## ch3

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### Methodology for REER and Current Account Gaps
- IMF staff estimates REER gap consistent with staff current account (CA) gap by applying a country-specific elasticity.
- Additional inputs sometimes used: EBA REER regression models, unit-labor-cost-based measures, and other metrics.
- Multilaterally consistent external assessments developed for the 30 largest economies, representing about 90 percent of global GDP.
- External assessments presented in ranges to reflect uncertainty:
  - Ranges for IMF staff–assessed current account gaps are based on country-specific estimated measures.
  - REER ranges vary by country, reflecting country-specific exchange rate semielasticities.
- Overall external position labels: “broadly in line,” “moderately weaker (stronger),” “weaker (stronger),” or “substantially weaker (stronger).”
- Wording conventions:
  - “Higher”/“lower” correspond to positive/negative current account gaps when comparing cyclically adjusted CA with CA norm.
  - IMF staff reports quantitative REER gap as (_) percent “over” or “under”-valued.
- “Broadly in line” corresponds to current account gaps in the range of ±1 percent of GDP and REER gaps reflecting country-specific semielasticity (example: ±5 percent based on an elasticity of –0.2).

### Assessment Categories (Table 3.A)
- Mapping CA Gap to REER Gap (using elasticity of –0.2) and labels:
  - CA Gap >4%  — REER Gap <–20%  — substantially stronger
  - CA Gap 2%, 4% — REER Gap –20%, –10%  — stronger
  - CA Gap 1%, 2% — REER Gap –10%, –5%  — moderately stronger
  - CA Gap –1%, 1% — REER Gap –5%, 5%  — broadly in line
  - CA Gap –2%, –1% — REER Gap 5%, 10%  — moderately weaker
  - CA Gap –4%, –2% — REER Gap 10%, 20%  — weaker
  - CA Gap <–4% — REER Gap >20%  — substantially weaker

### Selection of Economies (Table 3.B)
- 30 systemic economies chosen based on: global rank in purchasing power GDP (IMF WEO), level of nominal gross trade, and degree of financial integration.
- Economies covered include: Argentina, Australia, Belgium, Brazil, Canada, China, Euro area, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, The Netherlands, Poland, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Türkiye, United Kingdom, United States

### Two-country Stylized Example: Domestic vs. Foreign Policy Distortions
- Setup:
  - Country A: large current account deficit, large fiscal deficit, high public and external debt.
  - Country B: current account surplus, large creditor position, no policy distortions.
- Findings:
  - Country A: external imbalance reflecting fiscal deficit; exchange rate appears overvalued; policy response: rein in fiscal deficit and limit financial excesses.
  - Country B: no domestic policy gaps; adjustment by Country A would automatically eliminate Country B’s imbalance; no domestic policy fault found.
- Implications:
  - Distinguish domestic vs foreign fiscal policy gaps.
  - Elimination of fiscal gap in a systemic deficit economy helps reduce excessive surpluses elsewhere.
  - Policy actions relate to private and public saving-investment balances; structural/policy distortions affect saving and investment.
  - Individual economy advice highlights reforms to address gaps and vulnerabilities associated with external stock positions, including reserves and FX intervention policies.

### Argentina — Key Findings (Table 3.1)
- Overall assessment (2021): external position weaker than implied by medium-term fundamentals and desirable policies due to elevated external debt vulnerabilities, precariously low international reserves, and lack of market access.
- Medium-term projection: CA surplus near 1 percent of GDP supported by sustained fiscal consolidation.
- Foreign asset/liability position (background & assessment):
  - Gross liabilities: 60.9 percent of GDP at end-2021 (compared with 34 percent at end-2015).
  - NIIP: 25 percent of GDP in Q4 2021 (up 16 percentage points since end-2015).
  - 2020 sovereign FX debt restructuring: US$82 billion (21.4 percent of GDP) with cash flow relief of US$34 billion during 2020–30.
  - Provincial restructurings in 2021: US$13 billion foreign law FX debt, total cash flow savings ~US$6.5 billion for 2021–27.
  - Gross international reserves: US$39.7 billion at end-2021; net international reserves (NIR) fell to US$2.3 billion at end-2021 after exclusions.
  - NIR reached US$3.8 billion by end-March 2022 (partly net IMF program disbursements).
  - Gross international reserves ~63 percent of IMF composite metric as of end-2021 after smoothing; ~68 percent without adjustment.
- Point-in-time metrics (2021:Q4 % GDP):
  - NIIP: 25.2
  - Gross Assets: 86.0
  - Res. Assets: 8.2
  - Gross Liab.: 60.9
  - Debt Liab.: 45.8
- Current Account (2021):
  - CA: 1.4 percent of GDP
  - Cyclically adjusted CA: 0.5 percent of GDP
  - EBA CA norm: 0.2 percent of GDP; EBA gap: 0.3 percent of GDP
  - IMF staff near- to medium-term CA norm closer to 1 percent of GDP, implying an adjustment of 0.8 percent of GDP
  - IMF staff assesses CA gap to be –0.5 ±1 percent of GDP
  - 2021 (% GDP) breakdown:
    - CA: 1.4
    - Cycl. Adj. CA: 0.5
    - EBA Norm: 0.2
    - EBA Gap: 0.3
    - COVID-19 Adj.: 0
    - Other Adj.: 0.8
    - Staff Gap: –0.5
- REER (2021 assessment):
  - REER depreciated nearly 30 percent between end-2017 and end-2019; average 2021 REER appreciated by 4.3 percent vs 2020 average; up over 20 percent comparing end-of-period levels.
  - REER through May 2022 up 18.3 percent relative to 2021 average.
  - IMF staff CA gap implies REER gap ~4 percent in 2021 (elasticity 0.13).
  - EBA REER index model suggests REER gap 7.6 percent; EBA REER level model estimates gap –8.7 percent.
  - IMF staff assesses 2021 REER gap range: –5 to 5 percent.
- Capital and financial accounts; CFM measures:
  - CFM measures include restrictions on MULC access, restrictions on securities market participation (MEP/CCL), two FX purchase taxes of 30 and 35 percent, tight repatriation/surrender requirements, limits on cash withdrawals and selected credit card transactions abroad, limits on FX holdings of banks/mutual funds/exchange bureaus.
  - BCRA stopped intervening in FX securities market and eased regulations limiting trading.
  - CFM measures slowed capital outflows but introduced distortions discouraging trade and FDI; conditions-based easing necessary to encourage FDI.
- Policy recommendations:
  - Growth-friendly fiscal consolidation combined with prudent monetary policies to contain excessive domestic demand growth, maintain strong trade surplus, rebuild reserves, regain market access, and ensure debt sustainability.
  - Structural reforms to boost export capacity and encourage FDI.
  - As stability is reestablished, gradual conditions-based easing of CFM measures.

