
1Excluding natural gas, not available before 1992; coal, not increase in correlation across commodity prices (for
available before 1990; and fish meals, not available after 2018. those commodities included in the index).

International Monetary Fund | 2024 53

2024 EXTERNAL SECTOR REPORT

Box 2.3. The Evolving Correlation between the US Dollar and the Oil Price
This box evaluates the evolving correlation between the Figure 2.3.1. US Oil Trade Balance and Rolling
US dollar and the oil price and explores potential factors Correlations between Oil Price and the US Dollar
that contributed to the observed positive correlation since
early 2020 and, occasionally, before 2000. Three factors 1
are offered as potential explanations that warrant further
0
investigation, without precluding alternative or comple-
mentary explanations. –1

–2
The (monthly) correlation between the US
dollar and the oil price has varied over the last five –3 US oil trade balance (percent of GDP)
decades. From the 1970s to the 1990s, the correla- Correlation between US dollar and oil price
–4
tion alternated between positive and negative signs. 1970:M1 80:M1 90:M1 2000:M1 10:M1 20:M1
Since the 2000s, the correlation remained negative
Sources: Federal Reserve Board; IMF, Primary Commodity Price
for two decades, wherein a rise (fall) in oil prices System database; IMF, World Economic Outlook database; Trade
coincided with a depreciation (appreciation) of the Data Monitor; and IMF staff calculations.
Note: The red line illustrates the rolling correlation between oil price
US dollar. Recently, however, this long-standing and the US dollar with a 36-month window spanning from January
negative correlation has shifted, turning positive 1973 to May 2023. The blue line represents the US oil trade balance.
Monthly US oil trade balance data are available from 1990. Prior to
since the early 2020s (Figure 2.3.1). 1990, annual US oil trade balance data are used.
The changing correlations between the US
dollar and the oil price can be examined through
the prism of the distinct response of the US dollar and positive (2020:M1 to 2023:M5, post-2020) US
to oil price shocks, mimicking a regime change. dollar–oil correlations.2
Using monthly data spanning from January 1975 These patterns of correlations are associated
to May 2023, this box estimates the US dollar with three factors as potential explanations, with
response to the four structural shocks identified no claim of being conclusive or exclusive: for the
from Baumeister and Hamilton (2019)—oil post-2020 correlation, the shift of the United States
supply shocks, oil consumption demand shocks, from a net oil importer to a net exporter; and for
oil inventory demand shocks, and global eco- the longer sample period, bouts of high global risk
nomic activity shocks—on a rolling sample with a aversion and changes in foreign investors’ purchase
36-month window.1 of US assets.
During periods of positive correlation between First, the shift of the correlation observed
the US dollar and the oil price, the US dollar in early 2020 coincided with the United States
appreciates in response to negative oil supply shocks transitioning from a net oil importer to a net oil
that lead to an oil price increase, while the US exporter, which is consistent with the historically
dollar shows no significant response to the other estimated response of oil exporter and importer
three shocks. In contrast, during periods of negative currencies to negative supply shocks. This inter-
correlation, the US dollar depreciates in response to pretation is also supported by the rolling window
any of the four structural shocks that increases the regressions that control for the US net oil import
oil price. Figure 2.3.2 illustrates this contrast for the share, which find the dollar responding less to
US dollar response to oil supply and global activity negative oil supply shocks, with the strongest
shocks over two subperiods with negative (2000–19) effect estimated in the post-2020 samples (Online
Annex Figure 2.9.1).

This box was prepared by Ting Lan.

1A rolling window time series instrumental variables local

projections is estimated using a rolling sample with a 36-month 2The US dollar’s response to oil consumption and inventory

window (see Online Annex 2.2 for technical details). The results demand shocks mirrors its response to global economic activity
are robust to alternative window sizes. shocks.

54 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

Box 2.3 (continued)

Figure 2.3.2. Impact of Oil Price Shocks on the Figure 2.3.3. Responses of Foreign Investors’
US Dollar over Different Sample Periods Net Purchase of US Assets Following Negative
(Percent) Oil Supply Shocks
(Percent of US GDP)
1. Impact of Oil Supply Shocks
3 2000–19 sample period Post-2020 sample period Treasury bonds Agency bonds Corporate bonds
2 Corporate equity Net purchases
1
0 1. Positive Correlation Periods
–1 1.0
–2
–3 0.8
–4 0.6
–5
–6 0.4
–7
–8 0.2
0 4 8 12 16 20 24
Month 0.0
–0.2
2. Impact of Global Activity Shocks

1980s
1990s
2020s
1980s
1990s
2020s
1980s
1990s
2020s
1980s
1990s
2020s
2000–19 sample period Post-2020 sample period
10 (right scale) 2 Month 0 Month 1 Month 2 Month 3

5 1 2. Negative Correlation Periods

0 0 0.02

–5 –1
0.01
–10 –2
–15 –3 0.00

–20 –4
0 4 8 12 16 20 24 –0.01
Month
–0.02
1989–92

2000–19

1989–92

2000–19

1989–92

2000–19

1989–92

2000–19
Source: IMF staff calculations.
Note: Impulse responses show the effects of an oil supply shock or a
global activity shock that increases oil price by 10 percent on impact
with 68 and 90 percent confidence intervals in a time series local Month 0 Month 1 Month 2 Month 3
projections exercise, using different sample periods.
Sources: Federal Reserve; and IMF staff calculations.
Note: The panels illustrate the foreign investors’ net purchase of
the US assets for the first three months following a negative oil
Second, the increase in global risk aversion can supply shock that increases real oil price by 1 percent on impact,
also be a potential contributing factor to the posi- during positive and negative correlation periods, respectively.
tive correlation. Comparison of rolling regressions
indicates that during periods with a positive US
dollar–oil correlation (such as 1976, 1987, 1997, Another potential explanation can be found in
and post-2020), the US dollar appreciates less in the change in foreign investors’ purchase of US
response to a negative oil supply shock, after con- assets, which turned from net sales to net purchases
trolling for the global risk aversion—measured by during the periods of positive correlation between
the residual obtained from regressing BAA spreads the US dollar and the oil price (Figure 2.3.3).
on US monetary policy shocks3 (Online Annex During the positive correlation periods, foreign
Figure 2.9.2). net purchase of US assets was estimated to be
positive in response to a negative oil supply shock
3The result is robust to alternative measures of global risk
while having had little responses to the other three
aversion, including short-term volatility indexes and the high- shocks. This increased demand for US assets can
yield corporate bond spread. exert upward pressure on the US dollar, all else

International Monetary Fund | 2024 55

2024 EXTERNAL SECTOR REPORT

Box 2.3 (continued)

being equal.4 During negative correlation periods, behavior could be associated with the heightened
including most of the 2000s, foreign net purchase global risk aversion, as foreign investors seek the
of US assets was negative in response to all four relative safety of US assets. Nor do they preclude
types of shocks that increase the oil price. other contributing factors. For example, investor
These three factors are neither mutually exclu- behavior changes can be associated with other
sive nor exhaustive. The change in foreign investor macroeconomic developments, such as a larger
interest rate differential due to relatively tight
4Several papers have shown that changes in the relative
US monetary policy. More generally, the well-
demand for US assets can affect asset prices, including exchange known challenge of accounting for exchange rate
rate and government bond yields under segmented market movements applies to this question about the US
assumptions (for example, Greenwood and Vayanos 2014 and dollar–oil price correlation, calling for further
Koijen and Yogo 2020). It should also be noted that the United
States shifting to a net energy exporter could be one reason for investigation of other channels and statistical
this change in investment behavior. evidence.

56 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

Box 2.4. Macroeconomic Impact of Energy Transition: The Case of Commodity Exporters
This box draws on IMF’s Flexible System of Global tive major oil exporters. Figure 2.4.1 shows results in
Models (FSGM) to explore the potential macroeconomic percent deviations from the current World Economic
and external sector effects of a global transition to clean Outlook baseline. Permanently lower oil prices reduce
energy technologies on commodity exporters, differentiat- the return on capital, leading firms to cut investment
ing between exporters of fossil fuels (an input of the old sharply and for an extended period of time until a
emission intensive technology) and exporters of critical lower desired level of capital is reached. These firms
metals (an input of the new and clean technology). also cut their demand for labor, reducing household
income and consumption. Central banks cut the
The energy transition is considered heuristically as interest rate to support the economy, while the real
policies (for example, carbon taxation or subsidies for exchange rate depreciates to facilitate the adjustment.
electric cars) that reduce the demand for fossil fuels As such, real exports of noncommodities improve and
relative to the demand for critical metals. The resulting real imports fall. The large drop in investment implies
energy transition is simulated in a stylized manner as an improvement in the current account balance, while
a permanent 20 percent decline in the real price of output declines incrementally.
oil and a permanent 20 percent increase in the real Macroeconomic impact on exporters of metals. The
price of copper—a critical metal for green transition. impact on exporters of metals is analyzed using a
The findings of the box are broadly consistent with version of FSGM for Latin America. Simulations are
other, more structural analyses (Carton and others shown for Chile, which is the largest world exporter of
2023; Chapter 3 of the October 2022 World Economic copper, one of the metals that stands to gain the most
Outlook), which used alternative global structural from the clean energy transition. As in the previous
models to directly analyze the effects of a set of mit- simulation, results are shown in percent deviation
igation policies, including carbon taxation and green from the current World Economic Outlook baseline
subsidies to the renewable sector. However, this box (Figure 2.4.2). In response to permanently higher
goes beyond these studies to highlight the potential copper prices, the exporter’s current account turns
implications for a major copper exporter. sharply negative, driven by a large investment boom in
Macroeconomic impact on exporters of fossil fuels. The the copper-producing industry. In addition to higher
impact on oil exporters is analyzed using G20MOD, investment, firms hire more workers, resulting in
a version of FSGM that includes a bloc of representa- higher consumption and rising real output in combi-
nation with the investment boom. Central bank hikes
This box was prepared by Jiaqian Chen, Rafael Portillo, and interest rates and real exchange appreciates, contribut-
Pedro Rodriguez. ing to weaker real exports and trade balance.

International Monetary Fund | 2024 57

2024 EXTERNAL SECTOR REPORT

Box 2.4 (continued)

Figure 2.4.1. Impulse Response to a Permanent Figure 2.4.2. Impulse Response to a Permanent
Decline in Global Real Oil Prices in the Flexible Increase in Global Real Copper Prices in the
System of Global Models Flexible System of Global Models
1. Real Output 2. Real Private Investment 1. Real Output 2. Real Private Investment
(Percent difference from (Percent difference from (Percent difference from (Percent difference from
baseline) baseline) baseline) baseline)
2 5 4 20
1 0 3 15
0 –5
2
–1 –10 10
1
–2 –15 5
0
–3 –20
–1 0
–4 –25
–5 –30 –2 –5
t+1
t+2
t+3
t+4
t+5
t+6
t+7

t+1
t+2
t+3
t+4
t+5
t+6
t+7

t+1
t+2
t+3
t+4
t+5
t+6
t+7

t+1
t+2
t+3
t+4
t+5
t+6
t+7
t

t
3. Real Effective 4. Current Account Balance 3. Real Effective 4. Current Account Balance
Exchange Rate to GDP Exchange Rate to GDP
(Percent difference (Percentage points (Percent difference (Percentage points
from baseline, difference from baseline) from baseline, difference from baseline)
+ = appreciation) + = appreciation)
2 2.5 6 0.5
0 0.0
2.0 4
–2
–4 –0.5
1.5 2
–6 –1.0
–8 1.0 0
–1.5
–10
0.5 –2 –2.0
–12
–14 0.0 –4 –2.5
t+1
t+2
t+3
t+4
t+5
t+6
t+7

t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+1
t+2
t+3
t+4
t+5
t+6
t+7

t+1
t+2
t+3
t+4
t+5
t+6
t+7

t
t

Source: IMF staff calculations. Source: IMF staff calculations.

Note: The panels depict the impact of a permanent decline in real oil Note: The panels depict the impact of a permanent increase in real
prices on a group of representative oil exporters. copper prices in Chile.

58 International Monetary Fund | 2024

 CHAPTER 2 Navigating the Tides of Commodity Prices

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 3
CHAPTER

2023 INDIVIDUAL ECONOMY ASSESSMENTS

Methodology and Process r­epresenting about 90 percent of global GDP. These

assessments are also discussed with the respective
The individual economy assessments use a wide range
authorities as part of bilateral surveillance.
of methods to form an integrated and multilaterally
External assessments are presented in ranges, in
consistent view of economies’ external sector positions.
recognition of inherent uncertainties, and in different
These methods are grounded in the latest vintage of the
categories generally reflecting deviations of the overall
External Balance Assessment (EBA), developed by the
external position from fundamentals and desired poli-
IMF’s Research Department to estimate desired current
cies. As reported in Annex Table 1.1.2 (Chapter 1), the
account balances and real exchange rates.1 Model esti-
ranges of uncertainty for IMF staff–assessed current
mates and associated discussions on policy distortions
account gaps are based on country-specific estimated
(see Box 3.1 for an example) are accompanied by a
measures. For the REER, the ranges of uncertainty
holistic view of other external indicators, including cap-
vary by country, reflecting country-specific factors,
ital and financial account flows and measures, foreign
including different exchange rate semi-elasticities
exchange intervention and reserves adequacy, and for-
applied to the staff-assessed current account gaps.
eign asset or liability positions.2 The policy discussion in
Overall external positions are labeled as either “broadly
the individual economy assessments highlights policies
in line,” “moderately weaker (stronger),” “weaker
and reforms that contribute to supporting convergence
(stronger),” or “substantially weaker (stronger).” (See
toward (or maintenance of) external balance, in the
Table 3.A) The criteria for applying the labels to over-
context of a summary of the overall policy advice.
all external positions are multidimensional.
The EBA models provide numerical inputs for the
Regarding the wording to describe the current
identification of external imbalances but, in some cases,
account and REER gaps, (1) when comparing the
may not sufficiently capture all relevant economic char-
cyclically adjusted current account with the current
acteristics and potential policy distortions. In such cases,
account norm, the wording “higher” or “lower” is
the individual economy assessments may need to be
used, corresponding to positive or negative current
complemented by analytically grounded judgment and
account gaps, respectively; (2) a quantitative estimate
economy-specific insights in the form of adjustors. IMF
of the IMF staff ’s view of the REER gap is gener-
staff members estimate an economy’s current account
ally reported as ( ) percent “over” or “under” valued.
gap by combining the EBA model’s current account gap
External positions that are labeled as being “broadly in
estimate with adjustors. The IMF staff estimates the real
line” are consistent with current account gaps in the
effective exchange rate (REER) gap consistent with the
range of ±1 percent of GDP as well as REER gaps in
staff current account gap by applying a country-specific
a range that reflects the country-specific exchange rate
elasticity, although in some cases additional informa-
semi-elasticity (for example, ±5 percent based on an
tion is used, such as the EBA REER regression models
elasticity of –0.2).
and unit-labor-cost-based measures to arrive at the
staff REER gap estimate. To integrate country-specific
judgment in an objective, rigorous, and evenhanded Selection of Economies
manner, a process was developed for multilaterally con- The 30 systemic economies analyzed in detail in
sistent external assessments for the 30 ­largest ­economies, this report and included in the individual economy
assessments are listed in Table 3.B. They were gener-
1See Allen and others (2023) for a complete description of ally chosen on the basis of a set of criteria, including
the EBA methodology and for a description of the most recent each economy’s global rank in terms of purchasing
refinements. power GDP, as reported in the IMF’s World Economic
2The individual economy assessments for 2023 are based on

external sector data as of May 20, 2024 and IMF staff projections in ­Outlook, and in terms of the level of nominal gross
the April 2024 World Economic Outlook. trade and degree of financial integration.

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2024 EXTERNAL SECTOR REPORT

Table 3.A. Description in External Sector Report Overall Assessment

CA Gap REER Gap (Using Elasticity of −0.2) Description in Overall Assessment
>4% <−20% . . . substantially stronger . . .
2%, 4% −20%, −10% . . . stronger . . .
1%, 2% −10%, −5% . . . moderately stronger . . .
−1%, 1% −5%, 5% The external position is broadly in line with
fundamentals and desirable policies.
−2%, −1% 5%, 10% . . . moderately weaker . . .
−4%, −2% 10%, 20% . . . weaker . . .
<−4% > 20% . . . substantially weaker . . .

Table 3.B. Economies Covered in the External Sector Report

Argentina Euro area Italy Poland Sweden
Australia France Japan Russia Switzerland
Belgium Germany Korea Saudi Arabia Thailand
Brazil Hong Kong SAR Malaysia Singapore Türkiye
Canada India Mexico South Africa United Kingdom
China Indonesia The Netherlands Spain United States

Box 3.1. Assessing Imbalances: The Role of Policies—An Example

A two-country example: To clarify how to analyze and opposite in both cases (given there are only two
policy distortions in a multilateral setting and how economies in the world), the individual economy
to distinguish between domestic policy distortions, assessments would identify the different issues and
which may require a country to take action to reduce risks facing the two economies.
its external imbalance, and foreign policy distortions, • In the case of Country A, the capital flows and
which require no action by the home country (but foreign asset and liability position sections would
for which action by the other would help reduce the note the vulnerabilities arising from international
external imbalance), consider a stylized example of a liabilities, and the potential policy response section
two-country world. would focus on the need to rein in the fiscal deficit
• Country A has a large current account deficit and and limit financial excesses.
a large fiscal deficit, as well as high public and • For Country B, however, as there were no domestic
external debt. policy distortions, the write-up would find no fault
• Country B has a current account surplus (matching with policies and would note that adjustment among
the deficit in Country A) and a large creditor posi- other economies would help reduce the imbalance.
tion but has no policy distortions. Implications: It remains critical to distinguish
Overall external assessment: The analysis would between domestic and foreign fiscal policy gaps. The
show that Country A has an external imbalance elimination of the fiscal policy gap in a systemic
reflecting its large fiscal deficit. Country B would have deficit economy would help reduce excessive surpluses
an equal and opposite surplus imbalance. Country A’s in other systemic economies. More generally, policy
exchange rate would look overvalued and Country B’s actions that contribute to addressing external imbal-
undervalued. ances relate to the determinants of current account
Policy gaps: The analysis of policy gaps would show balances, namely the private and public saving-in-
that Country A has a domestic policy distortion that vestment balances. Structural or policy distortions
needs adjustment. The analysis would also show that can contribute to excessive or inadequate saving and
there are no domestic policy gaps in Country B— investment, and the policy advice in the individual
instead, adjustment by Country A would automati- economy assessments highlights reforms and policy
cally eliminate the imbalance in Country B. changes that can contribute to addressing these gaps.
Individual economy write-ups: While the esti- Policy advice also seeks to address vulnerabilities asso-
mates of the needed current account adjustment and ciated with external stock positions, including reserves,
associated real exchange rate change would be equal as well as foreign exchange intervention policies.

62 International Monetary Fund | 2024

 CHAPTER 3 2023 Individual Economy Assessments

Abbreviations and Acronyms

Adj. adjusted
ARA assessing reserve adequacy
CA current account
CFM capital flow management
COVID-19 Coronavirus disease 2019
CPI consumer price index
Cycl. cyclically
EBA External Balance Assessment
EU European Union
FDI foreign direct investment
FX foreign exchange
GDP gross domestic product
Liab. liabilities
NEER nominal effective exchange rate
NIIP net international investment position
REER real effective exchange rate
Res. residual
SDR special drawing right
TARGET2 Trans-European Automated Real-time Gross Settlement Express Transfer System
ULC unit labor cost

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 2024 EXTERNAL SECTOR REPORT

Table 3.1. Argentina: Economy Assessment

Overall Assessment: The external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies, an assessment
based holistically on elevated external debt vulnerabilities, depleted international reserves and no access to international capital markets.
Policy Responses: Continued implementation of the ambitious stabilization plan, centered on a strong fiscal anchor, relative price corrections and structural
reforms, is necessary to strengthen the trade balance, support FDI and capital repatriation, rebuild international reserves, regain market access, and safeguard
external sustainability. As stability is reestablished, a gradual conditions-based easing of CFM measures will be needed, while remaining multiple currencies
practices (MCP) and exchange restrictions should be phased out as early as possible.
Foreign Asset Background. Argentina’s NIIP doubled in USD terms during 2016-19 reflecting a large increase in private sector foreign assets, which was
and Liability partly offset (and likely triggered) by an increase in the public sector’s external liability (over US$60 billion). Since 2019, the external position
Position and has remained positive and relatively stable (at around US$110 billion), although gross assets and liabilities moved substantially. In the case
Trajectory of the public sector, significant declines in reserve assets (US$22 billion) were balanced by a decline in privately held debt.1 Meanwhile, the
generally unchanged private sector external position reflects increases in private deposits abroad (about US$60 billion)2, offset by increases
in private liabilities in the form of trade credit.
Assessment. Argentina has a large positive NIIP, mostly reflecting households’ holdings of external assets, while the government’s foreign
position remains in deep negative territory (US$130 billion) with rising trade credit adding to vulnerabilities.3
2023 (% GDP) NIIP: 17.0 Gross Assets: 68.1 Res. Assets: 3.6 Gross Liab.: 51.2 Ext. Debt.: 44.5
Current Account Background. The CA reached a deficit of 3.4 percent of GDP in 2023, compared to a deficit of 0.7 percent in 2022, on account of a sharp
reduction in exports (due to the drought) and an insufficient compression in imports. The CA balance is projected to reach a surplus of 0.6
percent in 2024, driven by a recovery in grain exports and a significant demand compression. In the medium term, the CA is expected to
reach a surplus of about 1.5 percent of GDP supported by a competitive exchange rate, and stronger energy balance.
Assessment. The cyclically adjusted CA balance reached a deficit of 3.6 percent of GDP in 2023, before accounting for the transitory impact
from the drought (about 2.4 percent of GDP).4 Considering Argentina’s weak reserve coverage and heightened external liabilities, external
sustainability considerations suggest a CA norm of 1.5 percent of GDP, which would be consistent with bringing reserves near 100 percent of
the ARA metric over the medium-term. As such, IMF staff assesses the CA gap to be −2.6 ±1 percent of GDP.
2023 (% GDP) CA: −3.4 Cycl. Adj. CA: −3.6 EBA Norm: 0.4 EBA Gap: −3.9 Staff Adj.5: 1.3 Staff Gap: −2.6
Real Exchange Background. The REER, after depreciating by more than 25 percent between end-2016 and end-2019, appreciated by over 30 percent
Rate through end-2022 and an additional 17 percent through end-November 2023. In mid-December, a step devaluation (about 120 percent
against the USD) was implemented to correct the large exchange rate misalignment. Since then, the REER has appreciated by over
40 percent through end-March, bringing it broadly in line with IMF staff’s estimate of the equilibrium level.
Assessment. Staff-assessed CA gap implies a REER gap of about 22 percent in 2023 (with an estimated elasticity of 0.12 applied).6 Overall,
staff assesses the REER gap to have been in the range of 33 to 38 percent just before the December 2023 step devaluation, and in the range
of 20 to 25 percent on average in 2023 (also consistent with the EBA REER index model).
Capital and Background. Exchange restrictions, CFM and MCP measures were introduced in late 2019 and were intensified further in 2023, including
Financial through (i) incentives to encourage export liquidation, (ii) taxes on FX access for imports, and (iii) financing requirements for imports, which
Accounts: Flows led to an unprecedented rise in private commercial debt. Since mid-December, the previous opaque system of administrative import controls
and Policy has been replaced by a more transparent system, with a shorter delay in FX access (45 days on average), and a large share of excess
Measures commercial debt backlog has been reprofiled or resolved.
Assessment. While CFMs are not a substitute for sound macroeconomic policies, they may be needed in the near term as imbalances are
being addressed. That said, more distortive exchange restrictions and MCP measures should be phased out as early as possible.
FX Intervention Background. Gross international reserves fell sharply (by over US$20 billion) last year, reaching US$23 billion by end-2023, their lowest level
and Reserves since 2004. Meanwhile, NIR reached $−8.5 billion. Since December 10, the BCRA has purchased over US$15 billion in FX assets through end-April.
Level Assessment. Reserve coverage remains inadequate. Gross international reserves are estimated to have fallen to only around 30 percent of the
IMF’s composite metric by end-2023.

