## Preface ## Source details **Canonical URL:** [Preface](https://www.imf.org/-/media/files/publications/esr/2022/english/ch0.pdf) ## Other formats - [Markdown version](/-/media/files/publications/esr/2022/english/ch0.pdf.md) - [Structured JSON version](/-/media/files/publications/esr/2022/english/ch0.pdf.json) --- ### Purpose and scope - 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. - The 2022 report and associated external assessments are based on the latest version of the IMF’s External Balance Assessment (EBA) methodology and on data and IMF staff projections as of June 30, 2022. - The report provides holistic assessments for 30 economies. ### Report structure - Chapter 1, “External Positions and Policies,” discusses the evolution of global external positions in 2021, external developments throughout the lingering COVID-19 pandemic and the war in Ukraine, and policy priorities for reducing excess imbalances over the medium term. - Chapter 2, “Climate Policies and External Adjustment,” analyzes the economic effects of climate mitigation policies on external positions and highlights that external sector effects depend on country characteristics, the degree of international policy coordination, and credibility. - Chapter 3, “2021 Individual Economy Assessments,” provides details on overall external assessment and associated policy recommendations for 30 economies. - The analysis draws on contributions from IMF area departments, other IMF departments, country teams, and external consultants. ### Key findings and statistics - Global current account balances increased in 2020 and 2021 and are projected to widen further in 2022 after having been on a declining trend for several years before 2020. - The widening in 2021 was largely driven by the pandemic’s continued impact and the increase in commodity prices accompanying the economic recovery; the war in Ukraine further exacerbates these trends in 2022. - The pandemic continued to affect current accounts through: - a fall in travel services, - increased demand for medical products, - a shift in household consumption toward goods rather than services, and - higher transportation costs due to high demand for tradable goods and supply bottlenecks. - Creditor and debtor stock positions remained elevated at the end of 2021, having moderated from their 2020 peaks. - The global financial safety net remained close to 20 percent of world GDP. - Currency movements during 2021 were relatively limited, though several emerging market currencies depreciated vis-à-vis a broad set of trading partners; monetary policy tightening in 2022 is driving larger currency realignments. - The IMF’s multilateral approach found that global excess current account balances narrowed to 0.9 percent of world GDP in 2021 compared with 1.2 percent of world GDP in 2020. - Largest contributors to lower-than-warranted current account balances (as a share of world GDP), in descending order: the United States, Canada, and Belgium. - Largest contributors to larger-than-warranted current account balances, in descending order: Germany, Australia, Russia, and Sweden. ### Outlook and risks - Over the medium term, global current account balances are expected to resume their pre-pandemic downward trend as the COVID-19 pandemic’s economic implications fade, commodity prices normalize, and current account deficit economies implement fiscal consolidation faster than surplus economies. - The outlook is subject to unusually high uncertainties; risks that could widen global current account balances include: - a possible pandemic resurgence, - slower-than-expected recovery in public savings (especially in current account deficit economies), - the war’s impact on commodity prices, - possible escalation of geopolitical conflicts and tensions, - China’s growth slowdown and zero-COVID-19 policy, - the global pace of financial tightening, and - trade and economic fragmentation. ### Policy implications and recommendations - Multilateral cooperation is key to addressing policy challenges from the pandemic and the war in Ukraine, including tackling the humanitarian crisis and eschewing new barriers to trade to counter the risk of economic fragmentation. - Maintaining liquidity in the global financial system, including via the global safety net, will help economies manage risks related to tightening global financial conditions and potential financial system fragmentation. - Coordinated policy efforts can facilitate the green transition; Chapter 2 finds that coordinated implementation of climate mitigation policies reduces global current account balances and helps bring forward net zero emissions. - Policies to promote external rebalancing should be tailored to country circumstances: - For economies with excess current account deficits driven by fiscal deficits above desirable medium-term levels: growth-friendly fiscal consolidation is critical to support external rebalancing. - For economies with lingering competitiveness challenges: structural reforms (labor, product market, and other reforms) are needed to promote green, digital, and inclusive growth while boosting productivity. - For economies with persistent excess current account surpluses: intensifying