### Australia — Key Findings (Table 3.2)
- Overall assessment (2021): external position stronger than level implied by fundamentals and desirable policies; improvement due to terms of trade and higher savings.
- CA surplus 2021: 3.5 percent of GDP; expected to remain in surplus in 2022; projected to return to slight deficit medium term.
- Foreign asset/liability position (2021 % GDP):
  - NIIP: –35.4
  - Gross Assets: 148.2
  - Debt Assets: 38.4
  - Gross Liab.: 183.7
  - Debt Liab.: 85.5
- NIIP improved to –35.4 percent of GDP in 2021 from –55 percent in 2020 (average –52 percent over last five years).
- About half of gross liabilities are debt; more than half of debt liabilities denominated in domestic currency; assets in foreign currency.
- Current Account (2021 % GDP):
  - CA: 3.5
  - Cycl. Adj. CA: 1.7
  - EBA Norm: –0.9
  - EBA Gap: 2.6
  - COVID-19 Adj.: 0.2
  - Other Adj.: 0
  - Staff Gap: 2.7 (IMF staff–adjusted CA gap range: 2.1 to 3.3 percent of GDP, midpoint 2.7)
- REER:
  - REER appreciated by 6 percent in 2021 vs 2020 average; about 1.5 percent higher than five-year average.
  - After appreciating first half 2021, REER depreciated latter half amid lockdowns and lower iron ore prices.
  - As of May 2022, the REER was 0.6 percent above the 2021 average.

### Belgium — Overall Assessment and Key Macroeconomic Indicators
- Overall assessment (2021): external position weaker than implied by fundamentals and desirable policies.
- 2021 (% GDP) key figures:
  - CA: –0.4
  - Cycl. Adj. CA: 0
  - EBA Norm: 3.1
  - EBA Gap: –3.1
  - COVID-19 Adj.: –0.2
  - Staff Gap: –3.3
  - NIIP: 57
  - Gross Assets: 460
  - Debt Assets: 161
  - Gross Liab.: 403
  - Debt Liab.: 178
- Current Account drivers in 2021: deterioration of trade balance (1.4 percent of GDP), modest decline in net income inflows (0.2 percent), net current transfer outflows declined slightly (0.3 percent).
- REER:
  - ULC- and CPI-based REER appreciated in 2021 by 0.4 and 0.1 percent vs 2020 average.
  - As of May 2022, REER was 1.8 percent below 2021 average.
  - Staff-assessed REER gap: overvalued in range 4.4 to 5.3 percent, midpoint 4.9 percent (elasticity 0.68).
  - EBA model estimates REER overvaluation between 12 and 26.1 percent.

### Brazil — Overall Assessment and Key Macroeconomic Indicators
- Overall assessment (2021): external position broadly in line with fundamentals and desirable policies.
- 2021 (% GDP) key figures:
  - NIIP: –30
  - Gross Assets: 59.8
  - Res Assets: 22.5
  - Gross Liab.: 89.6
  - Debt Liab.: 41.4
  - CA: –1.7
  - Cycl. Adj. CA: –2.8
  - EBA Norm: –1.6
  - EBA Gap: –1.2
  - COVID-19 Adj.: –0.2
  - Other Adj.: 1
  - Staff Gap: –0.4 (IMF staff CA gap range: –0.9 to 0.1 percent of GDP, midpoint –0.4)
- REER:
  - After –20.6 percent in 2020, REER broadly stable in 2021 (–3.2 percent).
  - As of end-May 2022, REER appreciated by 17.8 percent relative to 2021 average.
  - IMF staff CA gap implies REER gap 3.1 percent in 2021 (elasticity 0.12); staff assesses REER gap range –1.1 to 7.3 percent, midpoint 3.1 percent.
- Capital and financial accounts and reserves:
  - Net FDI: 1.7 percent of GDP in 2021 (down from 2.8 percent in 2020).
  - Reserves: US$362 billion at end-2021; IMF reserve adequacy metric 162 percent as of end-2021.

### Canada — Overall Assessment and Key Macroeconomic Indicators
- Overall assessment (2021): external position moderately weaker than level implied by fundamentals and desirable policies.
- 2021 (% GDP) key figures:
  - NIIP: 68.8
  - Gross Assets: 311.3
  - Debt Assets: 77.3
  - Gross Liab.: 242.5
  - Debt Liab.: 133.8
  - CA: 0.0
  - Cycl. Adj. CA: –0.4
  - EBA Norm: 2.6
  - EBA Gap: –3.0
  - COVID-19 Adj.: 0.1
  - Other Adj.: 1.5
  - Staff Gap: –1.5 (range –1.9 to –1.1)
- REER:
  - REER appreciated by 4.9 percent on average in 2021 vs 2020 average.
  - As of May 2022, REER 0.3 percent below 2021 average.
  - IMF staff assesses REER overvalued in range 4.2 to 7.4 percent, midpoint 5.8 percent.

### China — Overall Assessment and Policy Responses
- Overall assessment (2021): external position broadly in line with fundamentals and desirable policies.
- CA surplus 2021: 1.8 percent of GDP; projected to converge to about 0.5 percent of GDP over medium term as rebalancing occurs.
- Key 2021 figures (% GDP):
  - NIIP: 11.2
  - Gross Assets: 52.5
  - Debt Assets: 14.9
  - Gross Liab.: 41.4
  - Debt Liab.: 13.4
  - CA: 1.8
  - Cycl. Adj. CA: 2.2
  - EBA Norm: 0.8
  - EBA Gap: 1.4
  - COVID-19 Adj.: –1.6
  - Staff Gap: –0.3 (range –0.9 to 0.3)
- REER:
  - REER appreciated by 3 percent in 2021 from 2020 average; as of May 2022 REER 1.3 percent below 2021 average.
  - IMF staff assesses REER gap range –2.3 to 6.2 percent, midpoint 1.9 percent (staff CA gap implies REER gap 1.9 percent, elasticity 0.14).
- Capital and financial accounts:
  - Net capital outflows declined to US$129 billion (0.7 percent of GDP) in 2021 from $220 billion (1.5 percent of GDP) in 2020.
  - QDII/QFII adjustments: total Qualified Domestic Institutional Investor quota US$157.5 billion as of December 2021.
- FX reserves:
  - FX reserves reached US$3.3 trillion in 2021; assessed adequate (68 percent of IMF composite metric at end-2021; 109 percent when adjusted for capital controls).

### Euro Area — Overall Assessment and Policy Responses
- Overall assessment (2021): external position moderately stronger than level implied by fundamentals and desirable policies; CA surplus increased to 2.4 percent of GDP in 2021.
- IMF staff CA gap (2021): 1.2 percent of GDP (range 0.6 to 1.8 percent); EBA Gap 1.7 percent of GDP.
- NIIP and positions (2021 % GDP):
  - NIIP: –1.5
  - Gross Assets: 274.6
  - Debt Assets: 105.0
  - Gross Liab.: 276.0
  - Debt Liab.: 104.4
- REER:
  - CPI-based REER cumulative appreciation 2015–21: 7.1 percent; CPI-based REER appreciated 0.5 percent in 2021.
  - As of May 2022, REER 5.4 percent below 2021 average.
  - IMF staff assesses REER gap –3.4 percent in 2021 (elasticity –0.35), range –1.7 to –5.1 percent.

### France — Key Extracts (2021)
- Overall assessment: external position broadly in line with fundamentals and desirable policies.
- NIIP (Q4 2021): –34.3 percent of GDP; gross assets 341 percent; gross liabilities 375.2 percent; debt liabilities 237.2 percent.
- Current Account (2021 % GDP):
  - CA: 0.4
  - Cycl. Adj. CA: 0.2
  - EBA Norm: 0.3
  - EBA Gap: –0.1
  - COVID-19 Adj.: 0.0
  - Staff Gap: –0.1 (range –0.5 to 0.3)
- REER:
  - IMF staff assesses REER overvaluation range –1.3 to 1.7 percent, midpoint 0.2 percent (staff CA gap implies REER gap 0.2 percent, elasticity 0.26).
  - As of May 2022, REER 4.7 percent below 2021 average.