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 CHAPTER 3 2023 Individual Economy Assessments

Table 3.2. Australia: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The CA
surplus expanded marginally from 1.1 percent of GDP in 2022 to 1.2 percent of GDP in 2023, as service exports continue their recovery from the pandemic while
the effect of lower prices on commodity exports was partly offset by lower dividend outflows. In the medium term, the CA is projected to return to a slight deficit
as commodity prices further decline, savings return to historical levels, and investment picks up.
Potential Policy Responses: Given the positive output gap in the near term and still elevated inflation, fiscal and monetary restraint remains warranted for
Australia. While the closing of the output gap will push the CA surplus higher, this should be offset by structural policies that boost investment (rebalancing
taxes from direct to indirect taxes, executing planned infrastructure investment, streamlining product market regulation, promoting research and development
and innovation investment). Australia’s commitment to a floating exchange rate should help keep the external position in line with fundamentals going forward.
Australia should continue to support an open trade environment, including in regional and multilateral trade agreements.
Foreign Asset Background. Australia’s NIIP improved to −31.9 percent of GDP at the end of 2023, from −38.0 percent of GDP in 2022, driven by the CA
and Liability surplus, revaluation effects of foreign equities, and rising interest rates that have reduced the market value of external debt. While 61 percent
Position and of Australia’s gross liabilities are debt obligations, around half of the debt liabilities are denominated in domestic currency, while assets are
Trajectory largely denominated in foreign currency. Foreign liabilities are composed of about one-quarter FDI, one-half portfolio investment (principally
banks’ borrowing abroad and foreign holdings of government bonds), and one-quarter other investments and derivatives.
Assessment. The NIIP level and trajectory are sustainable. The structure of Australia’s external balance sheet reduces the vulnerability
associated with its negative NIIP. With a positive net foreign currency asset position, a nominal depreciation tends to strengthen the external
balance sheet, all else being equal. The banking sector’s net foreign currency liability position is mostly hedged, and the maturity of banks’
external funding has lengthened since the global financial crisis. The government’s balance sheet remains strong and can provide credible
support in a tail-risk event in which domestic banks suffer a major loss.
2023 (% GDP) NIIP: −31.9 Gross Assets: 148.6 Debt Assets: 37.2 Gross Liab.: 180.5 Debt Liab.: 80.1
Current Account Background. After decades of CA deficits, the CA balance has been in surplus since 2019, due to an upswing in export commodity prices. In
2023, the CA balance remained close to its 2022 level, at 1.2 percent of GDP, reflecting stable aggregate savings and investment ratios. The
merchandise trade balance moderated from 6.5 percent of GDP in 2022 to 4.8 percent of GDP in 2023, as terms of trade have deteriorated.
The trade surplus is partially offset by a 3.5 percent of GDP deficit in the primary income balance (due to dividend payments on Australia’s
equity liabilities, especially in the mining sector), while the services balance recorded a small surplus of 0.1 percent of GDP (as tourism and
education service exports continue to recover from the pandemic-related decline). The CA surplus is largely explained by cyclical factors and
is expected to gradually return to a small deficit over the medium term as commodity prices decline while investment picks up.
Assessment. The EBA model estimates a cyclically adjusted CA balance of 0.3 percent of GDP compared with a CA norm of −0.6 percent of
GDP, suggesting a model-based CA gap of 0.9 percent of GDP. The small CA gap is largely explained by the negative domestic credit gap and
by tighter fiscal policy relative to the rest of the world.
2023 (% GDP) CA: 1.2 Cycl. Adj. CA: 0.3 EBA Norm: −0.6 EBA Gap: 0.9 Staff Adj.: 0 Staff Gap: 0.9
Real Exchange Background. In 2023, the Australian dollar depreciated slightly against the US dollar, possibly reflecting a decline in iron ore prices and the
Rate interest rate differential. In real effective terms, the exchange rate was broadly stable and slightly higher than the average level of the past
five years. As of April 2024, the REER was 1.8 percent above the 2023 average.
Assessment. Staff’s CA gap implies a REER gap of −5.3 percent (applying an estimated elasticity of 0.17). The EBA REER level model points
to an overvaluation of 20.6 percent, while the index model points to an undervaluation of 10.6 percent. Consistent with the CA gap, staff
assesses the REER gap to be in a range of −8.7 to −1.9 percent, with a midpoint of −5.3 percent.
Capital and Background. The financial account recorded net outflows in 2023, driven by a net outflow in financial derivatives and portfolio investment.
Financial Net FDI and other investment inflows turned positive in 2023.
Accounts: Flows Assessment. Vulnerabilities related to the financial account remain contained, supported by a credible commitment to a floating exchange
and Policy rate.
Measures
FX Intervention Background. The currency has been free-floating since 1983. The central bank has not intervened in the FX market since the global financial crisis.
and Reserves The value of reserve assets recorded a slight increase in 2023 to A$94 billion, from A$85 billion at the end of 2022.
Level Assessment. The authorities are strongly committed to a floating regime, which reduces the need for reserve holdings. Although domestic banks’
external liabilities remain sizable, they are either in local currency or hedged. Hence, reserve needs for prudential reasons are also limited.

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Table 3.3. Belgium: Economy Assessment

Overall Assessment: Belgium’s external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies. The CA
balance remained in deficit of −1.0 percent of GDP in 2023, after a swing to deficit from surplus position in 2022 because of a sharp deterioration of the trade
balance driven by an increase in net imports of mineral fuels and decline in pharmaceutical exports. The CA deficit is expected to narrow in the medium term as
external demand recovers and competitiveness improves, but the outlook remains marred with uncertainty.
Potential Policy Responses: Successive shocks have increased Belgium’s structural fiscal deficits and public debt. In addition, given mounting spending
pressures from an aging population, policies in the near and medium terms should focus on rebuilding fiscal buffers through a credible, expenditure-led
consolidation that also creates space to support green and digital transformation. Public investment should be preserved or increased to mitigate growth
impacts of fiscal consolidation. Policies should also focus on strengthening competitiveness through significant structural reforms, including of the wage
indexation system, pension and social benefits, tax, and the labor and product markets. These steps are expected to bring the external position closer in line
with medium-term fundamentals and desirable policy settings.
Foreign Asset Background. Belgium’s NIIP increased to 65 percent of GDP at the end of 2023, from 58 percent of GDP in 2022. The improvement
and Liability comprised of a modest increase in gross foreign assets of 3 percentage points of GDP from 2022 and a decline in gross foreign liabilities of
Position and 4 percentage points of GDP. Net portfolio investment remained the main component of the positive NIIP and was stable at 36 percent of GDP
Trajectory in 2023, supported by strong positive price effects. Higher market valuations for FDI also caused the net direct investment to increase to
30 percent of GDP (up 0.3 percentage point of GDP). Net other investment liabilities dropped to 7.3 percent of GDP at the end of 2023 from a
high of 13 percent of GDP in 2022, due to positive income flows driven by an increase in Belgian foreign investment.
Assessment. Based on the projected CA deficit and growth paths, the NIIP-to-GDP ratio is expected to decline. This trajectory does not raise
sustainability concerns given the large and positive NIIP. Belgium’s large gross international asset and liability positions are elevated by the
presence of corporate treasury units, which do not appear to create macro-relevant mismatches.
2023 (% GDP) NIIP: 65 Gross Assets: 423 Debt Assets: 132 Gross Liab.: 358 Debt Liab.: 154
Current Account Background. The CA balance was a deficit of 1.0 percent of GDP in 2023, unchanged from 2022. The effect of higher inflation on wages and
social benefits due to indexation, and higher outlays due to the aging population weighed on public net savings in 2023. This was however
offset by weakening residential property investment. While the trade deficit remained unchanged at 1.6 percent of GDP in 2023, the decline
in goods deficits to 0.6 percent of GDP (from a record high of 1.4 percent of GDP in 2022) was offset by an increase in services deficits to 1.0
percent of GDP (from 0.2 percent of GDP in 2022). The primary income balance increased by 0.5 percentage point of GDP to 2.0 percent of
GDP and current transfers declined to −1.4 percent of GDP in 2023. Overall, volatility in the trade and primary income balances is driven in
part by sizable operations of multinationals in Belgium and large data revisions.
Assessment. The EBA model estimates a CA norm of 3 percent of GDP, against a cyclically adjusted CA balance of −0.6 percent of GDP,
implying a gap of −3.6 percent of GDP. This is within a range estimated by IMF staff for the CA gap of between −4.0 and −3.2 percent of GDP,
applying the standard error of the CA norm estimated at ±0.4 percent of GDP.
2023 (% GDP) CA: −1.0 Cycl. Adj. CA: −0.6 EBA Norm: 3.0 EBA Gap: −3.6 Staff Adj.: 0 Staff Gap: −3.6
Real Exchange Background. Both the REER based on CPI and ULC continued to appreciate in 2023, respectively, by 1.3 percent and 2.9 percent (year
Rate over year), with a cumulative appreciation during 2019−23 of 2.5 percent and 6.4 percent, respectively. The stronger appreciation of the
ULC-based REER reflected more rapid and higher wage increases due to automatic wage indexation in Belgium. As of April 2024, the
CPI-based REER (ULC-based REER) was 0.8 percent (1.1 percent) above its 2023 average.
Assessment. The IMF staff–assessed CA gap implies a REER overvaluation in the range of 4.6 to 5.8 percent, with a midpoint of 5.2 percent
(applying an estimated elasticity of the CA balance to the REER of 0.69). The EBA REER index model points to an overvaluation of 8.8 percent,
while level model points to an appreciation of 20.6 percent.
Capital and Background. The balance-of-payments financial account balance was negative in 2023, with flows of foreign liabilities exceeding flows
Financial of foreign assets by about €6.5 billion (−1.1 percent of GDP). The portfolio investment balance was strongly negative at €21.9 billion
Accounts: Flows (−3.8 percent of GDP) because of purchases of Belgian government bonds by nonresidents. The direct investment balance turned negative
and Policy for the first time since 2019 at −€8.8 billion (−1.5 percent of GDP), as both assets and liabilities were reduced due largely to the repayment
Measures of outstanding loans. The balance of other investment was strongly positive at €26.4 billion (4.5 percent of GDP), as gross assets and
liabilities increased owing to financial transactions in the banking sector, with a more pronounced increase on the assets side. Short-term
external debt increased marginally to 32 percent of gross external debt in 2023 (from an average of 28 percent in 2018–22). Belgium has an
open capital account.
Assessment. Belgium remains exposed to financial market risks and vulnerabilities associated with high external public debt. Vulnerabilities
are limited by the large, positive NIIP.
FX Intervention Background. The euro has the status of a global reserve currency.
and Reserves Assessment. Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.
Level

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Table 3.4. Brazil: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The CA
deficit narrowed to 1.4 percent of GDP in 2023 and is expected to remain around 1.5 percent of GDP over the medium term as oil exports increase and net
public savings improve. Risks to Brazil’s external position over the medium term relate to uncertainties to global financial conditions and insufficient progress on
domestic reforms.
Potential Policy Responses: Policies that would help keep the CA in line with its norm include efforts to raise national savings, providing room for a sustainable
expansion in investment. Fiscal consolidation should continue contributing to increase net public savings. Structural reforms that improve efficiency and reduce
the cost of doing business would help strengthen competitiveness. Industrial policies should remain narrowly targeted to specific objectives where externalities
or market failures prevent effective market solutions, avoid increasing barriers to trade and investment, and not favor domestic producers over imports.
Foreign Asset Background. Brazil’s NIIP dropped to −44.9percent of GDP in 2023, from −42.2 percent of GDP in 2022, partly reflecting continued FDI and
and Liability portfolio inflows. The NIIP is projected to be below −40 percent of GDP over the medium term, in line with projected CA deficits offset by
Position and robust nominal GDP growth. FDI will continue to account for more than half of all liabilities. At the end of 2023, external debt declined to
Trajectory 33.7 percent of GDP and 208 percent of exports, from around 35 percent of GDP and 200 percent of exports in 2022.
Assessment. The NIIP has been negative since the series was first published in 2001. Over the medium term, gross external financing needs
are moderate at below 10 percent of GDP annually, with capital flows and the exchange rate sensitive to global financing conditions.
2023 (% GDP) NIIP: −44.9 Gross Assets: 46.5 Res Assets: 16.3 Gross Liab.: 91.4 Debt Liab.: 33.7
Current Account Background. The CA deficit narrowed to 1.4 percent of GDP in 2023 from 2.5 percent in 2022, on the back of a sizable trade balance surplus
of 3.7 percent of GDP (compared with 2.3 percent in 2022). The record-high trades surplus (owing to strong agriculture and oil exports
and lackluster imports) reflected partly the structural change in the export sector and was offset by high deficits in transport services and
primary income related to profits and dividends. From a saving-investment perspective, the CA deficit reflects the saving-investment deficit
of the public sector partially offset by the saving-investment surplus of the private sector. The CA deficit is expected to remain at around
1.5 percent of GDP over the medium term, supported by higher oil exports and improved net public savings.
Assessment. In 2023 the cyclically adjusted CA balance was −1.7 percent of GDP, and EBA estimates suggest a cyclically adjusted CA norm
of −1.9 percent of GDP. IMF staff estimate the CA gap to be in the range of −0.4 and 0.7 percent of GDP, with a midpoint of 0.2 percent of
GDP. EBA-identified policy gaps are estimated at −0.4 percent of GDP, reflecting positive credit growth and the more expansionary fiscal
policy stances in Brazil relative to trading partners.
2023 (% GDP) CA: −1.4 Cycl. Adj. CA: −1.7 EBA Norm: −1.9 EBA Gap: 0.2 Staff Adj.: 0.0 Staff Gap: 0.2
Real Exchange Background. Continuing the appreciation trend in 2020–22 (by around 8 percent), the REER appreciated by 4.6 percent in 2023 compared to
Rate the 2022 average, below the NEER appreciation of 11.6 percent, reflecting relatively low inflation in Brazil compared with its major trading
partners. As of April 2024, the REER had depreciated by 0.5 percent relative to the 2023 average.
Assessment. The IMF staff CA gap implies a REER gap of −1.7 percent in 2023 (applying an estimated elasticity of 0.12). The REER index
model suggests a REER gap of −25.1 percent, while the REER level model suggests a REER gap of −11.2 percent. Consistent with the staff
CA gap, staff assesses the REER gap to be in the range of −5.9 to 2.5 percent, with a midpoint of −1.7 percent.
Capital and Background. Brazil continues to attract sizable capital flows. Net FDI flows continued to finance the CA deficit, averaging 2.6 percent of GDP
Financial during 2015–22 (when CA deficits averaged 2.8 percent) before dropping to 1.7 percent of GDP in 2023. Portfolio investment registered net
Accounts: Flows inflows of 0.3 percent of GDP.
and Policy Assessment. The composition of capital flows is expected to have a favorable risk profile over the medium term, with positive net FDI
Measures inflows (above 1.5 percent of GDP) outweighing negative portfolio outflows (around 0.2 percent of GDP) and debt liabilities increasingly
denominated by FDI liabilities. Nevertheless, uncertainties related to tighter global financial conditions and insufficient progress on reforms
pose downside risks to capital flows.
FX Intervention Background. Brazil has a floating exchange rate. While FX interventions in 2022 relied on spot, repo, and FX swap markets to ensure smooth
and Reserves market functioning, the authorities did not intervene in the FX markets in 2023 amid resilient FX performance. The outstanding stock of the
Level FX swap, a nondeliverable future settled in local currency, stayed around US$100 billion since 2022. International reserves increased by
US$30 billion and reached US$355 billion at the end of 2023, mostly owing to valuation effects.
Assessment. The flexible exchange rate has been an important shock absorber. Reserves remain adequate relative to various criteria,
including the IMF’s reserve adequacy metric (130 percent as of the end of 2023) and serve as insurance against external shocks.
Intervention should be limited to alleviating disorderly FX market conditions.

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Table 3.5. Canada: Economy Assessment

Overall Assessment: The external position in 2023 was moderately weaker than the level implied by medium-term fundamentals and desirable policies. The CA
deficit widened slightly in 2023, mainly reflecting worsened terms of trade as energy and commodity prices normalized following the start of Russia’s war in
Ukraine. The widening of the CA deficit occurred despite a moderation in domestic demand reflected in lower imports (−0.8 percent decrease), higher exports
reflecting stronger US demand, and a weakening in the real exchange rate.
Potential Policy Responses: Policies should aim to boost Canada’s competitiveness in nonfuel goods exports and in services exports and to diversify Canada’s
export markets. These policies include (1) introducing measures to improve labor productivity, (2) removing nontariff trade barriers, (3) investing in R&D and
physical capital, (4) investing in the green transformation, and (5) promoting FDI. Further, industrial policies should be pursued cautiously, remain narrowly
targeted to specific objectives where externalities or market failures prevent effective market solutions, and aim to minimize trade and investment distortions.
Tighter near-term fiscal policies as well as a medium-term fiscal consolidation plan would also help in stabilizing debt and supporting external rebalancing.
Foreign Asset Background. Canada’s NIIP position rose sharply to 57.7 percent of GDP in 2023 from 38.9 percent of GDP in 2022 (and up also from the
and Liability five-year average of 40.7 percent of GDP), reflecting a rise in global equity prices (in the context of a somewhat weaker currency). Gross
Position and external debt increased to 143.4 percent of GDP (from 134.9 percent of GDP in 2022), of which around 41 percent is short term.
Trajectory Assessment. Canada’s foreign assets have a higher foreign-currency component than its liabilities do, which provides a hedge against
currency depreciation. The NIIP level and trajectory are sustainable.
2023 (% GDP) NIIP: 57.7 Gross Assets: 310.3 Debt Assets: 84.0 Gross Liab.: 252.5 Debt Liab.: 143.4
Current Account Background. The estimated CA deficit reached 0.7 percent of GDP in 2023, slightly higher than the 0.4 percent of GDP deficit in 2022,
mainly on account of lower energy prices (terms of trade fell by 6 percent year over year). But with savings somewhat higher than—
and investment broadly in line with—the 2019−22 average, the CA deficit in 2023 was somewhat smaller than the average CA deficit of
1.1 percent of GDP during 2019–22. The CA is expected to remain in slight deficit over the medium term. Export growth is projected to slow,
whereas import growth is projected to pick up on the back of recovering domestic demand, which is supported by a slightly expansionary
near-term fiscal stance.
Assessment. The cyclically adjusted CA was −1 percent of GDP in 2023, as against the EBA’s CA norm for Canada of 2.3 percent of GDP,
implying a gap of −3.3 percent of GDP for 2023. Part of this gap, however, is explained by biases in measuring inflation and retained
earnings.1 Taking these factors into account, IMF staff assess the CA gap to be in the range between −2.2 and −1.3 percent of GDP, with a
midpoint of −1.8 percent of GDP.
2023 (% GDP) CA: −0.7 Cycl. Adj. CA: −1.0 EBA Norm: 2.3 EBA Gap: −3.3 Staff Adj.: 1.5 Staff Gap: −1.8
Real Exchange Background. The average REER for 2023 was 3.6 percent below the 2022 average, largely reflecting the strength of the US dollar. The REER
Rate in 2023 was around 2 percent weaker than the 2019–22 average. As of April 2024, the REER had depreciated by 1.3 percent relative to the
2023 average.
Assessment. The EBA REER index model points to an overvaluation of 0.5 percent in 2023, while the REER level model suggests an
undervaluation of 12.9 percent. Consistent with the staff CA gap, staff assess the REER to be overvalued by between 5.1 and 8.3 percent,
with a midpoint of 6.7 percent (with a semi-elasticity of the CA with respect to the REER at 0.27).
Capital and Background. The financial account recorded net inflows due to other investments, moderated by outflows in FDI and portfolio investments.
Financial Specifically, FDI saw net outflows of 1.6 percent of GDP in 2023 (comparable with levels in 2022 and 2021) as did net portfolio flows of
Accounts: Flows around 0.7 of GDP, moving from inflows of around 5.3 percent of GDP in 2022. This was offset by other investments which recorded inflows
and Policy of around 3.2 percent of GDP as opposed to net outflows in 2022 of around 3 percent of GDP. Errors and omissions were small at 0.2 percent
Measures of GDP.
Assessment. Canada has an open capital account. Vulnerabilities are limited by a credible commitment to a floating exchange rate.
FX Intervention Background. Canada has a free-floating exchange rate regime and has not intervened in the FX market since September 1998 (except
and Reserves for participating in joint interventions with other central banks). Canada has limited reserves, but its central bank has standing swap
Level arrangements with the US Federal Reserve and four other major central banks. (The Bank of Canada has not drawn on these swap lines.)
Assessment. Policies in this area are appropriate to the circumstances of Canada. The authorities are strongly committed to a floating
regime which, together with the swap arrangements, reduces the need for reserve holdings.

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Table 3.6. China: Economy Assessment

Overall Assessment: The external position in 2023 is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies.
The CA surplus declined to 1.4 percent of GDP in 2023 as exports declined on the back of both weakness in global demand as well as the unwinding of the
COVID-19-related export boom. Rising services imports due to a normalization of outbound tourism also contributed to the lower CA surplus. Over the medium
term, the CA surplus is projected to narrow further and gradually converge to the CA norm, mostly reflecting rising social spending pressures as population ages.
Potential Policy Responses: Policies to ensure that the external position remains broadly in line with fundamentals include (1) accelerating market-based
structural reforms—a further opening up of domestic markets, ensuring competitive neutrality between state-owned and private firms, scaling back wasteful and
distorting industrial policies, and increasing reliance on market forces to improve resource allocation—to boost potential growth; (2) shifting fiscal policy support
toward strengthening social protection to reduce high household savings and rebalance toward private consumption; and (3) gradually increasing exchange rate
flexibility to help the economy better absorb external shocks.
Foreign Asset Background. The NIIP reached 16.5 percent of GDP in 2023, from 13.6 percent in 2022 and significantly below the peak of 30.4 percent in
and Liability 2008. The increase largely reflects the CA surplus.
Position and Assessment. The NIIP-to-GDP ratio is expected to remain positive and increase modestly over the medium term in line with the narrowing
Trajectory CA surplus. Increasing portfolio investment, on the back of China’s gradual financial opening, is expected to diversify its foreign assets and
liabilities further. The NIIP is not a major source of risk, as assets remain high—reflecting large foreign reserves ($3.4 trillion as of the end of
2023, 19.5 percent of GDP)—and liabilities are mostly related to FDI.
2023 (% GDP) NIIP: 16.5 Gross Assets: 54.3 Debt Assets: 15.9 Gross Liab.: 37.8 Debt Liab.: 13.0
Current Account Background. Following the increase since 2019, the CA surplus declined to 1.4 percent of GDP in 2023 as domestic saving declined to its
pre-pandemic level. The lower CA surplus reflects lower goods and services balances. After a post-reopening increase in trade in 2023:Q1,
exports declined amid weak global demand and the unwinding of the COVID-19-related surge in goods exports. Imports evolved in line with
domestic demand, sequentially weakening in 2023:Q2–23:Q3 and partially rebounding in 2023:Q4. Taken together, the trade balance declined
to 3.3 percent of GDP (from 3.7 percent of GDP in 2022) as exports weakened more than imports. The 2023 services deficit increased to
1.2 percent of GDP (from 0.5 percent of GDP in 2022) as outbound tourism partially recovered. Over the medium term, domestic saving
is expected to decline faster than investment, due to rapid population aging and the associated rising social spending pressures further
reducing the CA surplus.
Assessment. Based on the adjusted results of the EBA CA model, the IMF staff CA gap ranges from −0.7 to 0.5 percent of GDP with a
midpoint of −0.1 percent. As the travel balance continues to recover to pre-COVID-19 levels, an adjustor of −0.4 percent is applied to the CA.
EBA-identified policy gaps are estimated at −0.6 percent of GDP, driven by relatively favorable credit conditions (−0.3 percent of GDP) and
looser fiscal policy than in other countries (−0.2 percent of GDP).
2023 (% GDP) CA: 1.4 Cycl. Adj. CA: 1.2 EBA Norm: 0.9 EBA Gap: 0.3 Staff Adj.: −0.4 Staff Gap: −0.1
Real Exchange Background. In 2023, the REER depreciated by 8.2 percent from the 2022 average, faster than the NEER depreciation (3.4 percent) reflecting
Rate lower inflation in China. The REER depreciation more than reversed the appreciation of 5 percent in 2020–21, which followed a depreciation
of 7 percent during 2015–19. As of April 2024, the REER had depreciated by 2.7 percent relative to the 2023 average.
Assessment. The IMF staff CA gap implies a REER gap of 0.7 percent. The EBA REER index regression estimates the REER gap in 2023 to be
5.1 percent, and the EBA REER level regression estimates the REER gap to be 3.4 percent. Consistent with the IMF staff CA gap, the IMF staff
assesses the REER to be in the range of −3.6 to 5.0 percent with a midpoint of 0.7 percent (with an estimated elasticity of 0.14 applied).
Capital and Background. The 2023 financial account (excluding net errors and omissions) reached −1.2 percent of GDP (−1.4 percent of GDP in 2022)
Financial as capital outflow pressures reemerged in 2023:H2, while inward FDI reached a historically low level (0.2 percent of GDP) and portfolio
Accounts: Flows investment remained subdued (0.1 percent of GDP). Net errors and omissions declined in absolute terms to −0.2 percent of GDP in 2023
and Policy (from the 2015–20 average of −1.4 percent of GDP). The authorities raised the cross-border financing macroprudential adjustment parameter
Measures for financial institutions and enterprises from 1.25 to 1.5 (relaxation of an inflow CFM measure) in July 2023. The authorities cut FX reserve
requirements from 6 to 4 percent in September. As of the end of May 2024, the total Qualified Domestic Institutional Investor quota stood at
$167.8 billion.1
Assessment. Substantial net outflow pressures resurfaced with the divergence of China’s monetary policy from that in advanced economies,
expectations for weakening economic prospects as well as market-perceived geopolitical risk and economic policy uncertainty. Over the
medium term, further capital account opening is likely to create substantially larger two-way gross flows. The sequencing of capital account
opening consistent with exchange rate flexibility should carefully consider domestic financial stability, while addressing the faster pace
of private sector accumulation of foreign assets with respect to nonresident accumulation of Chinese assets. CFMs should not be used to
actively manage the capital flow cycle or substitute for warranted macroeconomic adjustment and exchange rate flexibility. Over the medium
term, China should gradually phase out CFM measures in a sequence consistent with greater exchange rate flexibility and accompanying
reforms.
FX Intervention Background. FX reserves increased (by about $110 billion) and reached $3.3 trillion as of the end of 2023. In the last quarter of 2023,
and Reserves a partial recovery in capital flows, including FDI, and favorable valuation effects contributed to an increase in FX reserves that more than
Level offset losses in the first three quarters of the year.
Assessment. The end-of-2023 reserve assets, including gold, at $3.4 trillion—69 percent of the IMF’s standard composite metric at the end
of 2023 (68 percent in 2022) and 112 percent of the metric adjusted for capital controls (110 percent in 2022)—are assessed to be adequate.
Temporary FX intervention could be considered in the event of large capital outflows that pose significant risks to macroeconomic and
financial stability, including if markets turn disorderly.