reforms to encourage public and private investment and discourage excessive private saving is warranted, including by expanding social safety nets in some emerging markets. ### Key conclusions on climate policies and external adjustments - Climate policies could lead to large external sector adjustments. - Coordinated implementation of climate mitigation policies, with due consideration of the disproportionate economic costs on developing economies, will be critical to address climate change while supporting external rebalancing. ### Current account imbalances and policy prescriptions - Direct observation: Excess current account imbalances remain concentrated in advanced economies. - Reduction of excess current account imbalances requires continued joint efforts on the part of both excess surplus and excess deficit economies. - Policy prescriptions differ by country position and needs: - For economies in which excess current account deficits reflect excessive fiscal deficits: - Fiscal consolidation that preserves space for infrastructure and social spending and prevents long-term scarring from the pandemic will be critical to support external rebalancing. - For economies with lingering competitiveness challenges: - Address structural challenges to promote green, digital, and inclusive growth while boosting productivity. - For economies where excess current account surpluses persist: - Intensify reforms that encourage public and private investment and discourage excessive private saving, including by expanding social safety nets in some emerging markets. ### Methodology, assessments, and further analysis - Directors welcomed the staff’s analysis of historical persistence of current account gaps and looked forward to possible refinements in policy recommendations to better support external rebalancing. - Directors appreciated the consideration of temporary pandemic-induced factors in external sector assessments, while also calling for further analysis to assess potentially more permanent effects. - Directors welcomed the refinements to the EBA methodologies, and reiterated the need to ensure transparency, consistency, and evenhandedness of external assessments across countries. - Directors stressed the need for continued caution in interpreting and communicating the assessment results. - Directors called for greater analysis of vulnerabilities associated with large external stock positions. ### Executive Board discussion note - 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 22, 2022. - xii International Monetary Fund | 2022 - 2022 EXTERNAL SECTOR REPORT *Source: ch0 - Preface* ### Preface ### Preface ### Purpose and scope - 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. - The 2022 report and associated external assessments are based on the latest version of the IMF’s External Balance Assessment (EBA) methodology and on data and IMF staff projections as of June 30, 2022. - The report provides holistic assessments for 30 economies. ### Report structure - Chapter 1, “External Positions and Policies,” discusses the evolution of global external positions in 2021, external developments throughout the lingering COVID-19 pandemic and the war in Ukraine, and policy priorities for reducing excess imbalances over the medium term. - Chapter 2, “Climate Policies and External Adjustment,” analyzes the economic effects of climate mitigation policies on external positions and highlights that external sector effects depend on country characteristics, the degree of international policy coordination, and credibility. - Chapter 3, “2021 Individual Economy Assessments,” provides details on overall external assessment and associated policy recommendations for 30 economies. - The analysis draws on contributions from IMF area departments, other IMF departments, country teams, and external consultants. ### Key findings and statistics - Global current account balances increased in 2020 and 2021 and are projected to widen further in 2022 after having been on a declining trend for several years before 2020. - The widening in 2021 was largely driven by the pandemic’s continued impact and the increase in commodity prices accompanying the economic recovery; the war in Ukraine further exacerbates these trends in 2022. - The pandemic continued to affect current accounts through: - a fall in travel services, - increased demand for medical products, - a shift in household consumption toward goods rather than services, and - higher transportation costs due to high demand for tradable goods and supply bottlenecks. - Creditor and debtor stock positions remained elevated at the end of 2021, having moderated from their 2020 peaks. - The global financial safety net remained close to 20 percent of world GDP. - Currency movements during 2021 were relatively limited, though several emerging market currencies depreciated vis-à-vis a broad set of trading partners; monetary policy tightening in 2022 is driving larger currency realignments. - The IMF’s multilateral approach found that global excess current account balances narrowed to 0.9 percent of world GDP in 2021 compared with 1.2 percent of world GDP in 2020. - Largest contributors to lower-than-warranted current account