### Germany (selected points, 2021)
- Overall assessment: external position stronger than level implied by fundamentals and desirable policies.
- CA (2021 % GDP): 7.4; Cycl. Adj. CA: 7.6; EBA Norm: 3.3; EBA Gap: 4.3; Staff Gap: 3.7.
- NIIP (2021 % GDP): 65; Gross Assets: 302; Gross Liabilities: 237.
- REER: staff CA gap implies REER gap 10.8 percent (elasticity 0.34); staff assess REER undervaluation midpoint 10.8 percent, range ±1.5 percent.

### Hong Kong SAR (selected points, 2021)
- Overall assessment: broadly in line.
- CA: 11.3 percent of GDP; Cycl. Adj. CA: 10.7; COVID-19 net adj. –0.5; IMF staff CA norm range 7.9 to 10.9; staff CA gap range –0.5 to 2.5 percent, midpoint 1 percent.
- NIIP: 578 percent of GDP; Gross Assets: 1,747; Gross Liab.: 1,169.
- Reserves: FX reserves 135 percent of GDP at end-2021.

### India — Key Findings (FY2021/22)
- Overall assessment: external position broadly in line with fundamentals and desirable policies.
- 2021 fiscal year (% GDP) key figures:
  - CA: –1.2
  - Cycl. Adj. CA: –1.6
  - EBA Norm: –1.9
  - EBA Gap: 0.3
  - COVID-19 Adj.: 0.7
  - Staff Gap: 1.0 (IMF staff assesses CA gap 1 percent of GDP, range 0.3 to [source truncated])
  - NIIP: –11.1
  - Gross Assets: 30.5
  - Gross Liab.: 41.7
- Current Account projections: CA deficit projected to widen to about 3 percent of GDP in fiscal year 2022/23, then stabilize around 2.6 percent of GDP medium term.
- FX reserves:
  - Record high about US$638.5 billion at end-2021; reserves ~223 percent of short-term debt and 195 percent of IMF composite metric at end-2021.
  - Reserves represent about eight months of import coverage.

### Japan — Selected Findings (2021)
- Japan holds the world’s largest stock of net foreign assets: US$3.6 trillion at end-2021.
- 2021 (% GDP) figures:
  - NIIP: 75.9
  - Gross Assets: 230.6
  - Debt Assets: 89.9
  - Gross Liab.: 154.8
  - Debt Liab.: 95.9
  - CA: 2.9
  - Cycl. Adj. CA: 2.9
  - EBA Norm: 3.9
  - EBA Gap: –0.9
  - COVID-19 Adj.: 0.4
  - Staff Gap: –0.5 (range –1.5 to 0.5)
- REER:
  - REER depreciated sharply by 8.6 percent in 2021.
  - As of May 2022, REER 13.4 percent below 2021 average.
  - IMF staff assesses REER gap range –3 to 10.2 percent, midpoint 3.6 percent.

### Korea — Selected Findings (2021)
- Overall assessment: broadly in line.
- 2021 (% GDP) figures:
  - NIIP: 36.4
  - Gross Assets: 120.3
  - Gross Liab.: 83.9
  - CA: 4.9
  - Cycl. Adj. CA: 5.6
  - EBA Norm: 5
  - EBA Gap: 0.6
  - COVID-19 Adj.: –0.9
  - Staff Gap: –0.3 (range –1.1 to 0.5)
- REER:
  - IMF staff assesses REER gap range –1.6 to 3.7 percent, midpoint 1 percent (elasticity 0.31).
- Reserves: end-2021 reserves stood at 25.6 percent of GDP; FX intervention net sales US$14 billion (0.8 percent of GDP) in second half of 2021.

### Malaysia — Selected Findings (2021)
- Overall assessment: moderately stronger than fundamentals and desirable policies.
- 2021 (% GDP) figures:
  - NIIP: 5.5
  - Gross Assets: 136.9
  - Gross Liab.: 131.4
  - CA: 3.8
  - Cycl. Adj. CA: 2.6
  - EBA Norm: –0.1
  - EBA Gap: 2.7
  - COVID-19 Adj.: –0.8
  - Staff Gap: 1.8 (±0.5)
- REER:
  - IMF staff CA gap implies REER undervaluation of 4 percent (elasticity 0.46); staff assesses REER undervaluation range 2.9 to 5.1 percent, midpoint 4 percent.
- Reserves: US$116.9 billion as of December 2021; gross official reserves ~122 percent of ARA metric at end-2021.

### Mexico — Selected Findings (2021)
- Overall assessment: broadly in line.
- 2021 (% GDP) figures:
  - NIIP: –41
  - Gross Assets: 58
  - Gross Liab.: 99
  - CA: –0.4
  - Cycl. Adj. CA: –1.5
  - EBA Norm: –1.2
  - EBA Gap: –0.2
  - COVID-19 Adj.: 0.1
  - Staff Gap: –0.2 (range –1.2 to 0.8)
- Reserves: US$208 billion at end-2021 (16 percent of GDP); reserves 131 percent of ARA metric and 254 percent of short-term debt.

### The Netherlands — Selected Findings (2021)
- Overall assessment: stronger than fundamentals and desirable policies.
- 2021 (% GDP) figures:
  - NIIP: 93.8
  - Gross Assets: 1,119.9
  - Gross Liab.: 1,026.1
  - CA: 9.0
  - Cycl. Adj. CA: 9.2
  - EBA Norm: 5.1
  - EBA Gap: 4.1
  - COVID-19 Adj.: –0.4
  - Other Adj.: –1.7
  - Staff Gap: 2.0
- Large components: net FDI stock about €1,057 billion (122.8 percent of GDP) in 2021; special-purpose entities account for significant shares of gross positions.

### Selected Multi-country Snippets and Notable Numerical Findings
- IMF staff assesses United States 2021 midpoint REER overvaluation: 8.7 percent, range 3.8 to 13.6 percent; EBA REER level model suggests 8.9 percent overvaluation.
- Poland (2021): staff CA gap 1.4 (±0.4) percent of GDP; NIIP –38 percent of GDP; gross assets 55.5; gross liabilities 93.4.
- Russia (2021): CA 6.9 percent of GDP; staff CA gap 2.1 percent of GDP (range 1.2 to 3.0); NIIP 27.2 percent of GDP; gross assets 93; gross liabilities 65.
- Saudi Arabia (2021): CA 5.3 percent of GDP; staff CA gap –1.0 percent of GDP (range –2.8 to 0.8); NIIP 73.5 percent of GDP; gross assets 150.3; reserves and net foreign assets detailed (US$455.4 billion total reserves in 2021).
- Singapore (2021): CA 18.1 percent of GDP; staff CA gap midpoint 5.2 percent of GDP; MAS official reserves US$417.9 billion (105.3 percent of GDP).
- South Africa (2021): CA 3.6 percent of GDP; staff gap –1.7 percent of GDP; NIIP and reserve adequacy metrics noted; net FDI increased to 9.7 percent of GDP in 2021.
- Spain (2021): CA ~0.9 percent of GDP in 2021; cyclically adjusted CA –0.1 percent of GDP; staff projects CA recover to 1.5 percent of GDP medium term.
- Sweden (2021): CA 5.5 percent of GDP; staff gap 3.6 percent of GDP (range 3.2 to 4.0); REER midpoint 0.4 percent.
- Switzerland (2021): CA 9.3 percent of GDP; cycl. adj. CA 9.9; EBA Gap 3.1; staff gap –0.9 percent of GDP; official reserve assets end-2021 US$1.11 trillion (136.5 percent of GDP); IMF staff REER midpoint +1.9 percent (range +0.2 to +3.6).