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Table 3.7. Euro Area: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The CA
balance increased to 1.7 percent of GDP in 2023 from −0.6 percent of GDP in 2022, due to the reversal of the negative terms of trade shock. Over the medium
term, the euro area’s CA balance is projected to increase further (though still below its historical average) as external demand improves and structural reforms
to improve competitiveness are implemented. National external imbalances are expected to remain sizable.
Potential Policy Responses: Improving productivity—through increased public investment, reskilling and upskilling of the labor force, and structural reforms to
foster a business environment that encourages private investment and technology diffusion—will help build resilience and lift growth potential, mitigating the
headwind from aging. Strengthening the EU single market—by harmonizing regulations, reducing administrative barriers, and streamlining trade procedures—
will create a more resilient domestic economy, thereby helping address challenges from an increasingly shock-prone and fragmented global economy. It
is also critical to avoid a trade-distorting, fiscally costly subsidy race and other trade-distorting measures, which would undermine resource allocation and
productivity. Trade and investment disagreements with other countries should be resolved in a manner that supports an open, stable, and transparent rules-
based trading system. As historical policy gaps at the national level in the European Union are projected to persist, countries with excess CA surpluses should
increase investment, while countries with weak external positions should undertake reforms to raise productivity, reduce structural and youth unemployment,
and commence growth-friendly fiscal consolidation. Euro-area-wide initiatives to make the currency union more resilient (for example, completing the banking
and capital markets unions and establishing the central fiscal capacity for some common public goods) would deepen public and private sector risk sharing,
supporting external stability of high-debt countries.
Foreign Asset Background. After falling to −20.5 percent of GDP in 2009, the NIIP of the euro area rose substantially to 4.1 percent of GDP by the end of
and Liability 2023, reflecting accumulated CA surpluses. Relative to 2022, the NIIP increased in 2023 by 0.8 percentage point of GDP, primarily reflecting
Position and valuation effects from the weaker euro and improvement in the CA balance. Gross portfolio investment assets and liabilities have both
Trajectory declined sharply, reflecting impact of higher interest rates and financial market repricing. Direct investment assets and liabilities have also
declined though more moderately. The gross values of derivative positions have increased with higher financial market volatility. Gross
foreign assets were 243.0 percent of GDP and liabilities 238.9 percent of GDP as of the end of 2023. Net external assets (including those
vis-à-vis other euro area member states) remain elevated in external creditor countries (for example, Germany), whereas net external
liabilities remain high in debtor countries (for example, Portugal and Spain).
Assessment. Projections of continued CA surpluses over the medium term suggest that the NIIP-to-GDP ratio will rise further, at a moderate
pace. While the region’s overall NIIP financing vulnerabilities appear low in aggregate, large net external debtor countries bear an elevated
risk of a sudden stop of gross inflows.
2023 (% GDP) NIIP: 4.1 Gross Assets: 243.0 Debt Assets: 89.7 Gross Liab.: 238.9 Debt Liab.: 86.6
Current Account Background. The CA balance for the euro area increased to 1.7 percent of GDP in 2023 from −0.6 percent of GDP in 2022. The improvement
is driven by a significant improvement in the goods balance (from declines in import prices especially of natural gas and oil) and, to a lesser
extent, an increase in the income balances, which more than offset the reduction in the services surplus. Large creditor countries, such as
Germany and The Netherlands, continued to have sizable surpluses, reflecting high corporate and household saving and weak investment.
Assessment. The EBA model estimates a CA norm of 0.7 percent of GDP, against a cyclically adjusted CA of 1.7 percent of GDP. This implies
a gap of 1 percent of GDP. Adjustments of −0.4 percent of GDP were made to the underlying CA reflecting CA measurement issues in Ireland
and The Netherlands to account for activities of multinational enterprises and portfolio retained earnings bias, respectively. Considering these
factors and uncertainties in the estimates, including the cyclical adjustment, staff assesses the CA gap to be 0.6 percent of GDP in 2023, with
a range of 0 to 1.2 percent of GDP (considering a standard error of 0.6).
2023 (% GDP) CA: 1.7 Cycl. Adj. CA: 1.7 EBA Norm: 0.7 EBA Gap: 1 Staff Adj.: −0.4 Staff Gap: 0.6
Real Exchange Background. The euro area CPI-based REER appreciated by 4.5 percent between 2015 and 2021 following a depreciation of nearly
Rate 20 percent in the post–global financial crisis period. In 2023, the CPI-based REER appreciated by 3.5 percent compared to 2022, reflecting
an appreciation of 3 percent against the US dollar. The ULC-based REER appreciated by 4.4 percent. As of April 2024, the CPI-based REER
was 0.4 percent below its 2023 average.
Assessment. Consistent with the IMF staff CA gap, the IMF staff assesses the REER gap to be −1.7 percent in 2023, with a range of −3.4
to 0 percent, based on the estimated CA-REER elasticity of 0.35.1 As with the CA gap, the aggregate REER gap masks a large degree of
heterogeneity in REER gaps across euro area member states, ranging from an undervaluation of 7.5 percent in Germany to an overvaluation
of about 11.5 percent in Italy. The EBA REER index and level models suggest overvaluations of 5.5 percent and 3.9 percent, respectively.
Capital and Background. The euro area experienced a capital account surplus of 0.3 percent of GDP and a financial account surplus of 1.9 percent of
Financial GDP in 2023, mirroring the CA surplus.
Accounts: Flows Assessment. Gross external indebtedness of euro area residents decreased by 7.4 percentage points of GDP in 2023 as lower external debt
and Policy of the Eurosystem, and the nonfinancial sector has offset higher debt of deposit-taking institutions and governments.
Measures
FX Intervention Background. The euro has the status of a global reserve currency.
and Reserves Assessment. Reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating.
Level

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Table 3.8. France: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The CA deficit
declined to 0.7 percent of GDP in 2023, driven by the unwinding of the terms-of-trade shock and strong non-oil goods export performance. Over the medium
term, the CA deficit is expected to continue to shrink as fiscal consolidation and structural reforms to improve competitiveness of the economy are implemented.
Potential Policy Responses: Maintaining the external position in line with medium-term fundamentals and desirable policies will require sustained fiscal
consolidation efforts as well as structural reforms to support productivity and attract higher private investment to facilitate the green and digital transitions.
Industrial policies should be deployed cautiously, remain targeted to specific objectives where externalities or market failures prevent effective market solutions,
and avoid favoring domestic producers over imports to minimize trade and investment distortions.
Foreign Asset Background. The NIIP stood at −29.2 percent of GDP in 2023, slightly above the range observed during 2014–19 (between −15 and
and Liability −26 percent of GDP). The NIIP worsened by 5.5 percent of GDP since the end of 2022, largely driven by a decrease in direct and portfolio
Position and investment. While the net position is moderately negative, gross positions are large. Gross assets stood at 334.9 percent of GDP in 2023,
Trajectory of which banks’ non-FDI-related assets accounted for about 46.2 percent, reflecting their global activities. Gross liabilities increased to
364.1 percent of GDP in 2023, of which external debt was about 227.5 percent of GDP (58 percent accounted for by banks and 24 percent
by the public sector). About three-quarters of France’s external debt liabilities are denominated in domestic currency. The average TARGET2
balance in 2023 was about €120.5 billion.
Assessment. The NIIP is negative, but its size and projected stable trajectory do not raise sustainability concerns. However, there are
vulnerabilities coming from the large public external debt (53.7 percent of GDP in 2023) and banks’ gross financing needs—the stock of
banks’ short-term debt securities was €149 billion in 2023 (5.3 percent of GDP), and financial derivatives stood at about 47.7 percent of GDP.
2023 (% GDP) NIIP: −29.2 Gross Assets: 334.9 Debt Assets: 190.7 Gross Liab.: 364.1 Debt Liab.: 227.5
Current Account Background. The CA deficit declined to 0.7 percent of GDP in 2023 (from a deficit of 2 percent in 2022), driven by the unwinding of the large
terms-of-trade shock and a strong export performance by the aeronautics, naval, and textile sectors and in capital goods as well as lower
energy imports from ongoing price corrections. Gross national savings continued to increase in 2023 by 0.4 percent of GDP, driven by private
savings given still high uncertainty around the external outlook, while domestic investment declined somewhat after reaching a peak in
2022. The CA deficit is expected to decrease slightly to about 0.6 percent of GDP in 2024, driven by the continued recovery in the aeronautics
and automobile sectors. Over the medium term, the CA deficit is projected to shrink to a small deficit by 2029 as recent reforms to improve
France’s competitiveness start to pay off. Fiscal consolidation will also help reduce the CA deficit over the medium term.
Assessment. The 2023 cyclically adjusted CA balance is estimated at −0.9 percent of GDP compared with an EBA-estimated norm of
0 percent. On this basis, the IMF staff assesses that the CA gap in 2023 is between −1.3 and −0.5 percent of GDP (compared with −2.5 and
−1.6 percent of GDP in 2022), with a midpoint of −0.9 percent of GDP. The main contributor to the overall positive policy gap of 0.1 percent
of GDP is a positive credit gap of 0.4 percent, while the health expenditure gap is −0.3 percent. The fiscal policy gap is 0 percent despite a
negative domestic gap of 1.2 percent.
2023 (% GDP) CA: −0.7 Cycl. Adj. CA: −0.9 EBA Norm: 0.0 EBA Gap: −0.9 Staff Adj.: 0.0 Staff Gap: −0.9
Real Exchange Background. The ULC-based and CPI-based REERs continued to appreciate in 2023, by 4.1 and 1.9 percent, respectively, compared to 2022.
Rate As of April 2024, the ULC-based REER was 0.6 percent below the 2023 average, while the CPI-based measure was about 0.5 below the 2023
average. From a longer-term perspective, France has not managed to regain the loss of about one-third of its export market share registered
in the early 2000s (while the export market share of the euro area remained broadly stable between 2000 and 2023). France should advance
its reform agenda, with emphasis on horizontal efforts to support competitiveness and foster efficient investment allocation.
Assessment. The CA gap, as assessed by IMF staff, implies a REER gap of 3.3 percent in 2023 (applying an estimated semi-elasticity of
0.27). The EBA REER index model points to a REER gap of −5.1 percent, while the EBA REER level model points to a REER gap of 2.9 percent.
Consistent with the IMF staff CA gap, the IMF staff assesses the REER to be overvalued in the range of 1.7 to 5 percent, with a midpoint of
3.3 percent.
Capital and Background. After a postpandemic normalization in 2021–22, inward and outward foreign direct investment declined significantly in 2023
Financial (from 3.8 to 0.7, and from 4.2 to 2.2 percent of GDP, respectively). The financial account is open. Public external debt and banks’ gross
Accounts: Flows financing needs have increased in 2023.
and Policy Assessment. France remains exposed to financial market risks owing to the large refinancing needs of the sovereign and banking sectors.
Measures
FX Intervention Background. The euro has the status of a global reserve currency.
and Reserves Assessment. Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.
Level

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Table 3.9. Germany: Economy Assessment

Overall Assessment: The external position in 2023 was stronger than the level implied by medium-term fundamentals and desirable policies. In 2023, the CA
strengthened versus 2022 mainly due to a normalization in the prices of energy imports, which had previously risen significantly in the wake of Russia’s invasion
of Ukraine. In 2024, the CA is expected to strengthen slightly from improved terms of trade and as demand from Asia recovers. Over the medium term, the CA is
projected to taper slightly as higher wage growth pushes up imports.
Potential Policy Responses: Policies aimed at promoting investment and diminishing excess saving would support external rebalancing and a further reduction of
the CA balance toward its norm. Over the medium term, higher fiscal deficits than currently planned are likely to be needed to ensure adequate public investment
in the green transition, digitalization, and transport infrastructure. Structural reforms to foster innovation, including strengthening of venture capital financing for
start-up companies and streamlining of administrative procedures to start a business, would also stimulate investment. Training to enhance employability of older
workers with outdated skills could also extend working lives and reduce the need for excess saving. Industrial policies should be deployed cautiously, remain
targeted to specific objectives where externalities or market failures prevent effective market solutions, and avoid favoring domestic producers over imports to
minimize trade and investment distortions.
Foreign Asset Background. The NIIP was largely unchanged at 70 percent of GDP in 2023 versus 2022. This was despite the year’s CA surplus because of
and Liability valuation losses on Germany’s external assets versus liabilities over the course of the year. Germany’s external assets include holdings of
Position and sovereign securities, whose market prices fell in response to global policy rate tightening. Germany’s TARGET2 claims on the Eurosystem fell
Trajectory to €1.1 trillion at the end of 2023, down from €1.3 trillion at the end of 2022 as the European Central Bank initiated its quantitative tightening
program from March 2023 onwards. Between 2017 and 2023, the NIIP increased by some 24 percent of GDP, lifting the primary income
balance going forward.
Assessment. Germany’s exposure to the Eurosystem remains large.
2023 (% GDP) NIIP: 70 Gross Assets: 302 Debt Assets: 157 Gross Liab.: 232 Debt Liab.: 148
Current Account Background. The CA surplus came in at 5.9 percent of GDP in 2023, compared with 4.2 percent in 2022 and 8.0 percent on average over
2017–19. The strengthening of the CA in 2023 was driven mainly by a significant increase in the goods balance, as the cost of commodity
imports (mainly natural gas and other energy sources) declined sharply, even though goods exports weakened slightly. The increase in the
goods balance was partially offset by a significant decrease in the services balance, mainly due to a normalization of travel, transport, and
vaccine-related intellectual property exports after the pandemic. Primary and secondary income accounts were largely unchanged. The
increase in the CA surplus reflected a sharp increase in Germany’s CA surplus with non–euro area countries. With Asia, Germany’s trade
balance increased, reflecting, in particular, a reduced deficit with China, as both exports and imports contracted, the latter more sharply.
The government’s savings-investment balance increased slightly, in line with the tight fiscal stance. The savings-investment surpluses of
households and firms also increased slightly, especially given lower inventory accumulation than in the previous year.
Assessment. The cyclically adjusted CA balance is estimated by the EBA model to be 5.9 percent of GDP in 2023. IMF staff assess the
CA norm to be between 2.6 and 3.6 percent of GDP, with a midpoint of 3.1 percent of GDP, in line with the EBA model. The difference
between the cyclically adjusted CA and the CA norm implies that the CA gap for 2023 was in the range of 2.2–3.2 percent of GDP, with a
midpoint of 2.7 percent of GDP.
2023 (% GDP) CA: 5.9 Cycl. Adj. CA: 5.9 EBA Norm: 3.1 EBA Gap: 2.7 Staff Adj.: 0.0 Staff Gap: 2.7
Real Exchange Background. Despite a strong REER depreciation during the energy crisis (early 2021 to mid-2022), the REER has recovered to prepandemic
Rate levels. The REER based on consumer prices appreciated by 3.5 percent in 2023, driven by real appreciation against China and Japan. As of
April 2024, the REER was 0.5 percent below the 2023 average.
Assessment. The IMF staff CA gap implies a REER gap of −7.5 percent in 2023 (with an estimated elasticity of 0.36 applied). The EBA REER
level and index models suggest an undervaluation of 9.3 percent and an overvaluation of 8.0 percent, respectively. Consistent with the staff
CA gap, the staff assesses the REER to be undervalued, with a midpoint of 7.5 percent and a range of uncertainty of ±1.4 percent.
Capital and Background. In 2023, significant capital exports corresponding to the CA surplus were largely in the “other investments” category due to
Financial transactions via the accounts of monetary and financial institutions by firms, households, and governments, as FDI and portfolio investment
Accounts: Flows were muted, while derivatives transactions were largely unchanged. Foreign institutions reduced deposits with German banks, reflecting in
and Policy part a decline in excess liquidity in the euro area. FDI (both inward and outward) as well as portfolio investment declined versus the previous
Measures year, in part due to the global rate tightening environment, especially during the first three quarters of 2023. This led to reduced demand for
listed and unlisted equities and higher demand for highly rated sovereign securities, with German investors buying euro area securities and
foreign investors buying German securities.
Assessment. Risks are limited, given Germany’s safe-haven status and the strength of its external position.
FX Intervention Background. The euro has the status of a global reserve currency.
and Reserves Assessment. Reserves held by euro area economies are typically low relative to standard metrics. The currency floats freely.
Level

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Table 3.10. Hong Kong Special Administrative Region: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The CA
surplus (in percent of GDP) narrowed in 2023 as the goods balance deficit widened due to weaker external demand while the services balance registered a
subdued recovery from COVID-era disruptions as slower growth in key markets impacted the performance of the tourism sector. The CA surplus is expected to
decline moderately over the medium term with the recovery in domestic demand broadly offsetting the impact of improved external conditions. Under the Linked
Exchange Rate System (LERS), short-term movements in the REER largely reflect US dollar developments. The credibility of the currency board arrangement
has been ensured by a transparent set of rules governing the arrangement, large fiscal and FX reserves, strong financial regulation and supervision, the flexible
economy, and a prudent fiscal framework.
Potential Policy Responses: A gradual pace of fiscal consolidation in the near term to secure a balanced recovery, while taking measures to ensure fiscal
sustainability over the medium to long term given the rapidly aging population, would help ensure that the external position will remain broadly in line with
fundamentals. Maintaining policies that support wage and price flexibility is crucial to preserving competitiveness under the currency board arrangement. Robust
and proactive financial supervision and regulation, prudent fiscal management, flexible markets, and the LERS have worked well, and continuation of these
policies will help keep the external position broadly in line with fundamentals.
Foreign Asset Background. The NIIP decreased to 468 percent of GDP in 2023 from 492 percent in 2022. There were significant decreases in both gross
and Liability assets (by 68 percentage points of GDP), and gross liabilities (44 percentage points of GDP). Both gross assets and liabilities are high,
Position and reflecting Hong Kong Special Administrative Region’s status as an international financial center. Valuation effects in 2023 were sizable as the
Trajectory change in the NIIP (−24 percentage points of GDP) far exceeded the financial account balance (−9.2 percent of GDP).
Assessment. Vulnerabilities are low given the positive and sizable NIIP and its favorable composition. FX reserves remain large (111 percent
of GDP at the end of 2023) and direct investments account for a large share of gross assets and liabilities (36 and 53 percent, respectively)
while only 10.9 percent of gross liabilities are portfolio investments.
2023 (% GDP) NIIP: 468 Gross Assets: 1,620 Debt Assets1: 390 Gross Liab.: 1,152 Debt Liab.1: 211
Current Account Background. The CA surplus narrowed to 9.2 percent of GDP in 2023 from 10.2 percent in 2022. The goods deficit widened, driven by a
decline in exports due to the economic slowdown in Mainland China. The services recovery moderated in part due to the lingering impact
of COVID restrictions, which remained in place until late-2022, leaving the services surplus stable but well below the pre-pandemic level.
However, the income balance rose strongly, driven by higher investment income flows, in part reflecting higher global interest rates. The CA
balance is projected to continue to gradually decline over the medium term with the recovery in domestic demand broadly offsetting the
impact of improved external conditions.
Assessment. After adjusting for cyclical and other temporary factors,2 the CA surplus is estimated to be 9.5 percent of GDP in 2023,
compared to the mid-point of the staff assessed range for the norm of 10.4 percent of GDP (9.5 to 11.3 percent of GDP). The IMF staff-
assessed CA gap range hence is between −1.8 to 0 percent of GDP, with an estimated mid-point of −0.9 percent of GDP. Since Hong
Kong Special Administrative Region is not in the EBA sample, the CA norm was estimated by applying EBA-estimated coefficients to Hong
Kong Special Administrative Region and was adjusted for measurement issues related to the large valuation effects in the NIIP and the
discrepancies between stocks and flows.3
2023 (% GDP) CA: 9.2 Cycl. Adj. CA: 8.8 EBA Norm: — EBA Gap: — Staff Adj.: — Staff Gap: −0.9
Real Exchange Background. Under the currency board arrangement, REER dynamics are largely determined by U.S. dollar developments and inflation
Rate differentials between the United States and Hong Kong Special Administrative Region. The REER appreciated by 2.6 percent in 2023,
somewhat slower than the 3.7 percent appreciation in 2022. As of April 2024, the REER had appreciated by 2.6 percent relative to the
2023 average.
Assessment. The IMF staff assesses the REER gap, based on the staff-assessed CA gap range, to be around 2.3 percent (mid-point of the
REER gap range of 0 to 4.5 percent and based on the average CA-REER elasticity of about 0.4).4
Capital and Background. As an international financial center, Hong Kong Special Administrative Region has an open capital account. The net outflow
Financial in non-reserve financial flows moderated to 11.9 percent of GDP in 2023, well below the 22.9 percent recorded in 2022, driven by net
Accounts: Flows portfolio and other investment outflows. The financial account is typically very volatile, reflecting financial conditions in Hong Kong Special
and Policy Administrative Region and Mainland China (transmitted through growing cross-border financial linkages),5 shifting expectations of U.S.
Measures monetary policy, and related arbitraging in the FX and rates markets.
Assessment. Large financial resources, proactive financial supervision and regulation, and deep and liquid markets should help limit the
risks from potentially volatile capital flows. The greater financial exposure to Mainland China could also pose risks to the financial sector
through real sector linkages, particularly trade and tourism, credit exposures of the banking sector, and fundraising by Chinese firms in local
financial markets. However, Hong Kong Special Administrative Region’s banking system, with its high capital buffers and profitability, is
assessed to be broadly resilient to macro-financial shocks.
FX Intervention Background. The Hong Kong dollar has continued to trade in a smooth and orderly manner within the Convertibility Zone in 2023. The HKMA
and Reserves conducted FX operations as part of the currency board operations, selling US$6.6 billion, substantially less than US$30.8 billion sold in 2022.
Level Total reserve assets decreased to 111 percent of GDP at the end of 2023 (or 1.8 times the monetary base) from 118 percent of GDP at the
end of 2022.
Assessment. FX reserves are currently adequate for precautionary purposes and should continue to evolve in line with the automatic
adjustment inherent in the currency board system. Despite a large fiscal deficit in 2023, Hong Kong Special Administrative Region still holds
significant fiscal reserves (about 25 percent of GDP at the end of 2023) built up through strong fiscal discipline in previous years.

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Table 3.11. India: Economy Assessment

Overall Assessment: The external position in fiscal year 2023/24 (ending in March 2024) was moderately stronger than the level implied by medium-term
fundamentals and desirable policies, suggesting that the CA deficit was somewhat smaller than implied by India’s level of per capita income, favorable growth
prospects, demographic trends, and development needs. External vulnerabilities stem from weakening demand in some partner countries and potentially volatile
global financial conditions and commodity prices. In part reflecting buoyant services exports and steady oil prices, the CA deficit is projected to remain smaller
than its estimated norm in fiscal year 2024/25 but converge to it over the medium term. The authorities have made some progress in external trade promotion
and the liberalization of FDI and portfolio flows, which enabled India’s inclusion in global bond indices, but India’s trade and capital account regimes remain
relatively restricted, weighing on both exports and imports.
Potential Policy Responses: In the near term, the government’s additional infrastructure spending, along with the expected strengthening of private consumption, will
contribute to raising the CA deficit, thereby reducing the positive CA gap. To facilitate external rebalancing over the medium term, development of export infrastructure
and negotiation of free trade agreements with main trading partners to provide a sustainable boost to exports should be accompanied by further investment regime
liberalization and a reduction in import tariffs, especially on intermediate goods. Structural reforms should aim at improving the business environment, aiming to
induce private investment, and deepening integration into global value chains and attracting FDI, hence mitigating external vulnerabilities. Industrial policies should
be pursued cautiously, remain narrowly targeted to specific objectives where externalities or market failures prevent effective market solutions, and aim to minimize
trade and investment distortions. Exchange rate flexibility should act as the main shock absorber, with intervention limited to addressing disorderly market conditions.
Foreign Asset Background. As of the end of 2023, India’s NIIP had improved marginally to −10.6 percent of GDP, from −11.1 percent of GDP at the end of
and Liability 2022, reflecting valuation changes and a base effect of fast nominal GDP growth more than offsetting the CA deficit. Gross foreign assets
Position and increased to 27.9 percent of GDP (from 26.1 percent of GDP at the end of 2022), while gross foreign liabilities rose to 38.5 percent of GDP,
Trajectory from 37.2 percent of GDP at the end of the previous year. The bulk of assets were in the form of official reserves and FDI, whereas liabilities
included mostly debt and FDI.
Assessment. With the CA deficit projected to remain below its medium-term norm in 2024 and converge to it by 2029, the NIIP-to-GDP
ratio is expected to remain broadly unchanged over the medium term, as robust nominal GDP expansion will offset the nominal NIIP decline
resulting from the projected CA deficits. India’s external debt liabilities are relatively low compared with those of its peers, and short-term
rollover risks are limited. The moderate level of foreign liabilities reflects India’s incremental approach to capital account liberalization,
including focus on attracting FDI.
2023 (% GDP) NIIP: −10.6 Gross Assets: 27.9 Debt Assets: 3.1 Gross Liab.: 38.5 Debt Liab.: 17.1
Current Account Background. The CA deficit is estimated to have narrowed to about 0.8 percent of GDP in fiscal year 2023/24, from 2.0 percent of GDP in the
previous year, supported by improving terms of trade and fiscal consolidation. From the domestic perspective, it corresponded to an increase in gross
savings from 31 to 32.5 percent of GDP, while gross domestic investment grew modestly from 33 to 33.3 percent of GDP. Amid steady oil prices
(in part reflecting India’s proactive diversification of oil import sources), buoyant services exports increasingly offset the contained merchandise trade
deficit. Trade restrictions—including food export restrictions and an information technology hardware import management system—are weighing
on both exports and imports. The CA deficit is projected to increase to about 1.4 percent of GDP in fiscal year 2024/25, largely reflecting rebounding
domestic demand. Over the medium term, the CA deficit is projected to converge to its norm of about 2.2 percent of GDP.
Assessment. The EBA cyclically adjusted CA balance stood at −0.5 percent of GDP in fiscal year 2023/24. The EBA CA regression estimates a
norm of −2.2 percent of GDP, with a standard error of 0.6 percent, implying a CA gap of 1.7 percent of GDP. IMF staff thus assesses the CA gap
to be 1.7 percent of GDP, within a range of 1.1 to 2.3 percent of GDP. Positive policy contributions to the CA gap stem mostly from the fiscal
balance and changes in FX reserves amid elevated capital controls, while negative contributions come mostly from the domestic credit gap.
In IMF staff’s judgment, a CA deficit of up to 2½ percent of GDP is financeable in the medium term by a combination of steady FDI inflows,
public and private external borrowing, and portfolio flows, though the latter may remain susceptible to changes in global risk appetite.
2023 (% GDP) CA: −0.8 Cycl. Adj. CA: −0.5 EBA Norm: −2.2 EBA Gap: 1.7 Staff Adj.: 0.0 Staff Gap: 1.7
Real Exchange Background. In early 2023, policy tightening in advanced economies and portfolio investment outflows resulted in depreciation pressures
Rate on the rupee. These pressures abated and reversed when the CA deficit narrowed and global investor sentiment improved in the second half
of 2023 and early 2024. The average REER in 2023 depreciated by about 1.6 percent from its 2022 average. As of April 2024, the REER was
1.8 percent above the 2023 average.
Assessment. The IMF staff CA gap implies a REER gap of −9.4 percent (with an estimated elasticity of 0.18). EBA REER index and level
models suggest an overvaluation of 5.9 percent and 5.2 percent, respectively. Consistent with the staff CA gap, however, the IMF staff
assesses the REER gap to be in the range of −12.7 to −6.1 percent, with a midpoint of −9.4 percent, for fiscal year 2023/24.
Capital and Background. In fiscal year 2023/24, net FDI inflows decreased to about 0.3 percent of GDP, mostly reflecting rising repatriations and
Financial disinvestment. Net portfolio investment inflows strengthened to about 1.2 percent of GDP in anticipation of India’s inclusion in global
Accounts: Flows bond indices. Other investments, reflecting mostly debt-creating inflows, remained at about 1.1 percent of GDP. During the year, the Indian
and Policy authorities made further steps toward capital account liberalization by widening the scope of government bonds available for foreign
Measures investors, which should help moderate the interest costs associated with financing the CA deficit.
Assessment. While net FDI inflows covered most of the CA deficit in fiscal year 2023/24, the decline in FDI inflows as share of GDP warrants
further structural reforms and improvement of the investment regime to promote FDI. Volatile portfolio flows are sensitive to changes in global
financial conditions and country risk premia. The planned inclusion of India in international bond indices has significantly increased foreign
participation in India’s bond market (though from a low base) and supported net portfolio inflows that more than covered the CA deficit.
FX Intervention Background. Official FX reserves increased in 2023 and early 2024, reflecting a decreasing CA deficit, FDI and portfolio investment inflows,
and Reserves and valuation changes. During this time, the Reserve Bank of India’s FX interventions aimed to smooth excessive market volatility and
Level contributed to the rupee’s exchange rate stability. Reserves stood at $623.2 billion at the end of 2023 and $645.6 billion at end-March 2024.
Assessment. Various criteria confirm that the official FX reserves are adequate for precautionary purposes. As of the end of 2023, they
represented about 219 percent of short-term debt (on residual maturity), 109 percent of the IMF’s composite metric (for a de facto stabilized
exchange rate arrangement),1 and more than eight months of import coverage. In view of India’s moderately strong external position,
generally deep and liquid FX markets, limited FX mismatches, well-anchored inflation expectations, and adequate reserves level, Integrated
Policy Framework analysis indicates that FX interventions should be limited to addressing disorderly market conditions.

