## execsum

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### Global current account balances and pandemic effects
- Global current account balances—the sum of absolute deficits and surpluses—increased from 2.8 percent of world GDP in 2019 to 3.2 percent of GDP in 2020.
- The widening mainly reflects the unequal impact of the COVID-19 crisis across sectors (travel, oil, medical goods, household consumption goods) and larger fiscal expansions in advanced economies with current account deficits, notably the United States.
- Without pandemic-related shifts and policy responses, global balances would have continued their declining path.
- Stocks of external assets and liabilities remain near historic highs, with large valuation-induced changes and attendant risks for creditor and debtor economies.

### Country-level external position dynamics
- The pandemic triggered wide fluctuations in external positions with uneven effects across countries.
- Despite a global recovery in merchandise trade, spending on services remains subdued; global tourism arrivals remain far below their 2019 levels, producing sharp falls in trade balances for tourism-exporting economies.
- Oil exporters experienced sharply falling trade balances initially, with gradual recovery after mid-2020 as oil prices rose.
- Household spending shifted from services to consumer goods; trade in medical products rose, driving further movements in exports and imports.
- Unprecedented government borrowing to finance health care and economic support had uneven effects on trade balances:
  - The evolution of current account balances depends on a country’s relative fiscal policy stance compared with that of its trading partners (see Chapter 2).
  - Countries with the largest budgetary expansions caused their trade balances to fall, all else equal.
  - Countries with smaller fiscal expansions saw their trade balances rise.
- Movements in saving-investment (current account) balances as a share of GDP reflect falling public saving, relatively stable investment rates, and increases in private saving—especially by higher-income households.
- Richer economies borrowed relatively more than poorer economies to fund government spending, and their current account balances, on average, declined by more, suggesting the pandemic may have slowed the “downhill” flow of funds from richer to poorer countries.

### Exchange rates, reserves, and vulnerabilities
- Currencies fluctuated widely early in the pandemic, with more moderate movements since mid-2020.
- Reserve currencies initially appreciated during the flight to safety but most have since depreciated amid exceptional policy support, significant expansions in liquidity by central banks, expansionary fiscal packages, positive vaccine news, and global risk sentiment.
- Many emerging market currencies that depreciated early have rebounded; economies with external vulnerabilities experienced continuing pressure on their currencies and declining foreign exchange reserves.

### Multilateral assessment of excessive imbalances
- The IMF’s multilateral approach finds excessive current account deficits and surpluses—deviations from desirable medium-term levels—were broadly unchanged in 2020 at about 1.2 percent of world GDP.
- The 2020 assessments account for temporary pandemic impacts via additional cyclical adjustors.
- About 72 percent of the excess balances in 2020 pertained to advanced economies, up from 69 percent in 2019.
- Largest contributors to lower-than-warranted current account balances (as a share of world GDP): the United States, France, the United Kingdom, and Canada.
- Largest contributors to larger-than-warranted current account balances: Germany, The Netherlands, Mexico, Poland, and Russia.
- The relatively large fiscal expansions of some economies affected their trading partners’ external positions and assessments.

### Outlook and key uncertainties (2022–26)
- The outlook is for a gradual narrowing of global current account balances during 2022–26, mainly reflecting a narrowing of the US deficit and China’s surplus to below pre-pandemic levels.
- Key uncertainties:
  - Fiscal policy developments (see Chapter 2).
  - A resurgence of the pandemic could make sectoral effects more persistent.
  - A tightening of global financial conditions could further slow the downhill flow of capital.
  - A retreat from trade integration could weaken growth prospects, especially for economies integrated into supply chains.
  - Expedited vaccinations, including in lagging regions, would improve confidence and help unwind crisis-induced current account movements.

### Near-term policy priorities
- Focus on averting downside risks by ending the pandemic globally.
- Strong international cooperation to secure up-front financing for vaccinations and public health measures.
- If further external shocks materialize:
  - Economies with flexible exchange rates should allow exchange rates to adjust, where feasible.
  - For economies with adequate reserves, exchange rate intervention can alleviate disorderly market conditions, particularly if there are shallow foreign currency markets and large balance sheet mismatches.
- Intensify multilateral efforts to resolve trade and technology tensions and to modernize international taxation.
  - Priorities include phasing out tariff and nontariff barriers, including on medical products, and addressing gaps in the rules-based multilateral trading system.
  - Tariffs negatively affect business sentiment and consumers and do not effectively address policy gaps and structural distortions to lower external imbalances.

### Medium-term collective actions
- Collective action is needed to reduce global imbalances in a growth-friendly manner.
- Where excess current account deficits reflect larger-than-desirable fiscal deficits:
  - Fiscal consolidation would promote debt sustainability, reduce the current account gap, and facilitate raising international reserves.
- Countries with export competitiveness challenges should pursue productivity-raising reforms, including to enhance education outcomes and innovation.
- Economies with excess current account surpluses and remaining fiscal space should support recovery and medium-term growth through greater public investment in digitalization, upgrading infrastructure, and climate change mitigation.
- Intensify reforms to encourage private investment and discourage excessive precautionary saving, including by reducing informality and expanding social safety nets.

*Source: execsum*

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_Source: https://www.imf.org/-/media/files/publications/esr/2021/english/execsum.pdf_