*Source: Chapter 3, 2022 External Sector Report (individual economy assessments and Annex material).*

### Annex 1.2, Chapter 1). The IMF staff estimates the real

### ch3 - Annex 1.2, Chapter 1). The IMF staff estimates the real

### Methodology for REER and Current Account Gaps
- The IMF staff estimates the real effective exchange rate (REER) gap consistent with the staff current account gap by applying a country-specific elasticity.
- In some cases additional information is used, such as the EBA REER regression models, unit-labor-cost-based measures, and metrics, to arrive at the staff REER gap estimate.
- A process was developed for multilaterally consistent external assessments for the 30 largest economies, representing about 90 percent of global GDP.
- External assessments are presented in ranges to reflect inherent uncertainties; ranges for IMF staff–assessed current account gaps are based on country-specific estimated measures.
- For the REER, ranges of uncertainty vary by country, reflecting country-specific factors, including different exchange rate semielasticities applied to the staff-assessed current account gaps.
- Overall external positions are labeled: “broadly in line,” “moderately weaker (stronger),” “weaker (stronger),” or “substantially weaker (stronger).”
- Wording conventions:
  - When comparing the cyclically adjusted current account with the current account norm, “higher” or “lower” corresponds to positive or negative current account gaps.
  - A quantitative estimate of the IMF staff’s view of the REER gap is generally reported as (_) percent “over” or “under”-valued.
- External positions labeled “broadly in line” are consistent with current account gaps in the range of ±1 percent of GDP and REER gaps reflecting country-specific exchange rate semielasticity (example: ±5 percent based on an elasticity of –0.2).

### Assessment Categories (Table 3.A)
- CA Gap and REER Gap (Using Elasticity of –0.2) mapped to descriptive labels:
  - CA Gap >4%  — REER Gap <–20%  —  . . . substantially stronger . . .
  - CA Gap 2%, 4% — REER Gap –20%, –10%  —  . . . stronger . . .
  - CA Gap 1%, 2% — REER Gap –10%, –5%  —  . . . moderately stronger . . .
  - CA Gap –1%, 1% — REER Gap –5%, 5%  —  The external position is broadly in line with fundamentals and desirable policies.
  - CA Gap –2%, –1% — REER Gap 5%, 10%  —  . . . moderately weaker . . .
  - CA Gap –4%, –2% — REER Gap 10%, 20%  —  . . . weaker . . .
  - CA Gap <–4% — REER Gap >20%  —  . . . substantially weaker . . .

### Selection of Economies (Table 3.B)
- The 30 systemic economies analyzed were generally chosen based on criteria including global rank in purchasing power GDP (IMF WEO), level of nominal gross trade, and degree of financial integration.
- Economies covered include:
  - Argentina, Australia, Belgium, Brazil, Canada, China, Euro area, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, The Netherlands, Poland, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Türkiye, United Kingdom, United States

### Two-country Stylized Example: Distinguishing Domestic vs. Foreign Policy Distortions
- Setup:
  - Country A: large current account deficit, large fiscal deficit, high public and external debt.
  - Country B: current account surplus (matches Country A’s deficit), large creditor position, no policy distortions.
- Overall external assessment:
  - Country A exhibits an external imbalance reflecting its large fiscal deficit; exchange rate appears overvalued.
  - Country B exhibits equal and opposite surplus imbalance; exchange rate appears undervalued.
- Policy gaps:
  - Country A has domestic policy distortions that need adjustment.
  - Country B has no domestic policy gaps; adjustment by Country A would automatically eliminate Country B’s imbalance.
- Individual economy write-ups:
  - Country A: capital flows and foreign asset/liability sections note vulnerabilities from international liabilities; policy response focuses on rein in fiscal deficit and limit financial excesses.
  - Country B: as no domestic policy distortions exist, write-up finds no fault with policies and notes that adjustment among other economies would help reduce the imbalance.
- Implications:
  - Distinguishing between domestic and foreign fiscal policy gaps is critical.
  - Elimination of a fiscal policy gap in a systemic deficit economy would help reduce excessive surpluses in other systemic economies.
  - Policy actions to address external imbalances relate to determinants of current account balances: private and public saving-investment balances.
  - Structural or policy distortions affect saving and investment; individual economy policy advice highlights reforms to address these gaps and vulnerabilities associated with external stock positions, including reserves and foreign exchange intervention policies.

### Argentina: Key Findings (Table 3.1)
- Overall Assessment:
  - The external position in 2021 was weaker than the level implied by medium-term fundamentals and desirable policies, based on elevated external debt vulnerabilities, precariously low international reserves, and lack of access to international capital markets.
  - Recent sovereign FX debt restructuring agreements with private creditors provided short-term cash flow relief; policies must rebuild international reserves and address external debt service obligations over the medium term.
  - A CA surplus near 1 percent of GDP is projected over the medium to long term, supported by sustained fiscal consolidation.
- Potential Policy Responses:
  - Growth-friendly fiscal consolidation combined with prudent monetary policies to contain excessive domestic demand growth, maintain a strong trade surplus, rebuild international reserves, regain market access, and ensure debt sustainability.
  - Structural reforms to boost export capacity and encourage FDI.
  - As stability is reestablished, gradual conditions-based easing of CFM measures should be considered.
- Foreign Asset and Liability Position (Background & Assessment):
  - Gross liabilities: 60.9 percent of GDP at end-2021 (compared with 34 percent of GDP at end-2015).
  - NIIP: 25 percent of GDP in Q4 2021 (up 16 percentage points since end-2015).
  - 2020 sovereign FX debt restructuring: US$82 billion (21.4 percent of GDP) with cash flow relief of US$34 billion during 2020–30.
  - Provincial restructurings in 2021: US$13 billion in foreign law FX debt, total cash flow savings ~US$6.5 billion for 2021–27.
  - Gross debt and debt service obligations remain substantial and medium-term meeting of these obligations depends on strong economic reform plan.
- Point-in-time metrics (2021:Q4 % GDP):
  - NIIP: 25.2
  - Gross Assets: 86.0
  - Res. Assets: 8.2
  - Gross Liab.: 60.9
  - Debt Liab.: 45.8
- Current Account (Background & Assessment):
  - CA in 2021: 1.4 percent of GDP.
  - Cyclically adjusted CA: 0.5 percent of GDP in 2021.
  - EBA CA norm: 0.2 percent of GDP; EBA gap: 0.3 percent of GDP.
  - IMF staff views near- to medium-term CA norm closer to 1 percent of GDP, implying an adjustment of 0.8 percent of GDP.
  - IMF staff assesses the CA gap to be –0.5 ±1 percent of GDP.
  - 2021 (% GDP) figures:
    - CA: 1.4
    - Cycl. Adj. CA: 0.5
    - EBA Norm: 0.2
    - EBA Gap: 0.3
    - COVID-19 Adj.: 0
    - Other Adj.: 0.8
    - Staff Gap: –0.5
- Real Exchange Rate (Background & Assessment):
  - REER depreciated nearly 30 percent between end-2017 and end-2019; relatively stable thereafter with some 2021 appreciation as rate crawl lagged headline inflation.
  - Average 2021 REER appreciated by 4.3 percent compared with 2020 average; up over 20 percent comparing end-of-period levels.
  - REER through May 2022 was up 18.3 percent relative to 2021 average.
  - IMF staff CA gap implies a REER gap of about 4 percent in 2021 (applying an estimated elasticity of 0.13).
  - EBA REER index model suggests REER gap of 7.6 percent; EBA REER level model estimates gap of –8.7 percent (surrounded by significant uncertainty).
  - IMF staff assesses 2021 REER gap range: –5 to 5 percent.
- Capital and Financial Accounts; CFM Measures (Background & Assessment):
  - CFM measures introduced in 2019 and adjusted subsequently include restrictions on MULC access for financial account transactions; restrictions on participation in securities markets (MEP/CCL); two FX purchase taxes of 30 and 35 percent; tight repatriation and surrender requirements on export proceeds; limits on cash withdrawals and selected credit card transactions abroad; limits on FX holdings of banks, mutual funds, and exchange bureaus.
  - BCRA has stopped intervening in the FX securities market and regulations to limit trading in this market have been eased.
  - CFM measures have generally slowed capital outflows but introduced distortions discouraging trade and foreign investment; not a substitute for macroeconomic policies and a conditions-based easing will be necessary to encourage FDI.
- FX Intervention and Reserves Level (Background & Assessment):
  - Gross international reserves: US$39.7 billion at end-2021 (generally unchanged vs 2020; US$5 billion below end-2019).
  - Net international reserves (NIR) fell to US$2.3 billion at end-2021 after excluding swaps, reserve requirements on domestic US dollar deposits, and deposit insurance.
  - NIR reached US$3.8 billion by end-March 2022, reflecting in part net IMF program disbursements.
  - Gross international reserves estimated at about 63 percent of the IMF’s composite metric as of end-2021 after smoothing; about 68 percent without the adjustment.
  - Recommendation: Tighter fiscal and monetary policies to secure projected trade surpluses and improve reserve coverage; FX sales should be consistent with reserve accumulation goals given reserve scarcity.