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Table 3.12. Indonesia: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. In the medium
term, exchange rate flexibility and structural policies are expected to contain the CA deficit. Although external financing needs appear sustainable, Indonesia’s
reliance on foreign portfolio investment exposes the economy to sharp swings in market sentiment and risk premiums, and to fluctuations in global financial
conditions.
Potential Policy Responses: The projected fiscal expansion in the coming years may support import growth and increase the CA deficit. Maintaining external
balance will thus require structural reforms to enhance productivity and facilitate post-COVID-19 sectoral adjustments. Reforms should include (1) higher
infrastructure investment and higher social spending to foster human capital development and strengthen the social safety net; (2) a reduction of restrictions on
inward FDI and external trade, including by moving away from nontariff barriers, (as discussed in the 2023 Article IV consultation); and (3) promotion of greater
labor market flexibility. Flexibility of the exchange rate should continue to support external stability with the ongoing structural transformation of the Indonesian
economy.
Foreign Asset Background. Indonesia’s NIIP remained unchanged at −19.0 percent of GDP at the end of 2023, reflecting an increase of 1.1 percentage
and Liability points in gross external assets and liabilities, respectively to 35.3 and 54.3 percent of GDP. The increase in gross external assets was
Position and supported by higher FDI abroad, portfolio investment, and reserve assets. In turn, the increase in gross external liabilities reflected fully the
Trajectory increase in FDI inflows. Indonesia’s gross external debt remained moderate at 29.8 percent of GDP at the end of 2023, declining marginally
from 30.1 percent of GDP in 2022. External rollover risks in the short term are contained as reflected in the large share of long-term debt.
Assessment. The level and composition of the NIIP and gross external debt indicate that Indonesia’s external position is sustainable and
subject to limited rollover risk. But the relatively high dependence on foreign portfolio investment (20.1 percent of GDP in 2023) makes
Indonesia highly vulnerable to swings in global financial market sentiment. The NIIP as a percent of GDP is projected to stabilize at current
levels in the medium term, as robust nominal GDP growth offsets the projected small CA deficits.
2023 (% GDP) NIIP: −19.0 Gross Assets: 35.3 Res. Assets: 10.7 Gross Liab.: 54.3 Debt Liab.: 29.8
Current Account Background. The CA balance posted a small deficit of 0.1 percent in 2023, after two consecutive years of surpluses (1.0 percent in 2022).
The deficit in 2023 was primarily driven by the non-oil and gas trade balance, reflecting weaker growth in major trading partners, and a
broad-based decline in commodity prices. The resilience in domestic demand translated into a smaller decline in imports relative to exports.
On the savings-investment side, higher government revenue was broadly offset by lower private savings and higher private investment.
The CA deficit is expected to widen moderately in 2024 due to lower commodity prices, while robust domestic demand will support import
growth. The CA deficit is expected to remain close to the norm throughout the projection horizon.
Assessment. Staff estimates a CA gap of 0.8 percent of GDP for 2023, consistent with an estimated cyclically adjusted CA deficit of
−0.3 percent of GDP, a staff assessed norm of −0.8 percent of GDP, and an adjustor of 0.3 percentage point for demographics.1 Considering
the uncertainty in the estimation of the norm, the CA gap for 2023 is in the range of 0.3 to 1.3 percent of GDP. EBA-identified policy gaps
are estimated at 1.7 percent of GDP, driven by a tighter fiscal stance than in other countries (1.3 percent) and underspending on health care
(0.6 percent).
2023 (% GDP) CA: −0.1 Cycl. Adj. CA: −0.3 EBA Norm: −0.8 EBA Gap: 0.5 Staff Adj.: 0.3 Staff Gap: 0.8
Real Exchange Background. The average REER depreciated by 3.7 percent in 2023 compared to the average level in 2022 (or 3.2 percent relative to the
Rate pre-COVID-19 2016–19 average). The depreciation materialized on the back of the rapid tightening in global monetary policy and high
volatility in global financial markets. The rupiah managed to recover some of the losses against major currencies toward the end of 2023,
as a result of easier global financial conditions, and Bank Indonesia’s policy responses (including a one-off interest rate hike). As of the end
of April 2024, the REER was 2.4 percent below its 2023 average.
Assessment. The staff CA gap estimate of 0.8 percent of GDP implies a REER gap of −5.0 percent (applying an estimated elasticity of 0.16).
The REER index and level models point to REER gaps of 0.8 percent and −15.9 percent, respectively. Consistent with the staff CA gap, staff
assesses the REER gap in the range of −7.9 to −2.1 percent, with a midpoint of −5.0 percent.
Capital and Background. Net capital and financial flows returned to positive territory in 2023 (0.6 percent of GDP), after negative net flows of −0.7 percent
Financial of GDP in 2022. The recovery in financial inflows was driven by portfolio investment, particularly concentrated in the last quarter of 2023,
Accounts: Flows reflecting the introduction of several open market instruments by Bank Indonesia to attract capital flows to support international reserves.
and Policy Net FDI inflows continued to decline, to 1.1 percent of GDP in 2023 (1.4 percent in 2022 and 1.5 percent in 2021). The share of nonresident
Measures holdings of rupiah-denominated government bonds ticked up by 0.6 percentage point to 14.9 percent in 2023, but remain considerably below
the 39 percent share in 2019.
Assessment. The recovery in portfolio investment flows in 2023 helped support the small negative CA deficit in 2023. Continued strong
policies, focused on safeguarding the fiscal position, advancing financial deepening, and easing broad-based structural reforms that promote
an enabling business environment, should help sustain capital inflows in the medium term, particularly in periods of high market volatility.
FX Intervention Background. Since mid-2013, Indonesia has had a more flexible exchange rate policy framework. Official foreign reserves increased to
and Reserves US$146 billion in 2023, from US$137 billion in 2022, reflecting the increase in deposits abroad and the withdrawal of government’s foreign
Level loans during the year, which more than offset the decline in securities from FX intervention.
Assessment. The current level of reserves (10.7 percent of GDP, 123 percent of the IMF’s reserve adequacy metric, and 6.1 months of
prospective imports) should provide a sufficient buffer against external shocks. Predetermined drains also seem manageable, although they
have increased related to short positions on financial derivatives. In line with the Integrated Policy Framework, the use of FX interventions
remains appropriate under certain shocks and circumstances, particularly when shocks trigger spikes in market premia given shallow FX
markets, while remaining mindful of preserving reserve buffers.

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Table 3.13. Italy: Economy Assessment

Overall Assessment: The external sector position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies. The CA
balance increased by 2.1 percentage points to a surplus of 0.5 percent of GDP, largely on the fall in the energy import bill. The capital account maintained a
surplus of 0.8 percent of GDP on inflows of NextGenerationEU grants. The rise in the external position reflected a 2.2 percentage point decrease in the investment
rate mainly on large inventory decumulation by the private sector in response to the easing of global supply and energy terms of trade shocks. The saving rate
declined modestly. Chronic weak productivity, rapid population aging, and uncertain medium-term growth prospects could depress investment once tax credits
and fiscal programs under the National Recovery and Resilience Plan are completed, with the CA rising toward its norm.
Potential Policy Responses: Comprehensive structural reforms are needed to encourage an increase in private investment in order to modernize the capital
stock and boost potential growth. Simultaneously strengthening the external position will require an increase in public sector saving, supported by a frontloaded
fiscal adjustment program. Vulnerabilities associated with rollover of public debt would be reduced through a frontloaded fiscal adjustment, including improved
budget efficiency, containing social benefit spending, undertaking comprehensive and progressive tax reform and fully implementing the National Recovery and
Resilience Plan. Industrial policies should be deployed cautiously, remain targeted to specific objectives where externalities or market failures prevent effective
market solutions, and avoid favoring domestic producers over imports to minimize trade and investment distortions.
Foreign Asset Background. Italy’s NIIP increased to 7.4 percent of GDP at the end of 2023, reflecting the modest CA and capital account surpluses and
and Liability small valuation gains. Gross foreign assets and liabilities decreased to 169.4 and 162.0 percent of GDP, respectively. TARGET 2 liabilities
Position and declined notably from their peak of 36 percent of GDP in 2022 to 25 percent of GDP at the end of 2023, driven mainly by the rebound in net
Trajectory foreign financial inflows (mainly residents’ repatriation of foreign assets), while foreign liabilities fell. Over half of external debt is attributed
to the public sector (general government and Bank of Italy), and nearly 40 percent of debt is short term. External debt owed by the Bank of
Italy (30 percent of GDP) relates to its Target 2 liabilities to other Eurosystem central banks, which are short term and remunerated at the
European Central Bank policy rate.
Assessment. Further strengthening public balance sheets and undertaking structural reforms would lessen vulnerabilities associated
with the high public debt, reinvigorate economic growth, and reduce the potential for negative feedback loops between the debt stock and
debt-servicing costs.
2023 (% GDP) NIIP: 7.4 Gross Assets: 169.4 Debt Assets: 44.2 Gross Liab.: 162.0 Debt Liab.: 121.8
Current Account Background. From 2017 through 2022, Italy’s CA averaged 2.2 percent of GDP, gradually increasing through 2021 before declining in 2022
due to the adverse energy price shock. The CA balance shifted from a deficit of 1.6 percent of GDP in 2022 to a surplus of 0.5 percent of GDP
in 2023, primarily due to a sharp reduction in energy imports on the abatement of the previous energy terms-of-trade shock. While exports to
non-EU countries grew strongly, overall performance weakened on the decline in exports to other EU members, leading to a 1.8 percentage
point drop in the goods exports to GDP ratio. The primary income balance declined by more than 1 percent of GDP largely on the increase in
interest payments on TARGET 2 liabilities. From a saving-investment perspective, the CA improvement was supported by a large reduction
in private investment, mainly due to inventory decumulation. Over the forecast horizon, the CA is expected to gradually increase, but remain
somewhat below the norm on account of high EU-financed public investment and a slow improvement in government saving.
Assessment. The cyclically adjusted CA is estimated at 0.8 percent of GDP for 2023, 3.0 percentage points below the EBA-estimated CA
norm of 3.8 percent of GDP. Taking into account uncertainty around the estimate, the IMF staff assesses the CA gap to be in the range of −3.7
to −2.3 percent of GDP, with a midpoint of −3.0 percent of GDP. The fiscal policy gap and credit policy gap contributed −1.2 percent of GDP
and 1.0 percent of GDP to the total policy gap (−0.2 percent of GDP), reflecting the sizable fiscal deficit and the longstanding credit shortfall.
2023 (% GDP) CA: 0.5 Cycl. Adj. CA: 0.8 EBA Norm: 3.8 EBA Gap: −3.0 Staff Adj.: 0.0 Staff Gap: −3.0
Real Exchange Background. During 2017–22, the CPI-based REER depreciated by 2.5 percent, while the ULC-based REER depreciated by 1.1 percent. During
Rate 2023, the CPI-based REER appreciated by 2.8 percent due to the strengthening of the euro, but partly offset by Italy’s relatively lower inflation
than its trading partners. As of April 2024, the CPI-based REER depreciated by 1.7 percent relative to the 2023 average.
Assessment. The IMF staff CA gap implies a REER gap of 11.5 percent in 2023 (with an estimated elasticity of 0.26 applied). The level and
index CPI-based REER models suggest an overvaluation in 2023 of 10.8 percent and 8.9 percent, respectively. Based on the IMF staff CA gap,
the staff assesses a REER gap to be in the range of 8.8 to 14.2 percent, with a midpoint of 11.5 percent.
Capital and Background. The capital account balance recorded a surplus of 0.8 percent of GDP in 2023 (higher than in 2022) due to receipt of
Financial NextGenerationEU grants. The financial account posted net outflows of 1.7 percent of GDP in 2023, as the reduction in TARGET 2 liabilities by
Accounts: Flows €165 billion was partly offset by repatriation of foreign assets by the resident nonfinancial sector.
and Policy Assessment. The tightening of monetary policy through September 2023 pushed up yields on government bonds, which have since
Measures decreased on expectations of monetary policy loosening. Large refinancing needs of the sovereign and the banking sector suggest Italy
remains vulnerable to market volatility.
FX Intervention Background. The euro has the status of a global reserve currency. Italy’s reserves remained largely unchanged in 2023.
and Reserves Assessment. Reserves held by the euro area are typically low relative to standard metrics, but the currency is freely floating.
Level

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Table 3.14. Japan: Economy Assessment

Overall Assessment: The external position in 2023 is assessed as broadly in line with the level implied by medium-term fundamentals and desirable policies.
The CA surplus increased to 3.6 percent of GDP in 2023 from 2.1 percent in 2022. The lower primary income surplus is more than offset by higher inbound
tourism and auto exports (as supply disruptions fade) and reduced imports from lower commodity prices. Japan’s CA surplus is expected to continue over the
medium term, mainly driven by its primary income surplus, arising from a large positive NIIP and a high rate of return on net foreign assets.
Potential Policy Responses: Policies focused on structural reforms and fiscal sustainability (a credible and specific medium-term fiscal consolidation plan) are
needed to maintain an external position consistent with medium-term fundamentals and desirable policies. These “desirable” policies will help shift the drivers
of the economy from an unsustainable public saving-investment position to one where investment is driven by the private sector, which would raise Japan’s
potential growth over the medium term. Priority should be given to labor market and fiscal reforms that support private demand, raise potential growth, and
promote digital and green investment. While fiscal consolidation will push the CA surplus higher, this would be offset by higher investment and a decrease in
private savings from pandemic-era highs and due to demographic-related declines. Industrial policies should be pursued cautiously and remain narrowly targeted
to specific objectives where externalities or market failures prevent effective market solutions and aim to minimize trade and investment distortions. Japan’s
global leadership role to promote more open, stable, and transparent trade policies in regional/multilateral trade agreements should be prioritized.
Foreign Asset Background. Japan’s NIIP rose to 80 percent of GDP at the end of 2023, from 72.6 percent in 2022, and significantly higher than the
and Liability pre-pandemic (2016–19) average of 61.7 percent. This was driven by an increase in both net FDI and portfolio outflows and the positive
Position and valuation effects from yen depreciation. Japan holds the world’s largest stock of net foreign assets, valued at $3.4 trillion at the end of 2023.
Trajectory Assessment. Japan’s foreign asset holdings are well diversified, both by geography and risk classes. As of the end of 2023, gross foreign
assets largely comprised portfolio investment accounting for about 41 percent of the total, followed by FDI with 21 percent. Of that portfolio
investment, about 20 percent was yen denominated and 56 percent dollar denominated. In the event of yen appreciation against the dollar,
the risk of negative valuation effects could materialize. Vulnerabilities associated with liabilities are contained, given that equity and direct
investment account for about 33 percent of gross foreign liabilities. Owing to the continued depreciation of the yen, the NIIP continued to
generate a net annual investment income return of 7.4 percent in 2023, lower than 8.7 percent in 2022, but still significantly larger than
the pre-pandemic (2016–19) average of 6.3 percent. Japan’s large positive NIIP is partly related to the asset accumulation for old-age
consumption; a gradual decumulation of such assets is expected over the long term.
2023 (% GDP) NIIP: 80.0 Gross Assets: 247.5 Debt Assets: 88.2 Gross Liab.: 167.5 Debt Liab.: 96.1
Current Account Background. Japan’s CA surplus reflects a sizable primary income balance owing to its large net foreign asset position. The CA surplus
increased to 3.6 percent of GDP in 2023 from 2.1 percent in 2022, supported by higher net savings by the private sector which more
than offset the decline in net savings by the public sector. The merchandise trade deficit improved from −2.7 percent of GDP in 2022 to
−1.1 percent in 2023, driven by lower prices for commodity imports. Offshoring of production over the years has limited the positive impact
of yen depreciation on exports, while auto exports have surged on the back of supply-side improvements. The surge in inbound tourism also
boosted the services balance which improved from a deficit of 1 percent in 2022 to 0.5 percent in 2023. The primary income balance declined
to 5.9 percent from a historic high of 6.3 percent of GDP in 2022. The lower primary income balance is more than offset by a 2 percent of GDP
improvement in the overall trade (good and services) balance. In the medium term, the CA balance is projected to average 3.5 percent.
Assessment. The 2023 cyclically adjusted CA is 3.7 percent of GDP, and the cyclically adjusted CA norm is 4 percent of GDP (with a range
between 2.9 and 5.1 percent of GDP). The 2023 CA gap midpoint is assessed at −0.3 percent of GDP, with a range between −1.4 and
0.8 percent of GDP. The EBA-identified policy gaps reflect relatively greater medium-term fiscal consolidation needs, as well as a positive
credit gap, in relation to medium-term desired policy.1 The unexplained residual of the assessment potentially reflects structural impediments
and country-specific factors not included in the model, such as investment bottlenecks, including entrepreneurship entry barriers and
corporate savings distortions.
2023 (% GDP) CA: 3.6 Cycl. Adj. CA: 3.7 EBA Norm: 4.0 EBA Gap: −0.3 Staff Adj.: 0.0 Staff Gap: −0.3
Real Exchange Background. The REER continued to depreciate in 2023 by close to 5 percent, following a depreciation of 14 percent in 2022. This reflects
Rate relatively higher inflation in Japan’s major trading partners combined with the yen’s nominal depreciation against major currencies as a
result of widening real interest rate differentials amid global monetary tightening. As of April 2024, the REER was 6.9 percent below the
2023 average.
Assessment. The IMF staff CA gap implies a REER gap of 1.7 percent in 2023 (with an estimated elasticity of 0.18 applied). The EBA
REER level and index models deliver gaps of −31.7 and −35.5 percent, respectively. Consistent with the IMF staff CA gap, the REER gap is
assessed to be in the range of −4.6 to 8.0 percent, with a midpoint of 1.7 percent.
Capital and Background. The financial account recorded net outflows in 2023, mirroring the CA surplus, and increased to 3.9 percent of GDP in 2023
Financial from 1.1 percent in 2022. Net FDI outflows at 3.8 percent of GDP are primarily driven by outward FDI flows to Asia, Europe, and North
Accounts: Flows America. Net portfolio outflows at 4.7 percent of GDP, in comparison to net inflows of 3.4 percent of GDP in 2022, reflect lower demand for
and Policy yen-denominated assets due to divergence in monetary policy.
Measures Assessment. Vulnerabilities are limited. Inward investment tends to be equity based, and the home bias of Japanese investors is strong.
So far, outward spillovers from Japan’s policies to financial conditions in other economies (interest rates, credit growth) are contained.
FX Intervention Background. Reflecting legacy accumulation, reserves stood at $1.1 trillion, or about 26 percent of GDP, at the end of 2022. They remained
and Reserves broadly unchanged in 2023.
Level Assessment. The exchange rate is free floating, and there were no FX interventions in 2023. FX interventions should be limited to exceptional
circumstances such as disorderly market conditions or when economies are vulnerable to sharp currency fluctuations because of unhedged
exposures, shallow markets, or because inflation expectations are at risk of de-anchoring.

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Table 3.15. Korea: Economy Assessment

Overall Assessment: The external position in 2023 was moderately weaker than the level implied by medium-term fundamentals and desirable policies.
While lower import values due to declining commodity prices contributed to an increase in the CA surplus in 2023 relative to 2022, other factors prevented a
larger improvement, notably weaker semiconductor exports reflecting a downturn in the global semiconductor cycle. The strong recovery of semiconductor
exports is expected to significantly increase the CA surplus in 2024 and in the medium term. Risks from geopolitical tensions, if they materialized, could impede
trade and investment.
Potential Policy Responses: The restrictive monetary and fiscal policy stance is appropriate and will contain domestic demand and import growth, supporting
Korea’s external position in the near term. Over the medium term, an increase in precautionary savings in light of the aging-related rise of spending on healthcare
and pension, orderly deleveraging of private debt and policies to mitigate risks arising from geopolitical tensions would help to keep external position strong.
Exchange rate flexibility, with intervention limited to preventing disorderly market conditions, would help the economy absorb external shocks. Industrial policies
should remain narrowly targeted to specific objectives and aim to minimize trade and investment distortions.
Foreign Asset Background. The NIIP has been positive and has significantly increased in the past decade. In 2023, the nominal value of NIIP improved
and Liability slightly ($8.5 billion) while the NIIP-to-GDP ratio decreased modestly (by about 0.5 percent of GDP reflecting the denominator effect) to
Position and 45.5 percent. The NIIP is projected to rise further in the medium term, to about 60 percent of GDP in 2029, on the back of increasing
Trajectory CA surpluses.
Assessment. The large and positive NIIP is a key factor supporting external sustainability. Foreign asset holdings are diversified, with about
35 percent in equity or debt securities. About 60 percent of foreign assets are denominated in dollars, implying that depreciation of the won
can have large positive valuation effects in aggregate. The structure of liabilities further limits vulnerabilities, with direct investment and
long-term loans together accounting for 55 percent of liabilities and 70 percent of liabilities denominated in Korean won.
2023 (% GDP) NIIP: 45.5 Gross Assets: 133.5 Debt Assets: 60.0 Gross Liab.: 88.0 Debt Liab.: 38.7
Current Account Background. The CA surplus increased from 1.5 percent of GDP in 2022 to 2.1 percent of GDP in 2023, with lowered commodity imports
and the improvements in primary income more than offsetting the decline in semiconductor exports and service balances. From a
saving-investment perspective, a drop in the investment rate drove the increase in surplus in 2023 despite a decline in the saving rate
from pandemic-era highs. Since the pandemic, the developments in CA have been driven significantly by the global semiconductor cycle.
Following a surge during 2021-22, semiconductor exports decreased sharply by about 2 percent of GDP in 2023. But a strong recovery
is ongoing, with semiconductor exports already up by about 50 percent (y/y) in the first quarter of 2024, and the recovery is expected to
continue in 2024. Sustained growth in semiconductor exports over the medium term, coupled with the expected stabilization of commodity
import prices, is projected to increase the CA surplus to 4.5 percent of GDP in 2029. In the first quarter of 2024, the CA surplus already
reached $16.8 billion, equivalent to about 1 percent of GDP.
Assessment. The EBA CA model estimates a sizeable gap between the cyclically adjusted CA of 2.3 percent of GDP and the CA norm of
4.4 percent of GDP (with a standard error of 0.9 percent of GDP), while the 2023 surplus was already at a level that would maintain the NIIP
at its current level. Based on the CA model, the IMF staff estimates the 2023 CA gap midpoint at −2.0 percent of GDP, with a range of −2.9 to
−1.2 percent of GDP. A large unexplained residual potentially reflects country-specific factors not included in the model. The net contribution
of the relative policy gap is 0.6 percent of GDP, with contributions from a lower health spending and tighter fiscal stance outweighing a more
positive credit gap compared to the rest of the world.
2023 (% GDP) CA: 2.1 Cycl. Adj. CA: 2.3 EBA Norm: 4.4 EBA Gap: −2.0 Staff Adj.: 0 Staff Gap: −2.0
Real Exchange Background. The REER appreciated by about 2.1 percent in 2023 on average relative to 2022, reversing the sustained depreciation
Rate (11.4 percent accumulated) during 2019-2022. The REER appreciation in 2023 was mainly driven by won appreciation against currencies of
some major trading partners, notably the Japanese Yen and Chinese Yuan. As of April 2024, the REER depreciated by about 2 percent relative
to the 2023 average.
Assessment. The EBA CA gap implies a REER overvaluation of 6.1 percent (with an estimated elasticity of 0.33 applied). However, the EBA
REER index model estimates an undervaluation of 4.1 percent, while the EBA level model estimates a 3.1 percent undervaluation. Consistent
with the staff CA gap, staff assesses the REER gap to be in the range of 3.4 to 8.7 percent, with a midpoint of 6.1 percent. Given the wide
range of estimates from different approaches, the estimated REER gap should be interpreted with caution.
Capital and Background. Net capital outflows, which have been on a declining trend since 2016, further reduced to 2 percent of GDP in 2023 from
Financial 3.3 percent of GDP in 2022. Both net FDI and portfolio outflows dropped by about 1.2 percent of GDP, reflecting a reduction of residents’
Accounts: Flows outbound direct investment and the resumption of foreigners’ net purchases of equity securities.
and Policy Assessment. Amid multiple global shocks in recent years, Korea has demonstrated remarkable resilience in weathering short-term capital
Measures flow volatility. The present configuration of capital flows appears sustainable over the medium term, mirroring the projected increase in the
CA surplus and NIIP.
FX Intervention Background. Korea has a floating exchange rate. Based on IMF staff estimates and published data, FX intervention since 2015 has been
and Reserves two-sided. In 2023, FX intervention significantly reduced from net sales of $45.9 billion (2.8 percent of GDP) in 2022 to $9.6 billion
Level (0.6 percent of GDP), mostly conducted in the second and third quarters during periods of heightened exchange rate volatility. As of the
end-2023, reserves stood at $420 billion, lower than $423 billion as of end-2022.
Assessment. Exchange rate volatility generally does not pose significant economic challenges for Korea, given limited currency mismatches
and manageable passthrough to consumer prices. FX market depth, while ranking higher than in most emerging markets, still lags advanced
economy peers. In periods of high global financial market uncertainty, there could be herding behavior amid temporarily shallow markets,
leading to sharp FX movements and impaired market functioning. Intervention should thus remain limited to preventing disorderly market
conditions. As of end-2023, FX reserves were about 25 percent of GDP, 2.2 times short-term debt, 6.6 months of imports, or 14 percent
of M2. Systemwide stress tests also show that reserves provide sufficient FX liquidity buffers under a wide range of plausible shocks.

