. A current account balance that is higher (lower) than that implied by fundamentals and desired medium-term policies corresponds to a positive (negative) gap. Eventual elimination of such gaps is desirable, although there may be good reasons for a temporary gap, and/or for adjusting gradually. Calling a current account gap high (low) is another way to say it is positive (negative).
Assessments also include a view on the real effective exchange rate (REER)—normally consistent with the assessedcurrentaccountgap, except when marked REER movements are not
EBA Estimated Current Account and REER Gaps 1/
Source: IMF Staff assessments.
1/ Sorted by the mid-point of the staff-assessed gap. Hong Kong SAR, Saudi Arabia and Singapore do not have EBA estimates. For Saudi Arabia, the current account gap reflects a fiscal policy gap.
2/ EBA REER gap is defined as the average of index- and level-based regressions (see details in 2018 External Sector Report--Refinements to the External Balance Assessment Methodology--Supplemetary Information).
ESR Countries: Summary of Staff-AssessedCurrentAccountGaps
The External Sector Report presents a methodologically consistent assessment of the exchange rates, current accounts, reserves, capital flows, and external balance sheets of the world’s largest economies. The 2018 edition includes an analytical assessment of how trade costs and related policy barriers drive excess global imbalances.
Executive Directors broadly agreed with the findings of the External Sector Report and its policy recommendations. They noted that global current account surpluses and deficits have remained broadly unchanged in recent years. At the same time, the concentration of excess imbalances in advanced economies has increased, on both the surplus and deficit sides, amid a widening of creditor and debtor positions. Directors noted with concern the projected continuation of this trend under baseline policies.
1. IMF tools to assess external positions in a multilaterally-consistent fashion have evolved over time. Initial assessments, based on the Consultative Group on Exchange Rate Issues (CGER) framework, focused on the exchange rates of key advanced economies, although these evolved to include a broader range of measures of a country’s external position and wider country coverage. The existing External Balance Assessment (EBA) framework was launched in 2012, with current account and real exchange rate (REER) models that are used as numerical inputs into the external sector assessment conducted by IMF staff. The key innovation of the EBA framework consisted of expanding the set of policy variables, and defining the concept of current account “norms” as current account levels that correspond to policies at their desired levels. The EBA models also helped highlight the role of policy distortions, and introduced an internal collaborative exercise to arrive at multilaterally consistent staff assessments.
This section discusses external developments since 2017, as well as prospects for the evolution of external balances and risks emanating from them. Policy actions to address excess external imbalances are discussed, both from an individual and multilateral perspective.
23. Conventional economic wisdom holds that the drivers of external current account balances are primarily macroeconomic in nature: the current account represents the excess of national saving over investment, whose drivers in turn are macroeconomic. The IMF’s approach to assessing imbalances reflects this conventional wisdom and the vast theoretical and empirical literature on this topic. Current accounts in the EBA model are pinned down by macroeconomic fundamentals, including demographics, income per capita, and growth prospects, as well as by domestic policies.
The external sector assessments use a wide range of methods, including the External Balance Assessment (EBA) developed by the IMF’s Research Department to estimate desired current account balances and real exchange rates (see IMF Working Paper WP/13/272 for a complete description of the EBA methodology and Annex I of the 2015 External Sector Report for a discussion of more recent refinements). This year, as is done periodically, the EBA models were refined to reflect insights gained since the last round of changes. Refinements aimed at better capturing the role that certain fundamentals (demographics, institutions and potential current account measurement biases), macroeconomic policies (foreign exchange intervention and credit excesses) and other structural features could play in driving current account dynamics. A full description of the refinements can be found in the 2018 ESR Technical Supplement.
This section documents the recent evolution of global current account balances, exchange rates, and stock positions, with emphasis on developments during 2017. It highlights how progress in reducing global balances has stalled since 2013, and discusses the underlying drivers of the recent reconfiguration and concentration of surpluses and deficits in advanced economies (AEs). The discussion in this section is descriptive and does not yet take a view on whether, or where, adjustments are necessary. Normative assessments, identifying excess imbalances, are provided in Section III.
Economies: NFA Changes around Large Exchange Rate Depreciations
ESR Economies: Cyclically-adjusted Current Accounts. Actual vs. Staff-Assessed Norm, 2015
ESR Economies: Staff-AssessedCurrentAccountGaps, 2014-15
ESR Economies: Staff-Assessed REER and Current Account Gaps, 2015
ESR Economies: Staff-Assessed vs. EBA Estimated Current Account and REER Gaps, 2015
ESR Economies: Contributions of Policy Gaps to the 2015 Staff-AssessedCurrentAccountGap
Selected Economies: Foreign Exchange Intervention and Reserve Adequacy, 2014-15
ESR Economies: Evolution of