### Australia: Key Findings (Table 3.2)
- Overall Assessment:
  - The external position in 2021 was stronger than the level implied by medium-term fundamentals and desirable policies.
  - Improvement due to significant terms of trade improvement and higher savings (partly COVID-19–related).
  - CA surplus in 2021: 3.5 percent of GDP; expected to remain in surplus in 2022 due to elevated commodity prices from the war in Ukraine; projected to return to a slight deficit in the medium term.
- Potential Policy Responses:
  - Withdrawing fiscal and monetary stimulus at an appropriate pace as Australia emerges from the pandemic.
  - Policies that boost investment can help reduce the CA gap: execute planned infrastructure investment, streamline product market regulation, promote R&D and innovation investment, reduce corporate tax burden.
  - Floating exchange rate commitment should help close the CA gap.
- Foreign Asset and Liability Position (Background & Assessment):
  - NIIP improved to –35.4 percent of GDP in 2021 from –55 percent of GDP in 2020 (average –52 percent over last five years).
  - About half of Australia’s gross liabilities are debt obligations; more than half of the debt liabilities are denominated in domestic currency; assets are in foreign currency.
  - Composition of foreign liabilities: ~one-quarter FDI, ~one-half portfolio investment, ~one-quarter other investments and derivatives.
  - Assessment: NIIP level and trajectory are sustainable; external balance sheet structure reduces vulnerability; government balance sheet remains strong.
  - 2021 (% GDP) figures:
    - NIIP: –35.4
    - Gross Assets: 148.2
    - Debt Assets: 38.4
    - Gross Liab.: 183.7
    - Debt Liab.: 85.5
- Current Account (Background & Assessment):
  - CA switched to surplus in 2019; rose from 2.6 percent of GDP in 2020 to 3.5 percent of GDP in 2021.
  - Goods and services balance increased by 1.9 percent of GDP in 2021, driven by high commodity export prices (notably iron ore).
  - Deterioration in primary income balance by 1.2 percent of GDP as dividend payments on equity liabilities recovered.
  - From savings-investment perspective: recent CA surpluses reflect decline in investment rates (including mining) and a steep rise in private savings during pandemic.
  - EBA model estimates cyclically adjusted CA surplus of 1.7 percent of GDP vs CA norm of –0.9 percent of GDP (EBA gap 2.6 percent of GDP).
  - IMF staff adjustments:
    - COVID-19 related net adjustment: +0.2 percent of GDP (travel services –0.1; transport services +0.3; higher imports of medical goods +0.2).
    - Adjustment for temporarily higher net compensation of employees: –0.2 percent of GDP.
  - IMF staff–adjusted CA gap range: 2.1 to 3.3 percent of GDP, midpoint 2.7 percent of GDP.
  - 2021 (% GDP) figures:
    - CA: 3.5
    - Cycl. Adj. CA: 1.7
    - EBA Norm: –0.9
    - EBA Gap: 2.6
    - COVID-19 Adj.: 0.2
    - Other Adj.: 0
    - Staff Gap: 2.7
- Real Exchange Rate:
  - REER appreciated by 6 percent in 2021 compared with 2020 average and was about 1.5 percent higher than its five-year average.
  - After appreciating in first half of 2021, REER depreciated in latter half amid renewed lockdowns, decline in Australian yields relative to other advanced economies, and lower iron ore prices.
  - As of May 2022, the REER was (text ends in source).

### Abbreviations and Acronyms (as listed)
- 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
- ECB European Central Bank
- EU European Union
- FDI foreign direct investment
- FX foreign exchange
- GDP gross domestic product
- IIP international investment position
- Liab. liabilities
- NEER nominal effective exchange rate
- NIIP net international investment position
- PIF Public Investment Fund
- QFII Qualified Institutional Investor
- REER real effective exchange rate
- Res. residual
- RQFII Renminbi Qualified Institutional Investor
- SDR special drawing right
- TARGET2 Trans-European Automated Real-Time Gross Settlement Express Transfer System
- ULC unit labor cost
- VAT value-added tax

*Source: Chapter 3, 2022 External Sector Report (individual economy assessments and Annex material)*

### 0.6 percent above the 2021 average.

### ch3 - 0.6 percent above the 2021 average.

### Belgium — Overall Assessment and Key Macroeconomic Indicators
- Overall Assessment: The external position in 2021 was weaker than the level implied by medium-term fundamentals and desirable policies.
- 2021 (% GDP):
  - CA: –0.4
  - Cycl. Adj. CA: 0
  - EBA Norm: 3.1
  - EBA Gap: –3.1
  - COVID-19 Adj.: –0.2
  - Staff Gap: –3.3
  - NIIP: 57
  - Gross Assets: 460
  - Debt Assets: 161
  - Gross Liab.: 403
  - Debt Liab.: 178
- Current Account (background and drivers):
  - CA averaged 0.5 percent of GDP over 2015–20; post-global-financial-crisis peak of 1.4 percent of GDP in 2015.
  - Preliminary data: CA turned into a deficit of 0.4 percent of GDP in 2021 from a surplus of 0.8 percent of GDP in 2020.
  - Drivers in 2021: deterioration of trade balance (1.4 percent of GDP), modest decline in net income inflows (0.2 percent of GDP), net current transfer outflows declined slightly (0.3 percent of GDP).
  - Trade detail: Exports (+30 percent) outpaced by imports (+34 percent); increase in net oil/fuel imports (1.3 percent of GDP); net chemical imports (excluding pharmaceuticals) (2.6 percent of GDP); offset by net exports of pharmaceutical products (1.9 percent of GDP).
- Assessment of CA gap:
  - EBA model CA gap: –3.1 percent of GDP based on cyclically adjusted CA balance of 0 percent of GDP.
  - Adjustment for transitory COVID-19 effects: –0.2 percent of GDP (details: –0.3 percent for travel services, 0.4 percent for transport, –0.1 percent for shift in household consumption from services to consumer goods, –0.2 percent for impact on medical goods trade).
  - IMF staff CA gap range: between –3.6 and –3 percent of GDP (applying standard error of CA norm ±0.3 percent of GDP).