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Table 3.16. Malaysia: Economy Assessment

Overall Assessment: Malaysia’s external position in 2023 is assessed to be stronger than the level implied by medium-term fundamentals and desirable policies.
The CA surplus, after strengthening due to pandemic-related exports, narrowed significantly in 2023 due to a moderation in external demand and a high primary
income deficit. Over the medium term, the CA surplus is projected to widen as the services balance improves due to a recovery in tourism and as imports
moderate.
Potential Policy Responses: In the near term, flexibility of exchange rate should be preserved to facilitate external adjustments that are driven by fundamentals.
Over the medium term, policies should be implemented to strengthen social safety nets and public health care, including through a reorientation of fiscal
spending. Structural policies should be implemented to encourage private investment and improve productivity growth, including through a reduction in the skills
mismatch, improvements in the quality of education, and measures to improve access to credit for small and medium enterprises. Industrial policy should remain
narrowly targeted to specific objectives where market solutions cannot deliver due to the presence of externalities or other market imperfections and should
avoid discriminatory measures that distort trade and investment flows.
Foreign Asset Background. Malaysia’s NIIP has averaged about 1 percent of GDP over the last decade, increasing to 5.8 percent at the end of 2021,
and Liability supported by strong CA surpluses during the pandemic that increased reserve assets. As of the end of 2022, NIIP declined to 3.0 percent
Position and of GDP; however, it increased to 6.8 percent of GDP by the end of 2023 due to an increase in the acquisition of assets abroad in the form
Trajectory of portfolio and direct investments. Total external debt remains manageable, increasing to 68 percent of GDP at the end of 2023, from
64 percent at the end of 2022. One-third of external debt is ringgit-denominated, hence, not exposed to valuation risks. Short-term external
debt, accounting for 42 percent of external debt, is also manageable, as most of it is either in the form of largely stable intragroup borrowing
or trade credits.
Assessment. Malaysia’s NIIP is expected to increase over the medium term, supported by the projected CA surpluses. Malaysia’s balance
sheet strength, along with exchange rate flexibility and increased domestic investor participation, would help support resilience to a variety
of shocks, including outflows associated with external liabilities.
2023 (% GDP) NIIP: 6.8 Gross Assets: 132.0 Debt Assets: 28.6 Gross Liab.: 125.2 Debt Liab.: 24.6
Current Account Background. Malaysia’s CA surplus averaged 3.2 percent over the last five years, supported by robust external goods demand. During
the pandemic, despite a decline in travel receipts, external demand for pandemic-related goods and electrical and electronic products
strengthened the CA balance. CA surplus declined to 1.5 percent of GDP in 2023, the lowest in over two decades. This decline was driven
by a moderation in external demand, because of a slowdown in major trading partners and a decline in demand for electrical and electronic
products amid a global technology downcycle. The declining trend in the CA surplus over the past five years is also reflective of the
narrowing savings-investment gap, mainly driven by an increase in private investment and decline in public savings. The CA surplus is
expected to grow over the medium term, as tourism recovers and improves the services balance.
Assessment. The EBA CA model estimates a cyclically adjusted CA balance of 1.8 percent of GDP and a norm of −0.3 percent, implying
a model-assed CA gap of 2.1 percent. Staff assess a CA gap in the range of 1.6 to 2.7 percent, with a midpoint estimate of 2.1 percent.
Identified policy gaps partly explain the CA gap, with weaker social safety nets, proxied by health care expenditure, and looser fiscal policies
adopted by the rest of the world relative to Malaysia contributing positively (0.6 percent each) to the excess surplus, and decline in balance-
of-payments reserve assets and credit growth contributing negatively (−0.2 percent and −0.1 percent, respectively).
2023 (% GDP) CA: 1.5 Cycl. Adj. CA: 1.8 EBA Norm: −0.3 EBA Gap: 2.1 Staff Adj.: 0.0 Staff Gap: 2.1
Real Exchange Background. The ringgit faced depreciation pressures during most of 2023, weakening by almost 5 percent against the US dollar as of
Rate the end of 2023 relative to the end of 2022. Over the same period, the REER depreciated by 5.4 percent, while the NEER depreciated by
4.3 percent, as inflation in Malaysia was lower compared to its major trading partners. As of April 2024, the REER depreciated by 2.7 percent
relative to the 2023 average.
Assessment. Using a semi-elasticity of 0.5, the staff assessed CA gap implies a REER undervaluation of 4.1 percent in 2023. The REER index
and level models estimate Malaysia’s REER to be undervalued by 27.2 percent and 30.1 percent, respectively. This implies that, over the
medium term, Malaysia’s REER needs to appreciate to narrow the CA gap. Staff assess the REER to be undervalued in the range of 3.1 to
5.2 percent, with a midpoint estimate of 4.1 percent.
Capital and Background. Over the past five years, Malaysia has experienced significant volatility in capital flows, largely driven by portfolio flows in and
Financial out of the local-currency debt market, in response to changes in global financial conditions and domestic factors. Between 2019 and 2023,
Accounts: Flows the financial account balance and portfolio investments averaged −2.3 and −1.9 percent of GDP, respectively.
and Policy Assessment. Continued exchange rate flexibility and warranted macroeconomic policy adjustments should continue to play the central role
Measures in response to capital flow volatility. CFM measures should be gradually phased out, with due regard for market conditions.
FX Intervention Background. Malaysia has a floating exchange rate regime. Gross international reserves declined to US$113.5 billion at the end of 2023,
and Reserves relative to US$114.7 billion at the end of 2022. In 2023, against the backdrop of external pressures, reserves decreased through October, but
Level recovered during the last two months of the year, as external pressures eased.
Assessment. Based on the IMF’s composite ARA metric, reserves declined to 114 percent of ARA at the end of 2023, above the adequacy
threshold of 100 percent, but marginally lower than 116 percent at the end of the previous year. This decline is partly driven by an increase in
the short-term external debt. The reserve coverage declined to 4.8 months of prospective imports of goods and services, or about 81 percent
of short-term debt. Staff assess that Bank Negara Malaysia engaged in largely two-sided FX interventions over the year. There is a role for
FX interventions to address disorderly market conditions. Integrated Policy Framework analysis suggests that, in the context of Malaysia’s
shallow FX market, the use of FX interventions may be warranted to smooth large changes in hedging and financing premia if they generate
risks to macroeconomic and financial stability. FX interventions should not however substitute for needed policy adjustment and should not
be used to lean against exchange rate pressures that are driven by fundamentals.

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Table 3.17. Mexico: Economy Assessment

Overall Assessment: The external position in 2023 was moderately stronger than the level implied by medium-term fundamentals and desirable policies.
As Mexico’s CA deficit shrank to 0.3 percent of GDP in 2023, its adjusted external position strengthened owing to the improvement of terms of trade and the
impact of the more accommodative fiscal stance in other economies. The CA deficit is expected to widen moderately in 2024 and hover around 1 percent of GDP
in the medium term.
Potential Policy Responses: Further structural reforms to address investment obstacles are critical to boost investment, including through FDI inflows, and thereby
enhance growth in the medium and long term, and to maintain external sustainability. These reforms could include tackling economic informality and governance
gaps, encouraging female labor force participation, promoting financial deepening, initiating private sector participation in energy, and reforming Pemex’s business
strategy and governance. Maintaining a prudent fiscal stance is also vital to buttress external stability. Mexico should continue to promote open trade policies and
avoid increasing barriers to trade and investment. The floating exchange rate should continue to serve as a shock absorber, with FX interventions employed only in
exceptional circumstances. The IMF’s Flexible Credit Line with Mexico continues to provide an added buffer against global tail risks.
Foreign Asset Background. The NIIP is projected to improve from −41 percent of GDP in 2023 to about −28 percent of GDP over the medium term, driven
and Liability mainly by a decline in foreign liabilities relative to nominal GDP. Foreign assets in 2023 (44 percent of GDP) were mostly direct investment
Position and (15 percent of GDP) and international reserves (12 percent of GDP). Foreign liabilities (84 percent of GDP) were mostly direct investment
Trajectory (46 percent of GDP) and portfolio investment (30 percent of GDP).
Assessment. While the NIIP is sustainable and the relatively high share of local currency denomination in its foreign public liabilities reduces
FX risks, the large gross foreign portfolio liabilities could be a source of vulnerability in case of global financial volatility. Vulnerabilities from
exchange rate volatility are moderate, as most Mexican firms with FX debt have natural hedges and actively manage their FX exposures.
2023 (% GDP) NIIP: −41 Gross Assets: 44 Debt Assets: 13 Gross Liab.: 84 Debt Liab.: 33
Current Account Background. The CA deficit was 0.3 percent of GDP in 2023, down from 1.2 percent in 2022, mainly reflecting a higher (by 1.5 percent of
GDP) trade balance partly offset by a lower (by 0.1 percent of GDP) primary income balance and lower (by 0.5 percent of GDP) secondary
income balance relative to GDP. The trade deficit shrunk as terms of trade improved. The improvement of the CA reflected higher private
savings, while these were partly offset by higher investment. The CA deficit is expected to widen moderately in 2024 with strong demand
boosting imports. Over the medium term, the CA balance is projected to hover around a deficit of 1 percent of GDP.
Assessment. The EBA model estimates a cyclically adjusted CA balance of 0.1 percent of GDP and a cyclically adjusted CA norm of
−1.3 percent of GDP. This implies an EBA model CA gap of 1.4 percent of GDP, reflecting policy gaps (0.6 percent of GDP, mostly driven by the
fiscal gap of 0.7 percent of GDP) and an unidentified residual (0.8 percent of GDP). The estimated fiscal gap of 0.7 percent of GDP reflects a
relatively tighter fiscal stance than in the rest of the world. The cyclically adjusted CA norm has an error band (with one standard deviation)
of −0.9 to −1.7 percent of GDP.
2023 (% GDP) CA: −0.3 Cycl. Adj. CA: 0.1 EBA Norm: −1.3 EBA Gap: 1.4 Staff Adj.: 0.0 Staff Gap: 1.4
Real Exchange Background. In 2023, the peso appreciated by more than 10 percent against the US dollar. Average REER in 2023 appreciated by about
Rate 21 percent compared with the 2022 average, mostly driven by a nominal appreciation, reflected in an average NEER appreciation of
18 percent in 2023 compared with the average 2022 NEER. As of April 2024, the REER was 9 percent above the 2023 average.
Assessment. The IMF staff CA gap implies a REER undervaluation of 4.5 percent (with a semi-elasticity of 0.31 applied). The EBA REER index
and level models estimate overvaluations of 8.1 percent and 27.6 percent, respectively, in 2023. The staff’s overall assessment, based on the
CA gap approach, is a REER undervaluation in the range of 3.2 to 5.9 percent, with a midpoint of 4.5 percent. This assessment is subject to
high uncertainty, including due to large unidentified CA model residuals.
Capital and Background. In 2023, Mexico recorded net financial account inflows to the tune of 0.3 percent of GDP, compared with 1.0 percent of GDP in
Financial 2022. Net inflows of FDI rose to 1.7 percent of GDP, partially offset by net portfolio outflows of 0.6 percent of GDP, widening somewhat from
Accounts: Flows the previous year (0.3 percent of GDP), and reserve accumulation.
and Policy Assessment. The long maturity of external sovereign debt and the relatively high share of local-currency-denominated debt, supported by
Measures prudent fiscal and debt management by the government, reduce the exposure of government finances to FX depreciation and refinancing
risks. The banking sector is resilient, with FX risks contained under macroprudential policy measures. FX risks of nonfinancial corporate debt
are generally covered by natural and financial hedges. However, the strong presence of foreign investors leaves Mexico exposed to capital
flow reversals and risk premium increases.
FX Intervention Background. The authorities remain committed to a free-floating exchange rate and has used FX intervention in limited occasions of
and Reserves extreme volatility, in line with their policy framework. This is consistent with staff determination in the context of the Integrated Policy
Level Framework (CR No. 23/356) that the use of FX interventions should remain limited to exceptional circumstances, as staff analysis did not
identify material frictions that would warrant regular FX interventions in Mexico, given Mexican peso’s deep and liquid FX market, limited
FX balance sheet mismatches, and well-anchored inflation expectations under the inflation targeting framework. At the end of 2023, gross
international reserves were $214 billion (12 percent of GDP), up from $201 billion at the end of 2022. In 2023, the FX hedging mechanism
using nondeliverable forwards, created in 2017 to address heightened market volatility, was started to be unwound. No other FX intervention
was conducted.
Assessment. At 126 percent of the ARA metric and 296 percent of short-term debt (at remaining maturity), the level of Mexico’s foreign
reserves at the end of 2023 remains adequate. The IMF staff recommends that the authorities continue to maintain reserves at an adequate
level over the medium term. The Flexible Credit Line arrangement continues to provide an additional buffer.

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Table 3.18. The Netherlands: Economy Assessment

Overall Assessment: The external position in 2023 was substantially stronger than the level implied by medium-term fundamentals and desirable policies.
The Netherlands’ status as a base for multinational corporations and as a trading hub and financial center makes the external assessment challenging. After
a rebound in 2023, the external CA surplus is expected to contract over the medium term as population aging and a progressively higher fiscal deficit in the
baseline forecast reduce domestic saving.
Potential Policy Responses: To bring the external balance to a level in line with medium-term fundamentals and desirable policies, fostering investment in
physical and human capital, also by facilitating access to finance, particularly for small and medium enterprises, should take priority. Against this background,
the previous government’s structural investment and reform plans to safeguard energy security, allay housing market shortages, reinforce the education system,
advance the climate transition, and further promote the digitalization of the economy should continue.
Foreign Asset Background. The NIIP reached 71.8 percent of GDP in 2023, compared with 75.2 percent in 2022. Positive NIIP impacts from CA surpluses
and Liability recorded in 2023 were more than offset by denominator effects from strongly increasing nominal GDP and negative valuation effects that
Position and particularly affected the net stock of portfolio investment and financial derivatives. FDI remains the largest component of the international
Trajectory investment position, accounting for more than half of external assets and liabilities, also reflecting The Netherlands’ role as the seat for
multinational corporations and its importance as a financial center. Debt liabilities primarily comprise long-term debt securities (48 percent,
of which 69 percent are denominated in euro and 22 percent are denominated in US dollars), currency and deposits (29 percent, of which
60 percent are denominated in euro), and long-term loans (7 percent).
Assessment. The Netherlands’ safe haven status and its sizable foreign assets limit risks from its large foreign liabilities.
2023 (% GDP) NIIP: 71.8 Gross Assets: 931.2 Debt Assets: 228.1 Gross Liab.: 859.4 Debt Liab.: 242.1
Current Account Background. Refinements by Statistics Netherlands applied over 2020–22 resulted in an upward shift of the CA surplus from 4.4 to
9.3 percent of GDP in 2022, primarily reflecting a higher trade balance (+1.5 percentage points) after addressing data limitations that had
prevailed during the pandemic and an improvement of the primary income balance (+3.2 percentage points) due to revisions to the profits
of multinational corporations listed on the stock market. In 2023, the CA surplus is estimated to have rebounded to 10.1 percent of GDP
(10.3 percent of GDP cyclically adjusted). Support measures cushioning the impact of the energy price shock on households and corporations
have weighed on public net savings in 2023 but were counterbalanced by recovering private net savings from a strong labor market,
accelerating wage growth, and weakening residential investment. The Netherlands’ role as a trading hub and financial center contributes
to a structurally strong headline external position. Specifically, multinational corporations based in The Netherlands are recording profits at
their Dutch headquarters while channeling a large part of their investment abroad in the form of FDI, keeping nonfinancial corporate saving
high. Relatedly, measurement biases of portfolio equity–retained earnings in official statistics may also contribute to an overstatement of the
net accumulation of wealth that is attributed to Dutch residents, an issue of relevance for a country where the foreign ownership of publicly
listed firms has been above 80 percent in recent years. In 2024, the CA is projected to decline to 9.1 percent of GDP.
Assessment. The EBA CA model estimates a CA norm of 4.3 percent of GDP. Based on a cyclically adjusted CA surplus of 10.3 percent of
GDP in 2023, the EBA CA gap is assessed at 6.1 percent of GDP. A total of 3.7 percentage points of the CA gap are attributable to policy gaps,
primarily reflecting a relatively tighter fiscal stance and a negative credit gap that remains wider than those abroad. The portfolio retained
earnings bias is assessed to be −1.8 percent of GDP based on the provision of granular data by De Nederlandsche Bank that allows for
the attribution of aggregate net savings by firms to different segments of the corporate sector. Taking these factors into consideration, and
against a norm in the range of 3.8 to 4.8 percent of GDP, the IMF staff assesses the CA gap to be in the range of 3.7 to 4.8 percent of GDP,
with a midpoint of 4.3 percent of GDP. This gap reflects a second-pillar retirement scheme with large coverage, robust replacement ratios,
and strict prefunding requirements.
2023 (% GDP) CA: 10.1 Cycl. Adj. CA: 10.3 EBA Norm: 4.3 EBA Gap: 6.1 Staff Adj.: −1.8 Staff Gap: 4.3
Real Exchange Background. In 2023, the CPI-based REER appreciated by 0.8 percent when compared with its 2022 average as inflation in The Netherlands
Rate kept outpacing price developments in key trading partners. The ULC-based REER appreciated by 0.7 percent, suggesting labor cost increases
slightly ahead of competitors. As of April 2024, the CPI-based REER was 0.6 percent above its 2023 average.
Assessment. Assuming a semi-elasticity of 0.65, the IMF staff CA gap of 4.3 percent of GDP implies a REER undervaluation of about
6.6 percent. EBA REER model estimates for 2023 range from an overvaluation of 2.8 percent (level model) to 18.9 percent (index model),
largely reflecting unexplained residuals. Consistent with the staff CA gap, the IMF staff assesses the REER as undervalued by about 5.8 to
7.4 percent, with a midpoint of 6.6 percent.
Capital and Background. A considerable share of gross foreign assets and liabilities are attributable to special purpose entities, financial vehicles with
Financial marginal operational footprints in The Netherlands that contribute to substantial yet hard-to-interpret capital flow volatility. A notable part of
Accounts: Flows capital outflows represents the channeling of corporate profits by multinationals abroad as FDI.
and Policy Assessment. The strong external position limits vulnerabilities to capital outflows. The financial account deficit is primarily the flip side of a
Measures CA recording sustained—and structural—surpluses.
FX Intervention Background. The euro has the status of a global reserve currency.
and Reserves Assessment. Reserves held by euro area economies are typically low relative to standard metrics, but the currency floats freely.
Level

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Table 3.19. Poland: Economy Assessment

Overall Assessment: The external position in 2023 was stronger than the level implied by medium-term fundamentals and desirable policies. The CA shifted
from a deficit of 2.4 percent in 2022 to a sizable surplus of 1.6 percent of GDP, due to improved terms-of-trade, subdued domestic demand, and a transitory
sharp drawdown in import-intensive inventories to unwind extraordinary buildup in the aftermath of the pandemic and at the start of the Russia’s invasion of
neighboring Ukraine. As the economic recovery continues in 2024, consumption and credit growth are anticipated to pick up. The significant REER appreciation in
2023 and the release of EU funds are also expected to support imports. The CA balance is projected to decline to −1 percent of GDP over the medium term.
Potential Policy Responses: Efforts to boost investment should focus on easing regulatory hurdles to private investments in the energy sector. This would help
catalyze investment and financing additional to the NextGenerationEU grants to address infrastructure gaps and support digitalization. Strengthening the pension
system in a financially sustainable manner can reduce pressures on precautionary savings for households from declining replacement ratios.
Foreign Asset Background. The negative NIIP has declined markedly over the last decade, both in size and structure, transitioning from volatile sources
and Liability of financing such as portfolio flows and short-term financing towards more stable FDI. The NIIP reached −33.5 percent of GDP in 2023 from
Position and −33.7 percent in 2022. Gross external debt declined to 49 percent of GDP in 2023 from 54 percent in 2022.
Trajectory Assessment. The level of external debt has declined substantially, with rollover risk mitigated by the large share of long-term debt
(70 percent of total debt) and intercompany lending (30 percent of total debt). The level of gross reserves (158 percent of short-term debt) is
adequate and further reduces residual rollover risk.
2023 (% GDP) NIIP: −33.5 Gross Assets: 59.6 Reserve Assets: 24 Gross Liab.: 93.1 Gross External Debt: 49
Current Account Background. The CA in recent years was characterized by volatile domestic and external demand and terms-of-trade changes amid
multiple shocks associated with the pandemic and the war, increased government spending to cushion cost-of-living increases and support
refugees, robust service exports and strong reinvested earnings of foreign firms. In 2023, the CA recorded a surplus of 1.6 percent of GDP
from a deficit of 2.4 percent in 2022. This shift is mainly attributed to a substantial decline of commodity imports driven by a rebound
in terms-of-trade, subdued domestic demand partly due to cumulative interest rate hikes, and a sharp drawdown in import-intensive
inventories. This one-off effect was to unwind an unprecedented inventory build-up in 2021 and 2022 in response to supply chain
disruptions resulting from the pandemic and then Russia’s invasion of Ukraine that had prompted a stockpiling of inventories as a
precautionary measure. Total national savings remained broadly stable in 2023 while significant inventory destocking by companies
dampened overall investment despite a sizable pick up in fixed investment. In the near term, the CA balance is expected to decline as
growth picks up on the back of recovering consumption and EU fund-supported investment, with also the impact of the sizable real
appreciation in the latter part of 2023, and as inventories normalizes. Over the medium term, the CA balance is projected to converge
towards a deficit of 1 percent, due to robust consumption growth, sustained EU fund inflows and increased military spending.
Assessment. The EBA CA model estimates a CA norm of −2.2 percent of GDP and a cyclically adjusted CA surplus of 1.4 percent of GDP in
2023, implying an EBA model CA gap of 3.6 percent of GDP. The staff CA gap of 3.6 (±0.5) percent of GDP includes identified policy gaps of
1.8 percent of GDP and an unexplained residual of 1.8 percent of GDP. However, these estimates may not fully capture the one-off effects
boosting the CA surplus due to the drawdown in inventories. Among the policy variables, the credit gap was the largest contributor to the
policy gap. Staff estimates that overall desirable policies together with cyclical demand recovery will help narrow the credit gap over the
medium term.
2023 (% GDP) CA: 1.6 Cycl. Adj. CA: 1.4 EBA Norm: −2.2 EBA Gap: 3.6 Staff Adj.: 0.0 Staff Gap: 3.6
Real Exchange Background. The annual average of the NEER appreciated by 6.3 percent in 2023, while the REER appreciated by 11.3 percent, as the zloty
Rate strengthened considerably against both the US dollar and euro and as a positive inflation differential persisted in 2023 relative to Poland’s
trading partners. As of April 2024, the CPI-based REER had further appreciated by 5.2 percent from its 2023 average.
Assessment. The EBA REER index and level models estimate a 2023 REER gap of 11.8 and −11.7 percent, respectively. Consistent with the
staff CA gap and an estimated elasticity of 0.43, staff’s overall assessment is a REER undervaluation within a range of −7.3 to −9.4 percent,
with a midpoint of −8.4 percent.
Capital and Background. The capital account surplus declined to 0.2 percent of GDP in 2023 from 0.5 percent in 2022. Over the medium term, the capital
Financial account surplus is projected to stabilize around 0.5 percent of GDP, supported by inflows of EU funds. The financial account experienced a
Accounts: Flows net inflow of 1.6 percent of GDP in 2023. FDI inflows reached 2.3 percent of GDP on a net basis in 2023 from 3.7 percent in 2022.
and Policy Assessment. The capital account is projected to remain a strong source of support for investment, reflecting EU cooperation frameworks.
Measures Vulnerability to capital outflows is contained as foreign holdings of domestic government securities have declined continuously and
significantly since 2016, and the foreign investor base remains diversified. The central bank has adequate tools to manage bouts of volatility.
FX Intervention Background. FX reserves increased to US$194 billion in 2023 from US$167 billion in 2022. Net reserves, which net out the central bank’s
and Reserves repo operations and government FX deposits, stood at about US$167 billion in 2023 from US$146 billion in 2022. While central bank
Level briefly intervened in foreign exchange markets in March 2022 amid disorderly market conditions at the beginning of the war in Ukraine, no
intervention was conducted in 2023. The zloty is considered free floating.
Assessment. At about 164 percent of the IMF’s reserve adequacy metric, Poland’s level of gross reserves is adequate to guard against
external shocks and disorderly market conditions.