balances (as a share of world GDP), in descending order: the United States, Canada, and Belgium. - Largest contributors to larger-than-warranted current account balances, in descending order: Germany, Australia, Russia, and Sweden. ### Outlook and risks - Over the medium term, global current account balances are expected to resume their pre-pandemic downward trend as the COVID-19 pandemic’s economic implications fade, commodity prices normalize, and current account deficit economies implement fiscal consolidation faster than surplus economies. - The outlook is subject to unusually high uncertainties; risks that could widen global current account balances include: - a possible pandemic resurgence, - slower-than-expected recovery in public savings (especially in current account deficit economies), - the war’s impact on commodity prices, - possible escalation of geopolitical conflicts and tensions, - China’s growth slowdown and zero-COVID-19 policy, - the global pace of financial tightening, and - trade and economic fragmentation. ### Policy implications and recommendations - Multilateral cooperation is key to addressing policy challenges from the pandemic and the war in Ukraine, including tackling the humanitarian crisis and eschewing new barriers to trade to counter the risk of economic fragmentation. - Maintaining liquidity in the global financial system, including via the global safety net, will help economies manage risks related to tightening global financial conditions and potential financial system fragmentation. - Coordinated policy efforts can facilitate the green transition; Chapter 2 finds that coordinated implementation of climate mitigation policies reduces global current account balances and helps bring forward net zero emissions. - Policies to promote external rebalancing should be tailored to country circumstances: - For economies with excess current account deficits driven by fiscal deficits above desirable medium-term levels: growth-friendly fiscal consolidation is critical to support external rebalancing. - For economies with lingering competitiveness challenges: structural reforms (labor, product market, and other reforms) are needed to promote green, digital, and inclusive growth while boosting productivity. - For economies with persistent excess current account surpluses: intensifying reforms to encourage public and private investment and discourage excessive private saving is warranted, including by expanding social safety nets in some emerging markets. *Source: ch0 - Preface* ### conclusion that climate policies could lead to large ### conclusion that climate policies could lead to large ### Key conclusions on climate policies and external adjustments - Climate policies could lead to large external sector adjustments. - Coordinated implementation of climate mitigation policies, with due consideration of the disproportionate economic costs on developing economies, will be critical to address climate change while supporting external rebalancing. ### Current account imbalances and policy prescriptions - Direct observation: Excess current account imbalances remain concentrated in advanced economies. - Reduction of excess current account imbalances requires continued joint efforts on the part of both excess surplus and excess deficit economies. - Policy prescriptions differ by country position and needs: - For economies in which excess current account deficits reflect excessive fiscal deficits: - Fiscal consolidation that preserves space for infrastructure and social spending and prevents long-term scarring from the pandemic will be critical to support external rebalancing. - For economies with lingering competitiveness challenges: - Address structural challenges to promote green, digital, and inclusive growth while boosting productivity. - For economies where excess current account surpluses persist: - Intensify reforms that encourage public and private investment and discourage excessive private saving, including by expanding social safety nets in some emerging markets. ### Methodology, assessments, and further analysis - Directors welcomed the staff’s analysis of historical persistence of current account gaps and looked forward to possible refinements in policy recommendations to better support external rebalancing. - Directors appreciated the consideration of temporary pandemic-induced factors in external sector assessments, while also calling for further analysis to assess potentially more permanent effects. - Directors welcomed the refinements to the EBA methodologies, and reiterated the need to ensure transparency, consistency, and evenhandedness of external assessments across countries. - Directors stressed the need for continued caution in interpreting and communicating the assessment results. - Directors called for greater analysis of vulnerabilities associated with large external stock positions. ### Executive Board discussion note - 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 22, 2022. - xii International Monetary Fund | 2022 - 2022 EXTERNAL SECTOR REPORT *Source: IMF Executive Board discussion summary (chapter content provided).* --- _Source: https://www.imf.org/-/media/files/publications/esr/2022/english/ch0.pdf_