### Belgium — Real Exchange Rate (REER) and Assessment
- REER background:
  - ULC- and CPI-based REER appreciated in 2021 by 0.4 and 0.1 percent, respectively, relative to the 2020 average.
  - Cumulative appreciation in recent years: ULC-based 4 percent; CPI-based 7 percent.
  - As of May 2022, the REER was 1.8 percent below the 2021 average.
- REER assessment (IMF staff):
  - Staff-assessed CA gap range implies REER gap overvalued in the range of 4.4 to 5.3 percent, with midpoint 4.9 percent (applying estimated elasticity of the CA balance to the REER of 0.68).
  - EBA model estimates point to REER overvaluation of between 12 and 26.1 percent (based on CPI-based REER index and level models).

### Belgium — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts — Background:
  - Financial account recorded net outflows in 2021, reflecting sizable CA surplus.
  - Net FDI inflows: 1 percent of GDP in 2021 (recovered from 0.5 percent of GDP in 2020), below pre-pandemic average of 3.2 percent of GDP over 2015–19.
  - Large net portfolio outflows: 3.9 percent of GDP (mainly equity investments abroad by Australian residents, including by pension funds—this appears to be an input artifact; retain exact text as supplied).
  - Net derivative outflows small, with inflows and outflows about 1.2 percent of GDP.
- Capital and Financial Accounts — Assessment:
  - Vulnerabilities related to the financial account remain contained, supported by credible commitment to a floating exchange rate.
  - Belgium remains exposed to financial market risks, but structure of financial flows does not point to specific vulnerabilities. Large and positive NIIP reduces vulnerabilities associated with high external public debt.
- FX Intervention and Reserves:
  - Background: Currency has been free floating since 1983. Central bank has not intervened in the FX market since the global financial crisis. Reserve assets increased, mainly reflecting the IMF’s SDR allocation.
  - Assessment: Authorities strongly committed to a floating regime, reducing need for reserve holdings. Domestic banks’ external liabilities are sizable but either in local currency or hedged, limiting reserve needs for prudential reasons.
  - Euro area note: Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.

### Belgium — Foreign Asset and Liability Position and Trajectory
- Background and levels:
  - NIIP increased to 57 percent of GDP at end-2021 from 44 percent at end-2020.
  - Increase mainly due to decrease in gross liabilities by 9 percentage points of GDP (largely valuation changes).
  - Gross foreign assets: 460 percent of GDP in 2021 (up 11 percentage points of GDP from 2019), inflated by intragroup corporate treasury activities.
  - Banking sector gross foreign assets declined to 74 percent of GDP at end-2021 (well below pre-global-financial-crisis peak of >200 percent).
  - External public debt: decreased to 67 percent of GDP in 2021 from 74 percent of GDP in 2020.
- Assessment:
  - Large gross external positions are elevated by corporate treasury units that do not appear to create macro-relevant mismatches.
  - Based on projected CA and growth paths, NIIP-to-GDP ratio expected to decline.
  - Large and positive NIIP and trajectory do not raise sustainability concerns.

---

### Brazil — Overall Assessment and Key Macroeconomic Indicators
- Overall Assessment: External position in 2021 was broadly in line with level implied by medium-term fundamentals and desirable policies.
- 2021 (% GDP):
  - NIIP: –30
  - Gross Assets: 59.8
  - Res Assets: 22.5
  - Gross Liab.: 89.6
  - Debt Liab.: 41.4
  - CA: –1.7
  - Cycl. Adj. CA: –2.8
  - EBA Norm: –1.6
  - EBA Gap: –1.2
  - COVID-19 Adj.: –0.2
  - Other Adj.: 1
  - Staff Gap: –0.4
- Current Account background and trajectory:
  - CA deficit 1.7 percent of GDP in 2021, broadly unchanged from 2020.
  - Exports and imports rebounded strongly in 2021; trade surplus unchanged.
  - In 2022, exports expected to benefit from higher global commodity prices related to the war in Ukraine, narrowing CA deficit to 1.3 percent of GDP.
  - Medium-term CA deficit expected to widen to about 2 percent of GDP as growth recovers.
- Assessment of CA gap and adjustments:
  - Cyclically adjusted CA balance in 2021: –2.8 percent of GDP.
  - EBA CA norm: –1.6 percent of GDP → EBA gap –1.2 percent of GDP.
  - Identified policy gaps contribution: 0.3 percent of GDP (mainly positive total fiscal policy gap from more expansionary fiscal stances in trading partners partly countered by strong credit growth).
  - Adjustments: (1) COVID-19 transitory impacts on travel and transport (–0.3 percent), medical goods sectors (0.1 percent); (2) higher LNG imports due to drought effect on hydropower (0.1 percent); (3) lagged temporary increase in export and import data from Repetro program (0.9 percent).
  - IMF staff CA gap range: –0.9 to 0.1 percent of GDP with midpoint –0.4 percent of GDP.

### Brazil — Real Exchange Rate (REER) and Assessment
- REER background:
  - After sharp depreciation in 2020 (–20.6 percent), REER remained broadly stable in 2021 (–3.2 percent).
  - Mild appreciation in first half of 2021 followed by depreciation in second half consistent with terms of trade movement.
  - As of end-May 2022, REER appreciated by 17.8 percent relative to 2021 average.
- REER assessment:
  - IMF staff CA gap implies REER gap of 3.1 percent in 2021 (applying estimated elasticity of 0.12).
  - REER index and level methodologies indicate 36.4 percent and 19.6 percent undervaluation, respectively, for 2021.
  - Staff assesses REER gap range of –1.1 to 7.3 percent, with midpoint 3.1 percent.

### Brazil — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts — Background:
  - Brazil continues to attract sizable capital flows.
  - Net FDI: 1.7 percent of GDP in 2021 (down from 2.8 percent in 2020); net FDI has fully financed CA deficit since 2015 (average 2.9 percent of GDP during 2015–21).
  - Net portfolio flows: positive at 0.4 percent in 2021 (first time since 2015).
  - Government decree reduces IOF on FX operations to zero by 2029 (part of OECD entry process).
- Assessment:
  - Composition of capital flows expected to have favorable risk profile medium term, with positive net FDI outweighing negative portfolio outflows.
  - Downside risks: war in Ukraine, COVID-19, tighter global financial conditions, insufficient progress on reforms, political uncertainty.
- FX Intervention and Reserves:
  - Background: Floating exchange rate. Central bank sold FX in spot, repo, and FX swap markets in 2021 to dampen excess exchange rate volatility.
  - Reserves: US$362 billion at end-2021.
  - Assessment: Flexible exchange rate is important shock absorber. Reserves adequate by various criteria, including IMF reserve adequacy metric (162 percent as of end-2021). Intervention should be limited to alleviating disorderly FX market conditions.