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Table 3.20. Russia: Economy Assessment

Overall Assessment: Russia’s external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. However,
the models do not fully account for Russia’s idiosyncratic situation. Due to sanctions, CA surpluses may not translate into an accumulation of readily accessible
foreign assets in reserve currencies. Further, the range of uncertainty surrounding the projections remains exceptionally large in the context of shifting sanctions.
Foreign Asset Background. Russia’s NIIP stood at 42.4 percent of GDP as of the end of 2023, an increase of 9.2 percentage points of GDP from its
and Liability 2022 level. In 2023, gross assets increased by 7.6 percentage points of GDP while remaining below their peak of 105 percent of GDP in
Position and 2020—driven primarily by an increase in other investments and reserve assets. Gross liabilities stood at 34.5 percent of GDP, declining from
Trajectory their 2022 level of 36.1 percent of GDP. As of the end of 2023, about one-third of external debt was held in domestic currency, and there were
no obvious maturity mismatches between gross asset and liability positions. The share of nonresident holdings of domestic government debt
continued to decline sharply, from 32.2 percent at the end of 2019 to 7.4 percent by the end of 2023.
Assessment. Recurring positive CA surpluses maintain Russia’s positive NIIP trends and contribute to an accumulation of external buffers.
Despite low external vulnerabilities at present, a share of international reserves is currently frozen due to sanctions and additional reserves
accumulation in traditional reserve currencies is hampered.
2023 (% GDP) NIIP: 42.4 Gross Assets: 76.9 Reserve Assets: 29.6 Gross Liab.: 34.5 Debt Liab.: 15.6
Current Account Background. After reaching a record level of 10.5 percent of GDP in 2022, Russia’s CA surplus narrowed sharply to 2.5 percent of GDP, closer
to its historical average and driven by an export-led decline in the trade balance. Energy exports declined due to lower global prices and
sharply lower gas exports to Europe since mid-2022. The CA is projected to increase slightly to 2.7 percent of GDP in 2024, although the
projection is subject to high uncertainty.
Assessment. The EBA CA model estimates a norm of 2.3 percent of GDP for 2023 and a cyclically adjusted CA surplus of 2.6 percent of
GDP. Identified policy gaps account for 1.5 percentage points—half of which is driven by the gap in the fiscal balance and reflect larger
consolidation needs in the rest of the world compared with Russia—while the unexplained residual accounts for −1.2 percentage points.
Moreover, the range of uncertainty surrounding the CA gap estimates is exceptionally large, given how difficult it is to estimate the cyclically
adjusted CA and the CA norm in the context of sanctions that have a direct impact on external balances.
2023 (% GDP) CA: 2.5 Cycl. Adj. CA: 2.6 EBA Norm: 2.3 EBA Gap: 0.3 Staff Adj.: 0.0 Staff Gap: 0.3
Real Exchange Background. Between the end of 2022 and summer 2023, the ruble lost close to 40 percent of its value in part due to the sharp decline in
Rate the CA surplus. In response, the Bank of Russia raised its policy rate by a cumulative 850 basis points in several steps starting at the end of
July, reaching 16 percent by the end of 2023. The Bank of Russia also intervened in the FX market to stem the depreciation. Additionally, the
Bank of Russia re-introduced repatriation and surrender requirements of export proceeds and tightened FX controls. The REER depreciated
by 24.6 percent in 2023, fully reversing 2022 gains. As of April 2024, the REER was 3.7 percent below the 2023 average.
Assessment. The IMF staff CA gap implies a REER undervaluation of 1.8 percent in 2023 (assuming an estimated elasticity of 0.17).
The EBA REER index models suggest a REER overvaluation of 3.3 percent, while the EBA REER level models points to a REER undervaluation
of 18.6 percent. Consistent with the CA gap (and also in line with the REER index model), staff assess the REER gap to be in the range
of −6.7 percent and 3.1 percent, with a midpoint of −1.8 percent (undervalued). However, these models do not fully account for Russia’s
idiosyncratic situation.
Capital and Background. While capital flow measures introduced in early 2022 were subsequently relaxed, the authorities have kept in place restrictions
Financial on repatriation of foreign investment, including FDI, as well as restrictions on cash FX withdrawals from bank accounts and cash exports
Accounts: Flows abroad. Amid remaining restrictions, net private capital outflows declined significantly—from 9.5 percentage points of GDP in 2022 to
and Policy 2.5 percentage points of GDP in 2023.
Measures Assessment. Russia’s large FX reserves and floating exchange rate regime continue to help absorb shocks. Remaining capital controls
effectively curtailed capital outflows and helped preserve buffers despite sanctions.
FX Intervention Background. Official reserves increased modestly by $16.6 billion to $598.6 billion in 2023 due to revaluation effects. Despite a positive
and Reserves CA balance, reserves accumulation remains constrained by the sanctions. In response to depreciation pressures, the Bank of Russia
Level implemented additional FX interventions in support of the ruble, including mirroring withdrawals from the National Wealth Fund related to the
National Wealth Fund’s investment in domestic assets and the suspension of FX purchases prescribed by the fiscal rule. Since January 2023,
the Bank of Russia has resumed buying and selling FX, but now only in Chinese RMB, as transactions in traditional reserve currencies are
prohibited by sanctions. The 2023 fiscal rule set the benchmark oil and gas revenues in rubles. When oil and gas revenues exceeded the
benchmark (in rubles), the authorities were required to purchase FX. The Ministry of Finance reverted to an earlier (benchmark oil price–based)
version of the fiscal rule from January 2024 onward.
Assessment. As of the end of 2023, international reserves stood at 343.2 percent of the IMF’s reserve adequacy metric. Given that a share of
international reserves has been frozen due to sanctions, the assessment of reserve adequacy is subject to high uncertainty.

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Table 3.21. Saudi Arabia: Economy Assessment

Overall Assessment: The external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies. The external balance
sheet remains strong. Reserves remain adequate according to standard IMF metrics, although savings are not sufficient from an intergenerational equity perspective.
Lower oil exports and investment-driven imports are expected to shift the CA surplus to a deficit. The central government’s non-oil primary balance to GDP is
expected to be on a continuously improving trend. Given the economy’s structure, external adjustment will be driven primarily by fiscal policy. The pegged exchange
rate continues to provide Saudi Arabia with a credible policy anchor.
Potential Policy Responses: Over the medium term, additional fiscal consolidation—including through enhanced revenue mobilization and energy price reforms—
could bring the CA balance closer to the norm. Sustained implementation of an ambitious structural reform agenda to diversify the economy, lift productivity, and
boost the non-oil tradable sector will also help in closing the gap. Risks associated with industrial policies should be minimized, while discriminatory policies
should be avoided as they could create distortions in the allocation of resources and elicit retaliatory actions by trade partners.
Foreign Asset Background. Net external assets are estimated at 73.5 percent of GDP at the end of 2023, slightly up from 70.9 percent of GDP in 2022
and Liability and down from 81.2 percent in 2021. In the medium term, the NIIP is expected to stabilize at 65 percent of GDP. Only broad categories are
Position and available on the composition of external assets. Portfolio and other investments, reserves, and FDI, respectively, account for 55 percent,
Trajectory 31 percent, and 14 percent of total external assets.
Assessment. The external balance sheet remains very strong. Substantial accumulated assets represent both protection against
vulnerabilities from oil price volatility and saving of exhaustible resource revenues for future generations.
2023 (% GDP) NIIP: 73.5 Gross Assets: 133.7 Res. Assets: 40.9 Gross Liab.: 60.1 Debt Liab.: 26.2
Current Account Background. The CA balance registered a surplus of 3.2 percent of GDP in 2023, down from a historical high of 13.7 percent surplus in
2022. The trade balance decreased by 9.5 percent of GDP as the price and volume of oil exports decreased and imports picked up in 2023—
primarily driven by domestic-driven policies of reducing oil production and promoting investment. Higher consumption and reduced oil
windfalls led to lower savings in 2023. The terms of trade deteriorated by 15 percent in 2023. For the projections, oil production is assumed
to follow the OPEC+ (Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters) agreement, with
a further decline in 2024 and a recovery in 2025. The CA surplus is expected to deteriorate to around 0.5 percent of GDP in 2024 before
shifting to a deficit in 2025 and decline further to a 2.8 percent of GDP deficit by 2029, reflecting increases in investment-driven imports and
decline in oil export revenues.
Assessment. The IMF staff assesses a CA gap of −2.6 percent of GDP using the EBA-Lite CA model1 (April 2024 World Economic Outlook),
although the overall assessment is subject to significant model uncertainty due to the idiosyncratic characteristics of the Saudi Arabian
economy. Saudi Arabia’s reliance on oil complicates the application of standard external assessment methodologies, given the wide swings
of oil prices between 2020 and 2023. Given this, the EBA-lite commodity module is also applied to Saudi Arabia ESA, with the Consumption
Allocation Rules suggesting a CA gap of −2 percent of GDP for constant real annuity rules and −5 percent of GDP for constant real per capita
annuity allocation rules. The Investment Needs Model suggests a CA gap of 3.5 percent of GDP. The estimated CA gap of −2.6 percent of GDP
has an estimated range from −4.6 to −0.6 percent of GDP.2
2023 (% GDP) CA: 3.2 Cycl. Adj. CA: 3.3 EBA Norm: — EBA Gap: — Staff Adj.: — Staff Gap: −2.6
Real Exchange Background. The riyal has been pegged to the US dollar at a rate of 3.75 since 1986. On average, the REER appreciated by 0.7 percent in
Rate 2023 and was 5.7 percent above its 10-year average (2013–22), while the NEER appreciated by 3.4 percent in 2023. The NEER appreciation
was mainly driven by the appreciation of the US dollar versus third currencies and with inflation less than in its trading partners, Saudi
Arabia’s REER appreciation was less than that of its NEER. As of April 2024, the REER was 0.7 percent above the 2023 average.
Assessment. Exchange rate movements have a limited impact on Saudi Arabia’s competitiveness in the short term, as most of its exports
are oil or oil-related products that are denominated in dollars. There is limited substitutability between imports and domestically produced
products, which in turn have significant imported labor and intermediate-input content. The EBA-Lite REER model suggests an overvaluation
of 13.2 percent. Based on the IMF staff CA gap and a 0.2 elasticity of the CA to a change in REER, the staff assesses the REER to be
overvalued by 12.1 percent, with a range of 2.9 to 21.2 percent.
Capital and Background. Net financial outflows in 2023 ($43 billion) returned to their historical average (2013–21) from a record high in 2022 ($123
Financial billion), mainly due to the decline of CA balance associated with reduced oil exports and oil prices. Net outflows continued as the Public
Accounts: Flows Investment Fund (sovereign wealth fund) and other entities continued to invest abroad. Reserves are expected to remain at a stable level
and Policy over the medium term through reduced asset accumulation abroad.
Measures Assessment. A lack of detailed information on the nature of financial flows in Saudi Arabia complicates the analysis of its financial account.
The strong reserve position, including the sizable assets of the Public Investment Fund, limits risks and vulnerabilities to capital flows.
FX Intervention Background. The Public Investment Fund’s investments abroad are increasing, although most of the government’s foreign assets are still
and Reserves held at the central bank within international reserves. Net foreign assets decreased to $417.1 billion (39.1 percent of GDP, 15.7 months of
Level imports, and 208 percent of the ARA metric) at the end of 2023, down from $440.5 billion at the end of 2022 (and from $724 billion in 2014).
This trend was, in part, driven by financial outflows. Reserves are expected to stabilize at about 13 months of imports in the medium term.
Assessment. Reserves play a dual role: they are saving for both precautionary motives and future generations. Reserves are adequate for
precautionary purposes (measured by the IMF’s metrics). Significant buffers are also available through external assets held by the Public
Investment Fund and national oil company. Nevertheless, fiscal consolidation is needed over the medium term to strengthen the CA and
increase saving for future generations.

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Table 3.22. Singapore: Economy Assessment

Overall Assessment: The external position in 2023 was substantially stronger than the level implied by medium-term fundamentals and desirable policies. The
assessment is subject to a wide range of uncertainty, reflecting Singapore’s very open economy and status as a global trading and financial center. Over the
medium term, the CA surplus is projected to narrow gradually driven by higher public spending, private investment, and an increase in household consumption
(as the share of prime working-age population actively saving for retirement declines).
Potential Policy Responses: The planned execution of major green infrastructure projects and the strengthening of social safety nets should help reduce external
imbalances in the near term. Over the medium term, Singapore’s economy is expected to undergo structural transformation in light of a rapidly aging population
and a transition to a green and digital economy. Higher public investment to address these issues, including spending on health care, green and other physical
infrastructures, and human capital, as well as ongoing reforms to strengthen social safety nets, would help reduce external imbalances over the medium term by
reducing net saving of the economy.
Foreign Asset Background. The NIIP stood at 171.4 percent of GDP in 2023, down from 178.4 percent of GDP in 2022 and below the average level of
and Liability 227.1 percent of GDP in 2019–23. Gross assets and liabilities are high, reflecting Singapore’s status as a financial center. About half of
Position and foreign liabilities are in FDI, and about a fifth are in the form of currency and deposits. The CA surplus has been a main driver of the NIIP
Trajectory since the global financial crisis, but valuation effects were material in some years, driven mainly by NEER appreciation as the Monetary
Authority of Singapore tightened its exchange rate–based monetary policy. CA and growth projections imply that the NIIP will rise over the
medium term. The large positive NIIP in part reflects the accumulation of assets for old-age consumption, which is expected to be gradually
unwound over the long term.
Assessment. Large gross non-FDI liabilities (425.9 percent of GDP in 2023)—predominantly cross-border deposit taking by local branches of
foreign banks—present some risks, but these are mitigated by large gross asset positions, banks’ large short-term external assets, and the
authorities’ close monitoring of banks’ liquidity risk profiles. Singapore has large official reserves and other official liquid assets.
2023 (% GDP) NIIP: 171.4 Gross Assets: 1,122.3 Res. Assets: 70 Gross Liab.: 950.9 Debt Liab.: 326.9
Current Account Background. The CA surplus was 19.8 percent of GDP in 2023, up from 18 percent in 2022. This mainly reflects an improvement in primary
income balance as receipts rose and payments declined. The CA balance is higher than the average of 17.7 percent since 2018 and slightly
lower than the post-global-financial-crisis peak of 22.9 percent in 2010. Singapore’s large CA balance reflects a strong goods balance and
a small surplus in the services balance that is partly offset by a (primary) income deficit.1 Structural factors and policies that boost savings,
such as Singapore’s status as a financial center, consecutive fiscal surpluses in most years, and rapid aging—combined with a mandatory
defined-contribution pension program (whose assets were about 84.8 percent of GDP in 2023)—are the main drivers of Singapore’s strong
external position. The CA surplus is projected to narrow over the medium term on the back of increased infrastructure and social spending.
In 2023, public saving increased as the fiscal balance improved further, following the unprecedented COVID-19-related stimulus, while private
saving decreased slightly.
Assessment. Guided by the EBA framework, staff assesses the 2023 CA gap to be in the range of 5.2 to 8.8 percent of GDP, with a midpoint
of 7.0 percent.2 The identified policy gaps in 2023 reflect a more contractionary fiscal policy adopted in 2023 in Singapore compared to the
rest of the world.
2023 (% GDP) CA: 19.8 Cycl. Adj. CA: 20.1 EBA Norm: — EBA Gap: — Staff Adj.: — Staff Gap: 7.0
Real Exchange Background. The REER appreciated by 7.2 percent in 2023, reflecting the appreciation of the NEER by 5.3 percent. This followed an
Rate appreciation of the REER by 5.8 percent and an appreciation of the NEER by 3.9 percent, both cumulative, between 2020 and 2022. As of
April 2024, the REER appreciated by 2.0 percent relative to its 2023 average.
Assessment. Consistent with the staff CA gap, staff assesses the REER to be undervalued in the range of 10.4 to 17.6 percent, with a
midpoint of 14.0 percent in 2023 (applying an estimated elasticity of 0.5).3
Capital and Background. Singapore has an open financial account. As a trade and financial center in Asia, changes in market sentiment can affect
Financial Singapore significantly. Increased risk aversion in the region, for instance, may lead to inflows to Singapore given its status as a regional
Accounts: Flows safe haven, whereas global stress may lead to outflows. The financial account balance reflects in part reinvestment abroad of income
and Policy from official foreign assets, as well as sizable net inward FDI and smaller but more volatile net bank-related flows. In 2023, the capital
Measures and financial account featured lower net outflows of 7.1 percent of GDP compared to 40.6 percent in 2022 (outflows ranged from 4.6 to
40.6 percent in 2018–22).
Assessment. The financial account is likely to remain in deficit as long as the trade surplus remains large.
FX Intervention Background. With the NEER as the intermediate monetary policy target, intervention is undertaken to achieve inflation and output objectives.
and Reserves As a financial center, prudential motives call for a larger NIIP buffer. Official reserves held by the Monetary Authority of Singapore reached
Level US$351billion (70 percent of GDP) in 2023. Aggregate data on foreign exchange intervention operations has been published since April 2020
(with a six-month lag).
Assessment. In addition to FX reserves held by the Monetary Authority of Singapore, Singapore also has access to other official foreign
assets managed by Temasek and GIC.4 The current level of official external assets appears adequate, even after considering prudential
motives, and there is no clear case for further accumulation for precautionary purposes.

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Table 3.23. South Africa: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. The CA deficit
widened to 1.6 percent of GDP in 2023 from 0.5 percent of GDP in 2022, largely driven by higher goods imports, with the CA dynamics reflecting public sector
dissaving associated with an increase in the fiscal deficit. The CA deficit is expected to modestly widen to 1.8 percent of GDP in 2024 as imports continue to recover.
Potential Policy Responses: A combination of bold structural reforms and fiscal consolidation is necessary and can help support South Africa’s external position.
Structural reform efforts to help boost competitiveness should focus on addressing the energy and logistics crises (including by promoting private sector
participation), as well as on improving governance, product market efficiency, and the functioning of labor markets and bolstering worker skills. Fiscal consolidation
should be expenditure based, while providing space for critical infrastructure investment and well-targeted social spending to help tackle poverty and inequality.
Industrial policies, where desirable, should address specific market failures to promote competition and exports in concerned industries and technological
advancement, while avoiding discriminatory contents that violate international trade rules or accentuate trade tensions. A flexible rand exchange rate should remain
the main shock absorber, and maintaining an adequate level of international reserves can further support resilience to shocks.
Foreign Asset Background. At end-2023, South Africa’s NIIP improved markedly to 28.1 percent of GDP from to 19.7 percent in 2022 (and about 8 percent
and Liability in 2019), mainly due to valuation adjustments on foreign assets (both on account of exchange rate depreciation and price effects). The NIIP
Position and surplus is expected to moderate over the medium term as the CA deficit is projected to widen. Gross external assets reached 128.1 percent
Trajectory of GDP (of which 17.4 percent of GDP were reserve assets) and gross liabilities stood at 100 percent of GDP. Gross external debt increased
slightly to about 42 percent of GDP in 2023 (from 41 percent in 2022), while short-term external debt (on a residual maturity basis) increased
marginally to 13.3 percent of GDP in 2023.
Assessment. The level and composition of NIIP and gross external debt indicate that South Africa’s external position is sustainable. Risks
from large gross external liabilities are mitigated by a large external asset position and the liability composition (mostly in equities), and a
significant share of external debt (43 percent) is rand-denominated.
2023 (% GDP) NIIP: 28.1 Gross Assets: 128.1 Debt Assets: 16.8 Gross Liab.: 100 Debt Liab.: 41.8
Current Account Background. The CA deficit averaged 3 percent of GDP during 2015-19, turning temporarily into surplus during the pandemic, but reverting
to a deficit of 0.5 percent of GDP in 2022. In 2023, the CA deficit widened to 1.6 percent of GDP, largely driven by a decline in the goods
trade balance surplus on account of higher imports, partly offset by a reduction in the income balance deficit. The CA deficit is projected to
widen to 1.8 percent of GDP in 2024 and 2.2 percent in the medium term, as import growth continues to strengthen alongside a recovery in
domestic demand to pre-pandemic levels.
Assessment. Staff estimates a CA gap in the range of −0.2 to −1.6 percent of GDP in 2023 (−0.9 percent of GDP mid-point estimate).
The cyclically adjusted CA is estimated at −2.2 percent of GDP in 2023, relative to a model-based EBA CA norm of 0.6 percent of GDP.
Accounting for South Africa’s lower life expectancy relative to other countries, an adjustor of 0.5 is applied, bringing its norm to 0.1 percent
of GDP. Staff also adjusts the CA for the statistical treatment of Southern African Customs Union transfers (1 percent of GDP) and income
balance measurement issues (0.4 percent of GDP),1 resulting in an estimated staff CA gap of −0.9 percent of GDP, largely explained by
structural factors outside the model.
2023 (% GDP) CA: −1.6 Cycl. Adj. CA: −2.2 EBA Norm: 0.6 EBA Gap: −2.8 Staff Adj.: 1.9 Staff Gap: −0.9
Real Exchange Background. The CPI-based REER depreciated by 8.3 percent in 2023 (following a depreciation of 2.2 percent in 2022), largely on account of
Rate the depreciation of the rand against the currencies of main trading partners. As of April 2024, REER appreciated by 1.8 percent compared to
the 2023 average.
Assessment. Based on the CA approach, and taking model uncertainties into consideration, staff assesses the REER to be overvalued with
a range of 0.9 to 6.3 percent and a midpoint of 3.6 percent for 2023 (applying an estimated elasticity of 0.25). The REER-based regression
points to undervaluation of 15.8 percent (level approach) and to an undervaluation of 20.7 percent (index approach).
Capital and Background. Net FDI inflows increased to 2.1 percent of GDP in 2023 (from 1.7 percent in 2022), while net portfolio outflows accelerated
Financial to −1.6 percent in 2023 (from −1.1 percent in 2022). At the same time, derivative net inflows increased to 0.6 percent of GDP (from −0.5
Accounts: Flows percent in 2022), while other investment registered an outflow of −0.1 percent of GDP (from an inflow of 1.9 percent in 2022). Reserves
and Policy increased by 0.2 percent of GDP in 2023 (net of valuation gains), contributing to an increase in the surplus of the financial account to 1.3
Measures percent GDP in 2023 from 1 percent in 2022. The capital account was in balance in 2023 from a deficit of 0.4 percent of GDP in 2022. Gross
external financing needs reached almost 15 percent of GDP in 2023 from 12.7 percent in 2022, owing to increased external debt amortization
and the wider current account deficit.
Assessment. Risks from large reliance on non-FDI inflows for external financing and sizable nonresident holdings of local financial assets
are mitigated by relatively limited currency mismatches, large equity liability composition of the NIIP, and a large domestic institutional
investor base. The latter tends to reduce asset price volatility during periods of market stress.
FX Intervention Background. South Africa’s exchange rate regime is classified as floating. Central bank intervention in the FX market is rare. International
and Reserves reserves increased to 16.6 percent of GDP at end-2023 (from 15.5 percent in 2022) representing about 127.3 percent of short-term debt and
Level covering about 6 months of imports. International reserves represent 97.3 percent of the IMF’s ARA metric (108.8 percent when CFMs are
taken into account), in line with the recommended 100–150 percent range.
Assessment. Maintaining an adequate level of international reserves well within the recommended range can further support South Africa’s
resilience to shocks.

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Table 3.24. Spain: Economy Assessment

Overall Assessment: The external position in 2023 is assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable
policies. Even though the large negative NIIP was significantly reduced in 2023, strengthening it further will require sustaining relatively high CA surpluses
in coming years. While in 2023–24 the CA balance will exceed the norm, this gap is projected to shrink in the medium term, with the CA surplus declining as
tourism flows normalize, non-energy imports regain strength—supported by the shift in the economy’s growth drivers towards domestic demand, particularly
investment which has a high import content—and private saving slowly declines toward pre-COVID-19 levels.
Potential Policy Responses: The projected CA surplus path will keep reducing the sizable negative NIIP as needed. Therefore, policies that would divert the CA from
such a path, including those that would weaken competitiveness and the CA, should be avoided. However, a similar path could be achieved with a better policy mix
that keeps the savings-investment balance and the projected CA path broadly unchanged, while supporting growth and preserving fiscal sustainability. Specifically,
sustained fiscal consolidation efforts would rebuild fiscal space and raise aggregate saving, while structural reforms—together with investments in strategic
areas—could boost growth and raise aggregate investment. Any such industrial policies should be pursued cautiously, remain narrowly targeted to specific
objectives where externalities or market failures prevent effective market solutions, and aim to minimize trade and investment distortions. Spain should persist
in its efforts to enhance education outcomes, encourage innovation, and reduce energy dependence from abroad. The Recovery, Transformation and Resilience
Plan includes investments and reforms in these areas, as well as specific measures to diversify and improve the quality of tourism services, but adequate
implementation and ex post evaluation remain critical for success.
Foreign Asset Background. The NIIP continued to improve in 2023 and reached −52.8 percent of GDP by the end of the year. This trajectory reflects a larger
and Liability decrease in gross liabilities compared to that in assets (as a percentage of GDP). Gross liabilities—of which nearly 70 percent correspond to
Position and external debt—declined to 248.3 percent of GDP by the end of 2023. Most of the negative NIIP is attributed to the general government and
Trajectory the central bank, with TARGET2 liabilities amounting to 26.2 percent of GDP by December 2023.1 The NIIP is projected to continue improving
in the medium term, supported by sustained CA surpluses and the positive—though temporary—impact of NextGenerationEU funds
disbursements on the capital account.
Assessment. Despite its projected improvement, the still large negative NIIP comes with external vulnerabilities, including those from large
gross financing needs and risks of adverse valuation effects, which could be affected by the evolution of global financial conditions and
policy responses. Mitigating factors include the rather long maturity of outstanding sovereign debt (averaging almost eight years) and the
limited share of debt denominated in foreign currency (11.9 percent of total external debt).
2023 (% GDP) NIIP: −52.8 Gross Assets: 195.5 Debt Assets: 95.0 Gross Liab.: 248.3 Debt Liab.: 149.0
Current Account Background. The CA surplus rose significantly from 0.6 percent of GDP in 2022 to 2.6 percent of GDP in 2023. This was driven by a
strong performance of services exports (both tourism and non-tourism) and by weak imports (not only due to the decline in energy import
prices but also to a low—relative to historical average—elasticity of imports to domestic demand). Higher public saving and weaker
private investment—including due to high uncertainty and tight financial conditions—more than offset the rise in public investment and a
drawdown of excess private savings generated during the pandemic. Continued strength of services exports and further improvements in
the energy goods balance will keep the trade surplus high in 2024. In the medium term, the CA surplus is projected to shrink gradually as
tourism inflows normalize and non-energy imports regain strength—supported by the shift in the economy’s growth drivers toward domestic
demand, particularly investment which has a high import content.
Assessment. The 2023 cyclically adjusted CA balance is 2.8 percent of GDP. IMF staff assess the CA norm to be between 0.1 and 1.7 percent
of GDP, with a midpoint of 0.9 percent of GDP, in line with the EBA CA model. The difference between the cyclically adjusted CA and the
CA norm yields a CA gap in the range of 1.0 to 2.6 percent of GDP, with a midpoint of 1.8 percent of GDP. The overall estimated contribution
of identified policy gaps is 0.3 percent of GDP, reflecting the positive contributions from a more expansionary fiscal policy stance in the rest
of the world relative to Spain and relatively low credit growth (0.4 and 0.2 percent of GDP, respectively), which are only partially offset by the
negative contribution from strong social safety nets (−0.3 percent of GDP).
2023 (% GDP) CA: 2.6 Cycl. Adj. CA: 2.8 EBA Norm: 0.9 EBA Gap: 1.8 Staff Adj.: 0.0 Staff Gap: 1.8
Real Exchange Background. In 2023, Spain’s CPI- and ULC-based REER remained broadly stable, with changes relative to 2022 average of 0.3 and −0.45 percent,
Rate respectively. This followed a period of sustained REER depreciation since 2009, which almost fully reversed the large appreciation during 1999–
2008. As of April 2024, the CPI-based REER was 1.0 percent above the 2023 average.
Assessment. The IMF staff CA gap implies a REER gap of −6.4 percent in 2023 (with an estimated elasticity of 0.28 applied). The EBA REER
index and level models suggest instead an overvaluation of 3.8 percent and 18.6 percent for 2023, respectively, mostly driven by large
unexplained residuals. Consistent with the staff CA gap, the staff assesses the REER to be moderately undervalued, with a midpoint of
6.4 percent and a range of uncertainty of ±2.8 percent.
Capital and Background. The capital account surplus has remained high due to flows associated with NextGenerationEU funds. The financial account
Financial balance improved to 4.1 percent of GDP in 2023 (from 1.9 percent of GDP in 2022). The increase in the financial account surplus was largely
Accounts: Flows driven by changes in the Bank of Spain’s balance sheet, which were only partially offset by net outflows in the other components.
and Policy Assessment. Large external financing needs leave Spain vulnerable to sustained market volatility and tighter global financial conditions.
Measures
FX Intervention Background. The euro has the status of a global reserve currency.
and Reserves Assessment. Euro area economies typically hold low reserves relative to standard metrics, but the currency is free floating.
Level

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Table 3.25. Sweden: Economy Assessment

Overall Assessment: The external position in 2023 is substantially stronger than the level implied by medium-term fundamentals and desirable policies, with an
increase of the CA of 1.4 percentage points to 6.8 percent of GDP. The projected medium-term recovery is expected to bring the external balance down before
stabilizing at its long-term average of about 4 percent.
Potential Policy Responses: As inflation recedes, there is scope to increase private and public investment in the green transition and the health sector. This would
lower the external balance, help meet Sweden’s ambitious climate goals, and prepare it for demographic challenges.
Foreign Asset Background. NIIP reached 33.2 percent of GDP in 2023, an increase of 2.2 percentage points, helped by net valuation gains and stronger
and Liability CA surplus. Gross liabilities decreased to 280.7 percent of GDP in 2023, with more than half being gross external debt (166.4 percent of
Position and GDP). Other financial institutions (75.4 percent of GDP) hold the bulk of net foreign assets followed by social security funds (20.2 percent
Trajectory of GDP), households (18.2 percent of GDP), and the Riksbank (6 percent of GDP), while nonfinancial corporations (44.5 percent of GDP),
monetary financial institutions (37.4 percent of GDP), and the general government (2.9 percent of GDP) are net external debtors. A total of
50 percent of the NIIP is in foreign currency.
Assessment. The NIIP is expected to firm further in the medium term, reflecting the outlook for continued CA surpluses. Sweden’s foreign
currency assets are almost three times as high as its foreign currency liabilities, providing a hedge against currency valuation changes.
These estimates are subject to uncertainty as international investment position data typically include errors and omissions averaging over
2 percent of GDP in the past decade. Although rollovers of external debt (which include banks’ covered bonds) pose some vulnerability, risks
are moderated by banks’ ample liquidity and large capital buffers. The NIIP level and trajectory do not raise sustainability concerns.
2023 (% GDP) NIIP: 33.2 Gross Assets: 313.9 Debt Assets: 140.9 Gross Liab.: 280.7 Debt Liab.: 137.4
Current Account Background. The 2022 CA surplus was revised up from 4.3 percent of GDP in last year’s External Sector Report to 5.4 percent, stemming
from revisions in exports of goods and services (equivalent to 0.3 percent of GDP) and net primary income (equivalent to 0.8 percent of GDP).
In 2023, the CA surplus rose to 6.8 percent of GDP on the back of higher net exports (an increase by 1.8 percent of GDP in 2023) from both
an increase in exports and a decrease in imports of goods. On the other hand, the net exports of services posted a deficit. Primary income,
consisting of compensation of employees and investment income registered a surplus of 3.8 percent of GDP, down from 4.4 percent of GDP
in 2022, while secondary income recorded a deficit of 1.6 percent of GDP. In 2023, gross saving fell by 0.4 percentage point to 33.5 percent
of GDP, while gross investment decreased by 1.7 percentage points to 26.8 percent of GDP, with the slowdown in gross savings growth driven
by the public sector. Sweden continues to be a net oil importer with the oil deficit estimated at −0.9 percent of GDP. Over the medium term,
as domestic and global macroeconomic policies normalize, the CA is projected to return to its long-term average.
Assessment. The cyclically adjusted CA is estimated at 6.6 percent of GDP in 2023, 5.5 percentage points above the cyclically adjusted
EBA norm of 1.1 percent of GDP. However, the estimated EBA norm is low and continues to be below the actual CA outcome for the past two
decades, suggesting that factors not captured by the model, such as Sweden’s mandatory contributions to fully funded pension schemes
and an older labor force, may also be driving Sweden’s saving–investment balances. Staff assesses the CA gap at 5.5 percent of GDP in
2023, with a model-estimated range of 5.1 to 6 percent of GDP (using the model’s standard error of ±0.4 percent of GDP). Policies that
would explain this gap make up 3 percentage points, with fiscal policy, which was more contractionary compared to the rest of the world,
accounting for 1.1 percent and the negative credit gap contributing another 2.0 percent. Complementary EBA tools suggest that Sweden’s
pension system could explain about 1 percentage point of the gap.
2023 (% GDP) CA: 6.8 Cycl. Adj. CA: 6.6 EBA Norm: 1.1 EBA Gap: 5.5 Staff Adj.: 0.0 Staff Gap: 5.5
Real Exchange Background. In 2023, the krona depreciated by 6.4 percentage points in real effective terms (OECD-ULC based) relative to its average index
Rate in 2022. As of April 2024, the CPI-based REER was 0.2 percent above its 2023 average.
Assessment. The staff CA gap implies a REER gap of −14.1 percent (applying an estimated elasticity of −0.39), with a range between −15.2
to −13.0 percent (using the model standard error of ±0.4 percent of GDP). The REER index and level models suggest a gap of −20.9 percent
and −23.9 percent, respectively, for 2023. The ULC-based REER index depreciated by 20.3 percent since the krona was floated in 1993 and
was about 17 percent below its 30-year average in 2023. Overall, the IMF staff assesses the krona to be undervalued between −10.6 to
−23.5 percent, with a midpoint of −17 percent as guided by the ULC-based REER index and its standard deviation.1
Capital and Background. The financial account increased to 3.8 percent of GDP in 2023, from 0.5 percent of GDP in 2022. The change in net outflows
Financial was mainly driven by an increase in other investments of about 3 percent of GDP constituting three-fourths of the financial account, and
Accounts: Flows an increase in portfolio investments caused by an increase in equity and investment fund shares and long-term debt securities. Direct
and Policy investments increased from 2.6 to 3 percent of GDP.
Measures Assessment. Large changes in capital flows are common in countries with large financial sectors such as in Sweden where the banking
sector is nearly three times GDP. Risk can be mitigated by strong financial regulation, supervision, and a sound financial sector. According to
the recent Financial Sector Assessment Program assessment, the banking system is expected to be resilient to large liquidity shocks despite
its substantial share of wholesale funding.
FX Intervention Background. The exchange rate is de facto floating. Foreign currency reserves decreased by USD$4.8 billion to US$60.2 billion in 2023,
and Reserves equivalent to 21.1 percent of the short-term external debt of monetary and financial institutions, and slightly below three months of imports.
Level On September 25, 2023, the Riksbank launched a program to hedge the FX risk in its balance sheet, following losses of about 1.4 percent of
GDP in 2022.
Assessment. Despite its floating exchange rate regime, Sweden should maintain adequate foreign reserves in view of the high dependence
of commercial banks on wholesale funding in foreign currency and disruptions in such funding during global financial distress. As seen
during the pandemic, the Riksbank can quickly establish swap facilities when necessary.

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Table 3.26. Switzerland: Economy Assessment

Overall Assessment: Switzerland’s external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies. External
buffers remain strong given surplus on net foreign investment position and sizable foreign reserves. As in previous years, the assessment is subject to
uncertainty due to complex measurement issues and data lags.1 Due to changes in methodology, it is possible that data will be revised more extensively than in
past years.2 In addition, more time will be needed to assess the durability of the shift in the CA in 2023.
Potential Policy Responses: Operating within the authorities’ debt-brake rule, fiscal policy should balance the need to avoid creating headwinds to growth, while
creating fiscal space to address accumulating spending pressures. Reflecting past extraordinary expenditures due to COVID-19 and support for refugees from
Ukraine and the sizable accumulated balance of the amortization account, the authorities need to amortize them—via surpluses or extraordinary receipts—until
2035, with an option for extension until 2039. A comprehensive medium-term plan will be needed to address mounting structural spending needs on aging,
climate, and defense. Under current inflation and liquidity conditions, the Swiss National Bank should remain data-dependent in its monetary policy decision
making and avoid the risk of inflation settling at very low rates. Macroprudential policies should continue to focus on safeguarding financial stability, taking into
consideration the current cyclical position of the economy. Commitment to free trade and cooperation, as shown by abolition of industrial tariffs in 2024 and
efforts to expand trade relations, should continue in order to build resilience.
Foreign Asset Background. Switzerland is a major financial center with a large, positive NIIP of 95 percent of GDP and large gross foreign asset and
and Liability liability positions of 631.4 and 536.7 percent of GDP, respectively, at the end of 2023. The NIIP reflects both a history of large CA surpluses
Position and and valuation changes, and has fluctuated around 100 percent of GDP over the past five years.3 Compared with 2022, the NIIP increased
Trajectory in 2023 by 2.4 percentage points of GDP, mainly driven by positive net transactions which compensated negative valuation effects due to
exchange rate movements. Decline in reserves were partly offset by movements in other investments. Projections of the NIIP in 2024 and
beyond are complicated by the large gross positions and compositional differences among assets and liabilities.
Assessment. Switzerland’s large gross liability position and the volatility of financial flows and investment returns present some risk, but this
is mitigated by the large gross asset position and the Swiss franc denomination of about two-thirds of external liabilities.
2023 (% GDP) NIIP: 95 Gross Assets: 631 Reserve Assets: 91 Gross Liab.: 537 Debt Liab.: 167
Current Account Background. Switzerland’s CA surpluses averaged 6.9 percent of GDP during 2012–22. The CA surplus in 2023 is estimated to be 7.6 percent of
GDP, well below the value of 9.4 percent in 2022. This decline was primarily influenced by reductions in merchanting (from 10.6 to 9.5 percent
of GDP) and services (from −1.1 to −2.6 percent of GDP). The introduction of a new CA survey, which altered how merchanting-related expenses
are reported, reduced the reported decline in net merchanting income but negatively affected the service balance, increasing the import of
transportation services. The balance in cross-border goods trade remained largely stable in 2023, despite a significant drop in net exports of
pharmaceuticals. This decline could be partly attributed to a normalization following high exports during the pandemic and a temporary effect
due to value chain restructuring in one of Switzerland’s major pharmaceutical companies, but there is uncertainty around whether this implies a
structural change in net trade balance in pharmaceuticals. From the saving-investment perspective, overall savings declined by 1.3 percent of GDP,
driven by an increase in both public and private consumption (with the increase in private consumption not as strong as in 2022), while investment
increased by 0.5 percent of GDP. The CA surplus is expected to slightly increase to 8.2 percent of GDP in 2024 due to a recovery in external
demand and moderate toward 8 percent in the medium term supported by the performance of key sectors (pharmaceutical, merchanting).
Assessment. The EBA CA norm of 6.4 percent of GDP is close to the previous year’s norm. Based on a cyclically adjusted CA surplus of 7.7 percent
and the norm, the overall EBA-estimated CA gap equaled 1.3 percent of GDP in 2023.4 Domestic policy gaps account for −1.7 percentage points
and include change in reserves (−1.8 percentage points) which more than offsets fiscal underspending (+0.5 percentage point); policy gaps in the
rest of the world contribute +0.7 percentage point. Adjustments for specific factors relevant for Switzerland that are not treated appropriately in
the income account—namely, valuation losses on fixed-income securities arising from inflation (−3.3 percentage points) and retained earnings on
portfolio equity investment (−0.8 percentage point)—lead to a gap of −2.8 percent of GDP (±0.8 percentage point).5
2023 (% GDP) CA: 7.6 Cycl. Adj. CA: 7.7 EBA Norm: 6.4 EBA Gap: 1.3 Staff Adj.: −4.1 Staff Gap: −2.8
Real Exchange Background. Relative to 2022, the average NEER appreciated by 6.8 percent, while the CPI-based REER appreciated by 3.4 percent in
Rate 2023.The UBS-Credit Suisse merger did not have a significant impact on the franc exchange rate. From a long-term perspective, the NEER
has appreciated by 31 percent since 2011, while the CPI-based REER has depreciated by 2 percent. As of April2024, REER depreciated by
1.1 percent compared to the 2023 average.
Assessment. The staff CA gap implies REER overvaluation of 5.2 percent in 2023 (applying an elasticity of 0.54). The EBA REER index and level
models suggest that the average REER in 2023 was overvalued by 12.8 and 17.7 percent, respectively. The fit of these models does not fully
capture trends specific to Switzerland, in particular, a secular improvement in productivity, especially in knowledge-based sectors. Consistent with
the staff CA gap, staff assess the REER gap in 2023 to be in the range of 3.8 percent and 6.6 percent with a midpoint of 5.2 percent (overvalued).
Capital and Background. Net financial outflows totaled 6.8 percent of GDP in 2023, including private outflows of 21 percent of GDP (related to the
Financial collapse of Credit Suisse) and a decrease in Swiss National Bank reserve assets of 15 percent of GDP (due to interventions). During 2010–22,
Accounts: Flows net private inflows averaged 1.1 percent of GDP, while the average annual increase in Swiss National Bank reserves was 9.4 percent of GDP.
and Policy Assessment. Financial flows are large and volatile, reflecting Switzerland’s status as a financial center and safe haven. From a long-term
Measures perspective, sizable net private financial outflows prior to the global financial crisis declined and, on average, turned into net capital inflows
between 2010 and 2020, adding to appreciation pressures. In 2023, driven by Credit Suisse–related events and interest rate differentials, net
private outflows increased from to 25 percent, while the Swiss National Bank reduced reserve assets on a net basis.
FX Intervention Background. Official reserve assets (including gold) amounted to CHF724 billion (or US$805 billion, 91 percent of GDP) at the end of 2023,
and Reserves down CHF128 billion (or US$142 billion) from the end of 2022. The Swiss National Bank sold CHF133 billion (17 percent of GDP) of FX (net)
Level through FX interventions in 2023, while in the recent past interventions have curbed excessive appreciation due to safe-haven inflows.
Assessment. Reserves are large relative to GDP, but more moderate in comparison with short-term foreign liabilities. Considering the reserve
currency status of the franc, the adequacy of FX reserves is not a pressing concern for Switzerland. On the other hand, the financial losses
incurred by the Swiss National Bank in 2022 and 2023, and the volatility of its income, indicate risks associated with its large balance sheet.
Foreign exchange interventions can be considered in cases of disorderly market conditions or to prevent inflation expectations de-anchoring
that could result from large and persistent exchange rate movements.

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Table 3.27. Thailand: Economy Assessment

Overall Assessment: The external position in 2023 was stronger than the level implied by medium-term fundamentals and desirable policies, although CA and
REER gaps are narrowing. The CA balance improved to 1.4 percent of GDP in 2023 from −3.2 percent of GDP in 2022, as tourism receipts recovered further, and is
projected to return to a surplus of around 3 percent of GDP in the medium term.
Potential Policy Responses: Policies aimed at promoting investment, diminishing precautionary saving, liberalizing the services sector, and minimizing tax
incentives and subsidies that distort competition would facilitate external rebalancing. Public expenditures should be focused on targeted social transfers to
continue to support the most vulnerable, as well as infrastructure investment to support a green recovery and reorientation of affected sectors. Efforts to reform
and expand social safety nets, notably the fragmented pension schemes, should continue, and measures to address widespread informality should help reduce
precautionary saving and support consumption.
Foreign Asset Background. Thailand’s NIIP strengthened to 8.3 percent of GDP in 2023 (from −3.4 percent in 2022), after weakening over the past two
and Liability years. Gross assets increased to 120 percent of GDP (from 117.5 percent) and gross liabilities declined to 111.7 percent of GDP (from
Position and 121 percent of GDP), respectively. Gross assets primarily consist of gross reserve assets (41.2 percent of GDP) and direct investment
Trajectory (40 percent of GDP). Gross liabilities mainly comprise of direct (about half) and portfolio (about one-fourth) investment. Net direct and
portfolio investment assets declined by 1.9 and 3.7 percentage points of GDP, respectively, while net other investment assets increased by
1.6 percentage points of GDP.
Assessment. The NIIP is projected to remain in a small creditor position over the medium term given CA surpluses. External debt declined to
37.5 percent of GDP in 2023 from 40.4 percent of GDP in 2022, of which short-term debt amounts to about 15.4 percent of GDP. External debt
stability and liquidity risks are limited.
2023 (% GDP) NIIP: 8.3 Gross Assets: 120.0 Debt Assets: 41.4 Gross Liab.: 111.7 Debt Liab.: 37.5
Current Account Background. Thailand’s CA balance registered a surplus of 1.4 percent of GDP in 2023, from a deficit of −3.2 percent of GDP in 2022, as the
partial recovery in tourist arrivals and improvement in transportation balance offset the weak performance of merchandise exports. The decline in
shipping costs and postpandemic tourism recovery, albeit still partial, improved the services account by 3.3 percent of GDP. The normalization of
inventories and higher net public savings from delays in approving the FY2024 budget contributed to the CA balance registering a surplus despite
lower private savings from robust private consumption growth. Going forward, the CA balance is expected to stabilize at around 3 percent of GDP
as foreign tourist arrivals reach prepandemic levels.
Assessment. The EBA CA model estimates a cyclically adjusted CA of 1.3 percent of GDP and a CA norm of 0.8 percent of GDP for 2023. The
CA gap of 0.5 percent of GDP consists of an identified policy gap of 0.3 percent of GDP and an unexplained residual of 0.3 percent of GDP.
As the large and persistent COVID-19-related shocks to the travel and transport sectors are not accounted for by the standard EBA cyclical
adjustment, adjustors of 1.2 percent and 0.9 percent of GDP, respectively, are applied.1 Overall, IMF staff assesses the CA gap to be in the
1.9 to 3.3 percent of GDP range, with a midpoint of 2.6 percent of GDP for 2023. However, the results are subject to uncertainties regarding
the adjustors.
2023 (% GDP) CA: 1.4 Cycl. Adj. CA: 1.3 EBA Norm: 0.8 EBA Gap: 0.5 Staff Adj.: 2.1 Staff Gap: 2.6
Real Exchange Background. The baht has been on a gradual real appreciation trend since the mid-2000s, despite occasional bouts of volatility. In 2023, the
Rate real exchange rate appreciated by 1.1 percent relative to 2022, partly reflecting the partial recovery of tourism receipts. This was despite
depreciation pressures from portfolio outflows during the year, which were partly linked to electoral uncertainty. As of April 2024, the REER
was 5.0 percent below its 2023 average.
Assessment. Using an elasticity of 0.49 and based on the IMF staff CA gap, IMF staff assesses the 2023 REER to be undervalued in the 3.9 to
6.7 percent range, with a midpoint of 5.3 percent. The EBA index REER gap in 2023 is estimated at 7.4 percent, and the EBA level REER gap
is estimated at −1.4 percent.
Capital and Background. In 2023, the capital and financial account balance (excluding change in reserves) weakened to −2.4 percent of GDP from
Financial 1.4 percent in 2022, driven by the declines in portfolio investment (from 1.2 percent in 2022 to −2.6 percent of GDP in 2023) and inward FDI
Accounts: Flows (from 2.3 percent in 2022 to 0.6 percent of GDP in 2023). Other net investments increased from −0.6 to 0.9 percent of GDP.
and Policy Assessment. Thailand maintains strong external buffers and fundamentals that have helped weather episodes of volatility reflecting external
Measures financial conditions, political uncertainty, and shocks related to COVID-19 and the war in Ukraine. IMF staff welcome the authorities’ efforts
to provide more flexibility and reduce the cost of non-residents’ foreign exchange transactions including by expanding the scope of the
Non-resident Qualified Company scheme—to allow nonresidents providing cross-border payment services to participate.2 In line with past
advice, the IMF team recommends phasing out CFM measures on nonresident baht accounts. A comprehensive package of macroeconomic,
financial, and structural policies should be pursued to address volatile capital flows, complemented with gradual and prudent financial
account liberalization.
FX Intervention Background. The exchange rate regime is classified as (de jure and de facto) floating. International reserves (including the net forward
and Reserves position) declined to 49.4 percent of GDP from 49.6 percent of GDP in 2022, which is around 2.5 times the short-term debt, 11 months
Level of imports, and 237 percent of the IMF’s standard ARA metric. The exchange rate has been allowed to adjust, with some two-sided FX
interventions in periods of large volatility.
Assessment. Reserves are higher than the range of the IMF’s reserve adequacy metrics and there continues to be no need to build up
reserves for precautionary purposes. The exchange rate should move flexibly to act as a shock absorber, while FX intervention could be used
to address disorderly market conditions and mitigate policy trade-offs when the FX market becomes dysfunctional and deviations in hedging
and financing premia become excessive due to large non-fundamental shocks.

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Table 3.28. Türkiye: Economy Assessment

Overall Assessment: The external position in 2023 is assessed to be weaker than the level implied by medium-term fundamentals and desirable policies.
The assessment is mainly driven by the sizable CA gap, but also supported by the low level of reserves, large external financing needs, and the size and
composition of the NIIP with high debt component, all of which contribute to external vulnerabilities. The CA deficit narrowed in 2023:H2, reflecting lower energy
prices, declining gold imports, and demand compression from financial tightening, and is expected to improve further in the medium term. However, Türkiye’s
vulnerability to shocks remains high amid a negative net reserves position and elevated gross external financing needs.
Potential Policy Responses: Strengthening the policy framework would help underpin Türkiye’s external sustainability going forward. Tightening of the monetary
and fiscal policy stance would contain demand and improve the CA balance. Accelerating financial liberalization would reduce market distortions and improve
monetary policy transmission. Open trade policies, including removing discretionary credit allocation that favors exports, could enhance competition and facilitate
external rebalancing. Collectively, these policies would improve confidence and help sustain capital inflows which would allow for a much-needed accumulation
of international reserves.
Foreign Asset Background. Türkiye’s NIIP averaged −36.8 percent of GDP over 2019–23. The NIIP improved from −34.7 percent of GDP at the end of
and Liability 2022 to −25.5 percent of GDP at the end of 2023, mainly driven by valuation effects including a large decrease in direct investment (equity)
Position and liabilities in dollar terms. Debt liabilities account for around 70 percent of gross liabilities. External debt declined from 51 percent of GDP in
Trajectory 2022 to 45 percent of GDP in 2023. The private sector holds almost 50 percent of Türkiye’s external debt, while the public sector (general
government and central bank) holds the remainder. About 45 percent of the external debt is short term (on a remaining-maturity basis).
Assessment. The size and composition of its gross external liabilities, coupled with low reserves, increase Türkiye’s vulnerability to liquidity
shocks, sudden shifts in investor sentiment, and any global upswing in interest rates. The NIIP is expected to stabilize over the medium
term and hover around −33 percent of GDP in 2029 due to a projected improvement in the CA balance. External debt is sustainable over the
medium term but is subject to risks, particularly from a large depreciation in the REER.
2023 (% GDP) NIIP: −25.5 Gross Assets: 29.4 Debt Assets: 11.5 Gross Liab.: 54.9 Debt Liab.: 39.0
Current Account Background. The CA deficit averaged 2.4 percent of GDP over 2019–23. Despite favorable energy prices, the CA deficit in 2023 remained
significant at 4.0 percent of GDP, following a deficit of 5.1 percent of GDP in 2022, as nonenergy surplus declined from 3.8 percent of GDP
in 2022 to 0.7 percent of GDP in 2023, due to a significant slowdown in exports amidst robust imports. In 2023:H2, however, CA deficit
narrowed to around −1.4 percent of GDP, reflecting lower energy prices, declining gold imports, and demand compression from financial
tightening. The improvement in the current account between 2022 and 2023 thus reflects an increase in savings, driven by the reduction in
private consumption, which outweighed the increase in investment.
Assessment. The EBA CA model estimates a cyclically adjusted CA balance of −3.0 percent of GDP and a CA norm of −0.3 percent of GDP in
2023. Overall, the CA gap is assessed in the range of −3.3 to −2.0 percent of GDP, with a midpoint of −2.6 percent of GDP.
2023 (% GDP) CA: −4.0 Cycl. Adj. CA: −3.0 EBA Norm: −0.3 EBA Gap: −2.6 Staff Adj.: 0.0 Staff Gap: −2.6
Real Exchange Background. The CPI-based REER depreciated by an annual average of 8.3 percent over 2019–22. Following several years of deprecation,
Rate average REER appreciated by 2.4 percent in 2023. Reflecting higher PPI inflation, the average PPI-based REER appreciated by around 8 percent
in 2023. As of April 2024, the CPI-based REER and the PPI-based REER appreciated by 7 percent and 3 percent, respectively, relative to the
2023 average, as inflation picked up driven by a large minimum wage hike in January.
Assessment. Consistent with the staff CA gap, staff assesses the REER to be overvalued in the range of 7.3 to 11.9 with a midpoint of
9.6 percent (applying an estimated REER elasticity of 0.27). The EBA REER index and level models suggest the REER was undervalued in
2023 by 45.7 and 55.7 percent, respectively, although the models’ residuals are very large for Türkiye.
Capital and Background. Net capital inflows increased to 4.9 percent of GDP in 2023 from 3.9 percent of GDP in 2022, driven by an increased borrowing
Financial in the banking sector. Portfolio investments also turned positive after the May 2023 election and recorded a net inflow of 0.8 percent of GDP
Accounts: Flows in 2023. Direct investment recorded a moderate net inflow of 0.4 percent of GDP.
and Policy Assessment. With annual gross external financing needs projected at around 24 percent of GDP on average over 2024–29, Türkiye remains
Measures vulnerable to adverse shifts in global investor sentiment. The authorities’ policy normalization since May 2023 has contributed to a modest
rebound in capital flows, but increasing and sustaining the capital inflows, including to lira-denominated assets, would require further
strengthening policy credibility and accelerating financial liberalization to reduce market distortions. As conditions improve, CFMs on capital
outflows will need to be phased out.
FX Intervention Background. The de jure exchange rate is free floating while the de facto classification is assessed as a crawl-like arrangement. Gross
and Reserves international reserves increased to $141 billion in 2023 from $129 billion in 2022 supported by capital inflows and lower CA deficit. However,
Level reserves have fallen subsequently as depreciation pressures increased in early 2024.
Assessment. Gross international reserves were at 97 percent of the IMF’s ARA metric as of the end of December 2023, close but still below
the floor of the recommended 100 to 150 percent range. Moreover, international reserves net of off-balance-sheet swaps and other short-term
liabilities remain deeply negative, and quality of reserves remains an issue, with non–SDR basket currencies accounting for a large share
(about 15 percent). Given the shallow FX market, interventions may be needed to avoid excessive exchange rate volatility, while not preventing
warranted macroeconomic adjustments. Going forward, significant reserves buildup is needed, but the accumulation of reserves should be
opportunistic given the uncertain market environment.