---

### Canada — Overall Assessment and Key Macroeconomic Indicators
- Overall Assessment: External position in 2021 was moderately weaker than level implied by medium-term fundamentals and desirable policies.
- 2021 (% GDP):
  - NIIP: 68.8
  - Gross Assets: 311.3
  - Debt Assets: 77.3
  - Gross Liab.: 242.5
  - Debt Liab.: 133.8
  - CA: 0.0
  - Cycl. Adj. CA: –0.4
  - EBA Norm: 2.6
  - EBA Gap: –3.0
  - COVID-19 Adj.: 0.1
  - Other Adj.: 1.5
  - Staff Gap: –1.5
- Current Account background:
  - Estimated CA balance: 0 percent of GDP in 2021 (up from –1.8 percent of GDP in 2020), reflecting recovery of global demand and improved terms of trade.
- Assessment and policy implications:
  - EBA estimates CA norm 2.6 percent of GDP and cyclically adjusted CA gap –3.0 percent of GDP for 2021.
  - IMF staff assesses CA gap to be in range between –1.9 and –1.1 percent of GDP, midpoint –1.5 percent of GDP after accounting for temporary COVID-19 impacts and measurement biases (travel, transport, household consumption composition, trade in medical products, biases in measuring inflation and retained earnings).
  - Potential policy responses: boost nonfuel exports via labor productivity improvements; remove nontariff trade barriers; invest in R&D and physical capital; invest in green transformation; promote FDI; develop services exports; diversify export markets. Need for medium-term fiscal consolidation plan.

### Canada — Real Exchange Rate (REER) and Assessment
- REER background:
  - REER appreciated by 4.9 percent on average in 2021 relative to 2020 average.
  - As of May 2022, REER was 0.3 percent below the 2021 average.
- REER assessment:
  - EBA REER index model points to overvaluation of 6.7 percent in 2021.
  - REER level model points to undervaluation of 7.4 percent.
  - Consistent with IMF staff CA gap, IMF staff assesses REER to be overvalued in range of 4.2 to 7.4 percent, with midpoint 5.8 percent.

### Canada — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts — Background and flows:
  - FDI saw net outflows of 1.9 percent of GDP in 2021 (comparable with 2020 and 2019).
  - Portfolio investments: net inflows of 2.1 percent of GDP in 2021 (down from 4.1 percent in 2020).
  - Other investments: inflows of 0.6 percent of GDP in 2021 (compared to net outflows in 2020 of around 0.8 percent of GDP).
  - Errors and omissions: net inflow of 0.2 percent of GDP.
- Assessment:
  - Canada has an open capital account. Vulnerabilities limited by credible commitment to a floating exchange rate.
- FX Intervention and Reserves:
  - Background: Free-floating exchange rate regime; no FX market intervention since September 1998 except for participating in internationally concerted interventions.
  - Canada has limited reserves but central bank has standing swap arrangements with US Federal Reserve and four other major central banks (not drawn on).
  - Assessment: Policies appropriate; strong commitment to floating regime and swap arrangements reduce need for reserve holdings.

*International Monetary Fund | 2022 — Chapter content as provided in the source PDF.*

### CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS

### CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS

### China — Overall Assessment and Policy Responses
- Overall Assessment:
  - The external position in 2021 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
  - The CA surplus was 1.8 percent of GDP in 2021, slightly higher than in 2020, reflecting transitory COVID-19-related factors (elevated pandemic-related exports and limited outbound travel) despite stronger imports from higher commodity prices.
  - Once temporary factors dissipate, the CA surplus is expected to return to its medium-term downward trend as China’s economy rebalances toward higher-quality, more consumption-driven growth.
- Potential Policy Responses:
  - (1) Accelerate structural reforms: further opening up of domestic markets, reforming state-owned enterprises, ensuring competitive neutrality with private firms, and promoting green investment to boost potential growth and income.
  - (2) Shift policy support toward strengthening social protection to reduce high household precautionary saving and free up income for consumption.
  - (3) Further increase exchange rate flexibility to help adjustment to the changing external environment.
  - China has room to provide more fiscal support, preferably through household support and green investment.

### China — Foreign Asset and Liability Position and Trajectory
- Background:
  - The NIIP further declined to 11.2 percent of GDP in 2021, significantly below the peak of 30.4 percent in 2008.
  - The drop occurred despite the CA surplus and continued external lending and reflected continuing inward direct investment and securities investment received.
- Assessment:
  - The NIIP-to-GDP ratio is expected to remain positive, with a modest decline over the medium term.
  - The NIIP is not a major source of risk, as assets remain high—reflecting large foreign reserves (US$3.4 trillion, 19.3 percent of GDP).
  - Liabilities are mostly FDI-related.
- Key 2021 figures (% GDP):
  - NIIP: 11.2
  - Gross Assets: 52.5
  - Debt Assets: 14.9
  - Gross Liab.: 41.4
  - Debt Liab.: 13.4

### China — Current Account
- Background:
  - The CA surplus was 1.8 percent of GDP in 2021 (compared with 1.7 percent of GDP in 2020).
  - Pandemic-related factors continued to elevate the CA surplus in 2021, including medical trade, shifting of household consumption abroad toward goods, still subdued outbound tourism, and increases in transportation costs.
  - The trade balance narrowed by 0.2 percentage point of GDP due to stronger imports from higher commodity prices, partly offset by a wider income balance deficit (0.1 percent of GDP).
  - Higher energy and commodity prices, partly as a consequence of the war in Ukraine, will increase import costs in 2022.
  - Over the medium term, the CA surplus is projected to converge to about 0.5 percent of GDP based on rebalancing toward higher-quality and more consumption-driven growth.
- Assessment:
  - The EBA CA methodology estimates the CA gap in 2021 to be 1.4 percent of GDP.
  - Pandemic-related temporary factors raised the CA surplus by 1.6 percent of GDP with contributions of:
    - 0.7 percentage point from the travel services balance,
    - 0.3 percentage point from the shift in global household consumption from services to consumer goods,
    - 0.4 percentage point from the impact on the medical goods trade,
    - 0.2 percentage point from the impact on the transportation services balance.
  - IMF staff assesses the CA gap to range from –0.9 to 0.3 percent of GDP, with a midpoint of –0.3 percent.
  - EBA-identified policy gaps are estimated to be about 1.3 percent of GDP, driven by relatively low credit growth, continued reserve accumulation with a relatively closed capital account (in a de jure sense), the larger fiscal contraction in 2021 than in other countries, and inadequate social safety nets.
- Key 2021 figures (% GDP):
  - CA: 1.8
  - Cycl. Adj. CA: 2.2
  - EBA Norm: 0.8
  - EBA Gap: 1.4
  - COVID-19 Adj.: –1.6
  - Other Adj.: 0
  - Staff Gap: –0.3

### China — Real Exchange Rate
- Background:
  - The REER appreciated by 3 percent in 2021 from the 2020 average, largely driven by the NEER appreciation (5.4 percent).
  - This continued the REER appreciation in 2020 (by 2.1 percent) after a depreciation of 7 percent during 2015–19.
  - As of May 2022, the REER was 1.3 percent below the 2021 average.
- Assessment:
  - The IMF staff CA gap implies a REER gap of 1.9 percent in 2021 (applying an estimated elasticity of 0.14).
  - The EBA REER index regression estimates the REER gap in 2021 to be 10.5 percent, and the EBA REER level regression estimates the REER gap to be 10.5 percent.
  - Consistent with the staff CA gap, the IMF staff assesses the REER gap to be in the range of –2.3 to 6.2 percent, with a midpoint of 1.9 percent.