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Table 3.29. United Kingdom: Economy Assessment

Overall Assessment: The external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies. The CA deficit
deteriorated marginally in 2023, reflecting a higher income deficit largely offset by improved trade balances due to lower energy prices and a negative public
imbalance. The CA deficit is projected to gradually narrow as trade balances recover. The uncertainty around this assessment remains significant, reflecting
measurement issues and the evolving impact on trade and capital flows of the new EU-UK Trade and Cooperation Agreement.
Potential Policy Responses: Gradual fiscal consolidation, while preserving key public services and protecting the vulnerable, should help close the CA gap.
In the medium term, implementing structural reforms to boost UK international competitiveness (including via upgrading the labor skill base to support labor
reallocation to fast-growing sectors) would help improve CA balance while accommodating a need for rising public investment in support of the climate
transition. The UK should continue to support an open trade environment, including addressing remaining barriers to trade with the European Union, while
industrial policies should continue to be deployed cautiously and remain targeted to specific objectives where externalities or market failures prevent effective
market solutions.
Foreign Asset Background. The NIIP deteriorated to −31 percent of GDP in 2023 from −14 percent of GDP in 2022. A negative valuation effect (including
and Liability sterling appreciation) led to this sizable worsening of the NIIP in 2023 in addition to the CA deficit.1 Other investment—which is mainly
Position and cross-border bank loans—(196 percent of GDP in assets and 194 percent in liabilities) and portfolio investment (123 percent of GDP in assets
Trajectory and 130 percent in liabilities) constitute a large part of gross assets and liabilities. Other European countries, Japan, and the United States
account for about three-quarters percent of total UK external assets and liabilities, and external liabilities have a larger share denominated
in pounds than do external assets.2 IMF staff project the NIIP will moderately improve over the medium term, although large and volatile
valuation effects make these estimates particularly uncertain.
Assessment. Despite the large valuation losses in 2023 (mainly driven by valuation losses on other investment assets), total valuation gains
since 2016 (including the unrecorded impact of inflation differentials and the retained earnings bias on portfolio investment, as well as
sterling depreciation) have more than offset the negative CA flows on the NIIP. Fluctuations in large gross stock positions could be a potential
source of vulnerability (gross assets and liabilities exceed 500 percent of GDP). However, the United Kingdom’s net liability position in
domestic currency and exchange rate flexibility would offer some insurance against external crises.
2023 (% GDP) NIIP: −31 Gross Assets: 503 Debt Assets: 257 Gross Liab.: 534 Debt Liab.: 282
Current Account Background. The CA deficit increased marginally from 3.1 percent of GDP in 2022 to 3.3 percent in 2023, driven by a larger income deficit
largely offset by an improved trade balance with a positive terms-of-trade shock. This CA deficit was higher than the average of 2.5 percent
over the past five years (2019–23). While the income balance has been volatile historically, the deterioration in 2023 (which is also high
compared with the average over the past five years) was likely due to higher interest payments on pound-denominated external debt. The
decline in investment was slightly lower than the decline in gross savings, which was driven by the fact that public dissaving (6 percent of
GDP) exceeded private saving (2.7 percent of GDP).
Assessment. The EBA CA model estimates a norm of −0.4 percent of GDP; thus, with the cyclically adjusted 2023 CA of −3.3 percent of
GDP, the CA gap is −2.9 percent of GDP. As in previous years, the unrecorded impact of inflation differential-related valuation effects on debt
stocks (which would otherwise improve the 2023 CA by 0.6 percent of GDP) and retained earnings on portfolio equity assets (which would
otherwise worsen the 2023 CA by −0.1 percent of GDP) together underestimate the underlying CA by 0.5 percent of GDP.3 Adjusting for this,
the IMF staff assesses the CA gap at −2.4 percent of GDP, within a range of −1.4 to −3.4 percent of GDP.
2023 (% GDP) CA: −3.3 Cycl. Adj. CA: −3.3 EBA Norm: −0.4 EBA Gap: −2.9 Staff Adj.: 0.5 Staff Gap: −2.4
Real Exchange Background. The pound appreciated in real effective terms in 2023 by 2.5 percent relative to its average level in 2022, driven partly
Rate by nominal appreciation, with higher for longer policy rates expected in the United Kingdom. Overall, the pound has depreciated by
about 3.7 percent since mid-2016, reflecting market expectations of more restricted access to the EU market under post-Brexit trade
arrangements. As of April 2024, the REER had further appreciated by 2.8 percent compared to the 2023 average.
Assessment. The EBA REER level and index approaches suggest a gap of 4 and −6 percent, respectively, for 2023. Consistent with the
staff CA gap, the staff assessed the REER gap to be in the range of 5.4 to 13 percent with a midpoint of 9.2 percent (applying an estimated
elasticity of 0.26).
Capital and Background. Given the United Kingdom’s role as an international financial center, portfolio investment and other investment are the key
Financial components of the financial account. In net terms, the CA deficit was mainly financed in 2023 by net other investment of 11.1 percent of GDP,
Accounts: Flows while net portfolio investment and FDI declined by 6.2 and 2.7 percent of GDP, respectively.
and Policy Assessment. Large fluctuations in capital flows are inherent in countries with a large financial sector. This volatility is a potential source of
Measures vulnerability, although it is mitigated by a robust financial stability framework.
FX Intervention Background. The pound has the status of a global reserve currency. The share of global reserves in sterling has not changed materially since
and Reserves 2015, at about 4.6 percent.
Level Assessment. Reserves held by the United Kingdom are typically low relative to standard metrics, and the currency is free floating.

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Table 3.30. United States: Economy Assessment

Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies. An improvement
in the trade balance was led by a decline in the goods deficit, primarily driven by reduced imports of goods, resulting in a CA deficit of 3.0 percent of GDP (versus
3.8 percent of GDP in 2022). The CA deficit is projected to decline to about 2¼ percent of GDP over the medium term based on an increase in net public saving due
to fiscal consolidation and a slow convergence of private saving to its steady state after years of excess saving drawdowns, reflected in a lower trade deficit.
Potential Policy Responses: Over the medium term, suggested fiscal consolidation aimed at a medium-term general government primary surplus of about
1 percent of GDP should broadly stabilize the debt-to-GDP ratio and maintain an external position consistent with medium-term fundamentals and desirable
policies. Structural policies to increase competitiveness while maintaining full employment include upgrading infrastructure; enhancing the schooling, training,
apprenticeship, and mobility of workers; supporting the working poor; and implementing policies to increase growth in the labor force (including skill-based
immigration reform). Industrial policies should remain narrowly targeted to specific objectives where externalities or market failures prevent effective market
solutions and avoid favoring domestic producers over imports. Tariff barriers and other trade distortions should be rolled back, and trade and investment
disagreements with other countries should be resolved in a manner that supports an open, stable, and transparent global trading system.
Foreign Asset Background. The NIIP stood at −70.7 percent of GDP at the end of 2023, weakening from −61.2 percent of GDP in 2022 and compared to the
and Liability 2016–19 prepandemic average of about –46½ percent of GDP. About a quarter of the NIIP decline was attributed to net transactions, while
Position and the main driver of change was valuation adjustments stemming from a significant rise in US stock prices compared to foreign stocks which
Trajectory led to an increase in the market value of US liabilities more than US assets. At the same time, the small depreciation of the US dollar (around
1.7 percent) raised the value of foreign-currency-denominated US assets in dollar terms, thereby marginally offsetting (about 10 percent
of) the negative impact of rising stock prices on the NIIP. Under the IMF staff’s baseline scenario, the NIIP is projected to remain broadly
unchanged through the medium term on the back of improvements in net portfolio investment position as the CA balance reverts to its
prepandemic average and valuation gains persist.
Assessment. Despite the widening negative trend in the NIIP, the US external debt declined to around 87 percent of GDP in 2023 (down from
its mid-2020 peak of nearly 110 percent of GDP and the 2016–19 average of 94 percent of GDP) driven by a strong postpandemic economic
rebound. In addition, the investment income balance remained positive as the yield on assets has consistently surpassed that of its liabilities.
Importantly, the substantial share of external assets denominated in foreign currencies (which has increased to around 70 percent by
2020)—combined with an even larger share of US-dollar-denominated external liabilities—remains a relevant channel for exchange rates
to affect NIIP through valuation changes, with a depreciation generally improving the NIIP. Nonetheless, financial stability risk could surface
in the form of an unexpected decline in foreign demand for US fixed-income securities, which is a main component of the country’s external
liabilities. The risk, which could materialize, for example, as a result of a failure to reestablish fiscal sustainability, remains moderate given
the dominant status of the US dollar as a reserve currency. Strong institutions, a predictable policy framework, and attractive diverse
investment opportunities further mitigate the likelihood of such risk materializing. About 60 percent of US assets are in the form of FDI and
portfolio equity claims.
2023 (% GDP) NIIP: −70.7 Gross Assets: 123.6 Debt Assets: 37.9 Gross Liab.: 194.4 Debt Liab.: 87
Current Account Background. The CA deficit was 3.0 percent of GDP in 2023, down from 3.8 percent in 2022 (moving from 31/2 to 2.6 percent of GDP in
cyclically adjusted terms) and compared with the 2016–19 prepandemic deficit of around 2 percent of GDP. In 2023, the trade deficit notably
contracted relative to 2022 (−2.8 percent versus −3.7 percent of GDP), reversing the trend of deterioration observed since 2016 primarily due
to a reduced deficit in goods. Additionally, the service surplus increased slightly. Meanwhile, income accounts remained broadly stable. From
a savings-investment perspective, the CA deficit reflected the public sector’s savings-investment deficit, partly offset by private sector’s
savings-investment surplus. The CA deficit is expected to gradually decline to about 2¼ percent of GDP over the medium term.
Assessment. The EBA model estimates a cyclically adjusted CA balance of −2.6 percent of GDP against a CA norm of −1.9 percent of
GDP, with a standard error of 0.7 percent of GDP. This implies a model-based CA gap of −0.7 percent of GDP for 2023, with an estimated
contribution of identified policy gaps of −0.7 percent of GDP. The identified policy gaps primarily reflect the more expansionary fiscal policy in
the US relative to the rest of the world (resulting in -0.8 percent of GDP contribution from the fiscal policy gap). The IMF staff assesses a CA
gap in a range of −1.4 and 0 percent of GDP with a midpoint of −0.7 percent of GDP.
2023 (% GDP) CA: −3.0 Cycl. Adj. CA: −2.6 EBA Norm: −1.9 EBA Gap: −0.7 Staff Adj.: 0 Staff Gap: −0.7
Real Exchange Background. After appreciating by 8.3 percent in 2022, the REER depreciated by 0.5 percent in 2023 (when yearly averages are compared).
Rate As of April 2024, the REER was about 2.0 percent above the 2023 average.
Assessment. The IMF staff CA gap implies a REER that is overvalued by 5.8 percent in 2022 (with an estimated elasticity of 0.12 applied).
The EBA REER index model suggests an overvaluation of 8.3 percent, and the EBA REER level model suggests an overvaluation of 16.7 percent.
Considering all the estimates and their uncertainties, consistent with the CA gap, the IMF staff assesses the 2023 midpoint REER overvaluation
to be 5.8 percent of GDP, with a range of 11.6 to 0 percent, where the range is obtained from the CA standard error and the corresponding
CA elasticity.
Capital and Background. In 2023, the financial account balance stood at approximately −3.0 percent of GDP, a slight improvement from the −3.1 percent
Financial of GDP recorded in 2022. This shift primarily stemmed from an increase in net other investment and, to a lesser degree, an increase in net
Accounts: Flows financial derivatives, though it was partly offset by declines in net portfolio investment and net direct investment.
and Policy Assessment. The United States has an open capital account. Vulnerabilities are limited by the US dollar’s status as a reserve currency, with
Measures foreign demand for US Treasury securities supported by the status of the dollar as a reserve currency and, possibly, by safe haven flows.
FX Intervention Assessment. The US dollar has the status of a global reserve currency. Reserves held by the United States are typically low relative to
and Reserves standard metrics. The currency is free floating.
Level

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Technical Endnotes by Economy and other cyclical and short-term factors, implies a cyclically
adjusted CA of 8.8 percent of GDP. The CA was adjusted
Argentina further by 0.7 pp to account for the incomplete recovery
1Namely reflecting valuation gains from the exchange rate depre- in incoming tourism, reflecting in part continued weak
ciation on peso debt held by nonresidents as well as resident consumer confidence in Mainland China, the key market,
purchases of debt held by nonresidents. and lingering capacity constraints associated with reopening
2Investment income to Argentines over the same period was in Hong Kong SAR. This adjustment reflects the gap between
US$13.8 billion, indicating that a larger share of the growth in actual tourist arrivals in 2023 and projected arrivals based on
Argentines’ foreign savings has been on account of new flows the trend from 2010–19. As a result, the underlying current
(e.g., interest and capital gains). account balance used in this assessment is 9.5 percent of
3High levels of private foreign assets suggest diminishing risks of GDP.
3Hong Kong SAR is not in the EBA sample as it is an outlier
significant capital flight upon the lifting of CFMs.
4The adjustor is smaller than the actual impact of the drought along many dimensions of EBA analysis. While it is possible to
on exports (~3 percent of GDP), due to second-round effects. use EBA-estimated coefficients and apply them to Hong Kong
5Staff ’s adjustment includes the 2.4 percent drought adjustment SAR, there are obvious drawbacks. Following this approach,
to the cyclical CA minus the 1.1 percent external sustainability the cyclically adjusted multilaterally consistent CA norm in
adjustor to the CA norm. 2023 is estimated to be about 22.5 percent of GDP, which
6Meanwhile, results from the EBA REER index model suggest compared with the CA adjusted for cyclical and other short-
a REER gap of 19.9 percent, while the EBA REER level model term factors (9.5 percent of GDP, see footnote 2), implying
estimates a gap of 5.0 percent, with the estimate surrounded by a CA gap of –13.0 percent. The EBA CA gap is overstated
significant uncertainty. as it does not properly reflect the measurement issues that
are relevant for Hong Kong SAR, so three adjustments are
made which reduce the CA norm by around 12 ppt of GDP
Canada to 10.4 percent, based on a staff-assessed norm range. First,
1Inflationcompensation is not recorded in the income balance a deduction of around 6.1 ppt of GDP (based on a range
which is recorded in nominal terms. This yields an estimated between 5.4–6.8 ppt) is made to the EBA model’s implied
downward bias of 0.9 percent of GDP. Further, retained earnings contribution of the NIIP position. This is because the positive
on portfolio equity are not recorded, but can be estimated from NIIP contribution in EBA captures average income effects
stock positions, financial market data, and the national accounts. that are less relevant for Hong Kong SAR since the income
The downward bias from this is estimated to amount to 0.6 per- balance relative to its NIIP is systematically lower than other
cent of GDP, yielding a total estimated downward bias on the peer economies, due to a persistently higher share of debt
income balance of 1.5 percent of GDP. instruments on the asset side than on the liability side. Second,
a deduction of around 4.6 ppt of GDP is made to account
for a decline in the gold trade balance that does not reflect
China changes in wealth but rather the increased physical settlement
1See
of gold futures contracts resulting from the opening of a
2022 IMF CFM Taxonomy for a list of China’s existing
Precious Metals Depository. Third, a deduction of 1.3 ppt of
CFMs and related policy advice.
GDP (midpoint of an estimated 1.2–1.5 ppt range) is made
to account for Mainland China’s increased onshoring, which
led to a decline in logistics and trading activities in Hong
Euro Area
Kong SAR, but did not result in lower consumption because
1The export and import elasticities are obtained as the average it is viewed as temporary and to be replaced with increased
of estimates from Consultative Group on Exchange Rate Issues– provision of high value-added services as Hong Kong SAR’s
inspired export and import equations using REERs relevant own economy rebalances in response to Mainland demand (see
for the euro area with an ADL (2,2,2) model on quarterly data “People’s Republic of China—Hong Kong Special Administra-
2000–19. The trade balance elasticity is calculated using the tive Region: Selected Issues” (Country Report No. 17/12) for
share of exports and imports in extra-EU trade in GDP. more details).
4The range is calculated by applying the average semi-elasticities

of Hong Kong SAR and similar economies.

Hong Kong Special Administrative Region 5The financial linkages with the Mainland have deepened in

1Includes debt securities, loans, trade credits and other advances. recent years with the increase in cross-border bank lending,
2A +0.4 pp of GDP cyclical adjustment arising from the capital market financing, and the internationalization of
estimated negative output gap for Hong Kong SAR in 2023 the RMB. As of end-2023, banking system claims on bank

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and non-bank entities in Mainland China amounted to not explicitly considered by the consumption-based model and
102 percent of GDP, down by about 17 ppt from the peak at produced a CA gap of 3.5 percent over the medium term. The
end-2020. reliance of the consumption and investment models on projected
oil prices beyond the medium-term macro framework subjects
the results to a high degree of uncertainty. The CA gap in 2023
India of –2.6 percent of GDP represents the staff ’s overall assessment,
1The observed stability of the exchange rate since December which is anchored on the EBA-Lite CA model. The range for
2022 prompted reclassification of India’s de facto exchange rate the gap is calculated using the standard error of Norway (2 per-
regime by the IMF from “floating” to “stabilized arrangement” as cent), a comparable oil-rich economy in the EBA sample.
of the Article IV consultation in December 2023, while the de
jure classification remained “floating.”
Singapore
1Singapore has a negative income balance despite its large
Indonesia positive NIIP position, reflecting lower rates of return on its
1Indonesia is among a few countries with low life expectancy at foreign assets relative to returns on its foreign liabilities, possibly
prime age and demographic indicators are adjusted to account due to the fact that the composition of Singapore’s assets is tilted
for this. As a result, the model-estimated CA norm is adjusted toward safer assets with lower returns.
2Nonstandard factors make a quantitative assessment of Singa-
by subtracting 0.3 percentage point.
pore’s external position difficult and subject to significant uncer-
tainty. Singapore is not included in the EBA sample because it is
an outlier along several dimensions. One possibility, though with
Japan drawbacks, is to use EBA estimated coefficients and apply them to
1IMF staff recommends allowing the estimated credit-to-GDP Singapore. Following that approach, the CA norm is estimated to
gap to decline gradually over the medium term from its currently be about 15.6 percent of GDP in 2023 (including the multilateral
estimated level of 16.5 percent (14.4 percent net of corpo- consistency adjustor). However, using this approach understates
rate savings) with a corresponding policy setting (P*) for the the CA gap. In order to account for Singapore specificities, several
­credit-to-GDP gap in five years of 7.3 percent of GDP. This is adjustments are needed. First, a downward adjustment of 1
consistent with the reduction envisaged earlier in the 2022/23 percentage point is made to EBA’s implied contribution of public
External Sector Report. health expenditures to the norm to account for the fact that Singa-
pore’s health expenditure is appropriate given its high efficiency,
even though its desirable, as well as current, public health expen-
diture is significantly lower than in other EBA countries. Second,
Saudi Arabia
a downward adjustment of 3.7 percentage points to the norm is
1EBA models do not include Saudi Arabia. The IMF staff made to better account for the effect of NFA composition and
considered two approaches of the EBA-lite methodology: component-specific return differentials on the CA. Third, not-
the EBA-lite CA model and the EBA-lite commodity module. withstanding possible partial double-counting with the NFA com-
The latter includes the special intertemporal considerations that ponents adjustor, a downward adjustment of 2.2 percentage points
are dominant in economies in which exports of ­nonrenewable of GDP is applied to the underlying CA to account for measure-
resources are a very high share of output and exports. ment biases due to inflation and portfolio equity retained earnings
2Using the EBA-lite CA model, the cyclically adjusted CA
(–5.4 and +3.2 percent of GDP, respectively). Adjusting for these
norm is estimated at 5.9 percent of GDP (lower than the factors, the staff-estimated CA gap is about 7.0 percent of GDP, to
CA norm of 7.7 percent of GDP in 2022, which was mainly which the fiscal gap contributes about 1.6 percent of GDP, credit
driven by high oil exports and fiscal balance). The Consump- gap about –0.1 percent of GDP, public health spending about 0.2
tion Allocation Rules assume that the sustainability of the CA percent of GDP, and reserves about 0.3 percent of GDP.
trajectory requires that the net present value of all future oil and 3We apply the maximum range of ±1.8 percent in the EBA sam-
financial and investment income (wealth) be equal to the net ple for the CA gap reflecting the uncertainty around Singapore’s
present value of imports of goods and services net of non-oil assessment.
exports. Estimated CA norms from the Consumption Allocation 4The reserves-to-GDP ratio is also larger than in most other
Rules were 5.2 percent of GDP and 8.2 percent of GDP for financial centers, but this may reflect in part that most other
the constant real annuity and constant real per capita annuity financial centers are in reserve-currency countries or currency
allocation rules, respectively. The Investment Needs Model takes unions. External assets managed by the government’s investment
account of the possibility that it might be desirable to allocate corporation and wealth fund (GIC and Temasek) amount to at
part of the resource wealth to finance investment, which was least 100 percent of GDP.

International Monetary Fund | 2024 95

2024 EXTERNAL SECTOR REPORT

South Africa ments include changes in statistical sources, such as changes in the
1Because
number of entities surveyed and items covered.
South Africa is among the few countries with relatively 4Part of the positive EBA CA gap may reflect institutional
high adult mortality rates, the demographic indicators are
pension features, such as replacement and coverage rates, in
adjusted to account for the younger average prime age and exit
Switzerland rather than other economic policy gaps.
age from the workforce, resulting in a lower CA norm. Other 5The underlying CA is adjusted for Switzerland-specific
adjustors account for transfers related to the Southern African
factors in the income account: (1) retained earnings on port-
Customs Union (SACU), assessed to have a net negative impact
folio equity investment that are not recorded in the income
on the CA, and measurement biases related to the treatment of
balance of the CA (or the PE RE bias) under the sixth edition
retained earnings on portfolio equity assets and inflation com-
of the IMF Balance of Payments and International Investment
pensation, which are likely to contribute to an underestimation
Position Manual and (2) recording of nominal interest on
of the income balance.
fixed income securities under the Balance of Payments Manual
framework, which compensates for expected valuation losses
(due to inflation and/or nominal exchange rate movements),
Spain
even though this stream compensates for the (anticipated)
1TARGET2 is the settlement system run by the Eurosystem. erosion in the real value of debt assets and liabilities. The PE
It settles payments related to the Eurosystem’s monetary policy RE bias was estimated using the “stock method” and “flow
operations, as well as bank-to-bank and commercial transactions. method” as explained in “The Measurement of External
When banks in Spain send more euros through TARGET2 Accounts” (IMF Working Paper 19/132), and it is similar
than they receive overall, the Bank of Spain incurs a TARGET2 in size to estimates based on the Swiss National Bank’s pilot
liability. The Bank of Spain’s TARGET2 liabilities had increased BPM7 data.
until recently, mostly as a result of the asset purchase program
introduced by the European Central Bank in 2015, which tech-
nically led the Bank of Spain to purchase assets held by investors Thailand
with bank accounts abroad.
1For Thailand, the transportation adjustor is calculated as the

change in the transport services balance between 2019 and 2023.

Sweden The travel adjustor is added to account for the temporary impact
of the COVID-19 shock on the tourism balance, as the Thai
1The upper and lower bounds are derived by adding/subtracting
economy is highly dependent on tourism and Chinese tourist
the standard deviation (6.4 percent) from the average outcome
flows represent a large share of prepandemic tourist arrivals.
(midpoint) to reflect uncertainty around the EBA estimated norm.
Under the assumption that tourism flows will have recovered by
2025 for Thailand, a tourism adjustor of 1.2 percent of GDP
is calculated in four steps: (1) first, subtracting the IMF staff
Switzerland prepandemic projection of the travel balance for 2023 from the
1Due to large revisions to historical balance-of-payments and actual 2023 travel balance yields the overall impact of the both
international investment position data, particular caution is transitory and structural factors impacting the tourism balance
needed when comparing the ESA results for different periods. after the COVID-19 shock; (2) second, subtracting the IMF
For example, based on the latest information from the annual staff prepandemic projection of the travel balance for 2025 from
surveys on cross-border capital linkages, the CA has been revised the currently projected 2025 travel balance provides an estimate
in 2023 downwards by CHF15 billion (2 percent of GDP) for of the structural change on the tourism balance following the
2021 and by CHF4 billion (0.5 percent of GDP) for 2022, pandemic; (3) third, netting out the structural change estimated
driven by higher expenses for dividends paid to nonresident in the second step from the overall effect calculated in the first
investors for their equity participations in resident enterprises. step yields a measure of the transient effect on the travel services
2As flagged by the Swiss National Bank (press release: “Swiss
balance; and (4) applying the coefficient of 0.75 (that is, the
Balance of Payments and International Investment Position 2023 estimated impact of changes in the travel services balance on the
and Q4 2023,” March 2024). CA) on the estimate of the transient effect on the travel services
3Valuation changes reflect fluctuations of exchange rates and prices
balance calculated in the third step yields the tourism adjustor
of securities and precious metals that interact with differences applied by IMF staff.
among assets and liabilities in terms of currencies and instruments. 2The Non-Resident Qualified Company scheme is being assessed

As a result, an appreciation (depreciation) of the Swiss franc has a under the Institutional View for the Liberalization and Manage-
negative (positive) effect on the NIIP. Other stock-flow adjust- ment of Capital Flows.

96 International Monetary Fund | 2024

 CHAPTER 3 2023 Individual Economy Assessments

United Kingdom References

1Official NIIP data do not record FDI assets and liabilities at Adler, Gustavo, Daniel Garcia-Macia, and Signe Krogstrup.
market value. The Bank of England’s December 2022 Financial 2019. “The Measurement of External Accounts.” IMF
Stability Report estimates that if the United Kingdom’s FDI assets Working Paper 19/132, International Monetary Fund,
and liabilities were also marked-to-market, then the United Washington, DC.
Kingdom’s NIIP would rise from negative territory to close to Allen, Cian, Deepali Gautam, and Luciana Juvenal. 2023. “Cur-
+100 percent of GDP. rencies of External Balance Sheets.”
2Estimates in Allen and others (2023) suggest that, in 2020,
IMF Working Paper 23/237, International Monetary Fund,
about 93 percent of external assets were denominated in foreign Washington, DC.
currency compared with 53 percent for external liabilities. Bank of England. 2022. Financial Stability Report. London,
3These measurement issues arise primarily because of differences
England, December.
between the statistical definition of income and the relevant International Monetary Fund (IMF). 2017. “People’s Republic of
economic concept. Both would lead to NIIP valuation changes China—Hong Kong Special Administrative Region: Selected
but are not recorded in the income balance. Issues.” IMF Country Report 17/12, Washington, DC.

International Monetary Fund | 2024 97

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IN THIS ISSUE:
CHAPTER 1
External Positions and Policies
CHAPTER 2
Navigating the Tides of Commodity Prices
CHAPTER 3
2023 Individual Economy Assessments

FPO
EXTERNAL SECTOR REPORT 2024