### China — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Net capital outflows (including errors and omissions) declined to US$129 billion (0.7 percent of GDP) in 2021, down from $220 billion (1.5 percent of GDP) in 2020.
  - Decline largely due to lower gross capital outflows (outward direct investment, equity outflows, and overseas bank loans).
  - Since December 2020, CFM measures included:
    - (1) The ceiling on cross-border financing under the macroprudential assessment framework was lowered to the original level in December 2020 for financial institutions and in January 2021 for enterprises.
    - (2) QFII investors were allowed to trade commodity futures, commodity options, and stock index options starting in November 2021.
  - As of December 2021, the total Qualified Domestic Institutional Investor quota stood at US$157.5 billion.
- Assessment:
  - While currently absent, substantial net outflow pressures may resurface as the private sector seeks to accumulate foreign assets faster than nonresidents accumulate Chinese assets.
  - Over the medium term, the sequence of further capital account opening consistent with exchange rate flexibility should carefully consider domestic financial stability.
  - Further capital account opening is likely to create substantially larger two-way gross flows; associated balance sheet adjustments and shifts in market sentiment require prioritizing the shift to an effective float (while using FX intervention to counter disorderly market conditions) and strengthening domestic financial stability prior to substantial further opening.

### China — FX Intervention and Reserves Level
- Background:
  - FX reserves continued to increase (by US$34 billion in 2021) and reached US$3.3 trillion in 2021, mainly reflecting valuation effects, return on reserves, and adjustments in net forward positions, with no sign of large FX intervention.
- Assessment:
  - The level of reserves—68 percent of the IMF’s standard composite metric at the end of 2021 (75 percent in 2020) and 109 percent of the metric adjusted for capital controls (120 percent in 2020)—is assessed to be adequate.
  - The decline in the ratios reflects higher exports, broad money, external debt, and other liabilities, all of which raised the metric.

---

### Euro Area — Overall Assessment and Policy Responses
- Overall Assessment:
  - The external position in 2021 was moderately stronger than the level implied by medium-term fundamentals and desirable policies.
  - The CA surplus increased to 2.4 percent of GDP in 2021 from 1.9 percent of GDP in 2020, largely on the back of stronger external demand, especially for services.
  - The increase is projected to be reversed in 2022 due to weaker external demand, high energy prices, and persistent supply disruptions, amplified by Russia’s invasion of Ukraine.
  - Over the medium term, the euro area’s CA surplus is projected to increase compared to the 2021 level, although uncertainty is exceptionally high.
  - National external imbalances that existed prior to COVID-19 could remain sizable.
- Potential Policy Responses:
  - Short-term policies to reduce scarring from COVID-19 (including the Next Generation EU response) and mitigate fallout from Russia’s invasion of Ukraine, including supporting vulnerable households and firms facing high energy prices, would help increase investment and consumption, raising imports and reducing the CA surplus.
  - Fiscal policy should remain supportive over the near term by allowing automatic stabilizers to operate, while medium-term fiscal consolidation would help reduce vulnerabilities in high-debt countries.
  - Countries with excess CA surpluses should continue increasing investment and potential growth.
  - Countries with weak external positions should undertake reforms to raise productivity, reduce structural and youth unemployment, and enhance competitiveness.
  - Euro-area-wide initiatives (for example, banking and capital markets union and central fiscal capacity for macroeconomic stabilization) could reinvigorate investment and reduce the CA surplus.

### Euro Area — Foreign Asset and Liability Position and Trajectory
- Background:
  - The NIIP of the euro area rose to –1.5 percent of GDP by the end of 2021 (from –20.5 percent of GDP at end-2009), mainly due to stronger CA balances.
  - Relative to 2020, the NIIP increased by 3.4 percentage points of GDP, reflecting primarily higher net direct investment and lower inbound portfolio investment, partially offset by an increase in other inbound investment.
  - Gross foreign positions were 274.6 percent of GDP for assets and 276.0 percent of GDP for liabilities as of end-2021.
  - Net external assets reached elevated levels in large net external creditors such as Germany and The Netherlands; net external liabilities remained high in countries such as Portugal and Spain.
- Assessment:
  - Projections of continued CA surpluses over the medium term suggest the NIIP-to-GDP ratio will rise further at a moderate pace.
  - Aggregate NIIP financing vulnerabilities appear low, but large net external debtor countries bear elevated risk of a sudden stop of gross inflows.
- Key 2021 figures (% GDP):
  - NIIP: –1.5
  - Gross Assets: 274.6
  - Debt Assets: 105.0
  - Gross Liab.: 276.0
  - Debt Liab.: 104.4

### Euro Area — Current Account
- Background:
  - The CA balance increased to 2.4 percent of GDP in 2021 from 1.9 percent of GDP in 2020.
  - The services balance recovered strongly; primary and secondary income balances had modest increases; goods balance modestly declined amid supply-chain disruptions.
  - With strong recovery and phasing out of COVID-19 support, public sector saving increased while private sector saving modestly declined; overall increase in saving outpaced a smaller increase in investment.
  - Some large creditor countries (Germany, The Netherlands) continued to have sizable surpluses.
  - At the end of the projection horizon, the CA balance is projected above the 2019 pre-pandemic level, mainly driven by higher private sector saving in some small euro area countries, including Ireland.
- Assessment:
  - The EBA model estimates a CA norm of 0.6 percent of GDP against a cyclically adjusted CA of 2.3 percent of GDP, implying a gap of 1.7 percent of GDP.
  - IMF staff analysis indicates a CA norm 0.2 percent of GDP higher than the EBA model, reflecting policy commitments to reduce large net external liability positions.
  - Adjustments to the underlying CA total –0.4 percent to reflect CA measurement issues in Ireland and The Netherlands.
  - Adjustments for transitory COVID-19 impacts on household consumption composition, medical goods, transportation, and travel services are estimated at 0.1 percent of GDP.
  - Considering these factors and uncertainties, IMF staff assesses the CA gap to be 1.2 percent of GDP in 2021, with a range of 0.6 to 1.8 percent of GDP.
- Key 2021 figures (% GDP):
  - CA: 2.4
  - Cycl. Adj. CA: 2.3
  - EBA Norm: 0.6
  - EBA Gap: 1.7
  - COVID-19 Adj.: 0.1
  - Other Adj.: –0.6
  - Staff Gap: 1.2

### Euro Area — Real Exchange Rate
- Background:
  - The euro area REER peaked during the global financial crisis before depreciating almost 20 percent between 2009 and 2015.
  - Between 2015 and 2021, the CPI-based REER registered a cumulative appreciation of 7.1 percent, while the ULC-based REER remained broadly unchanged.
  - The CPI-based REER appreciated by 0.5 percent in 2021 compared with 2020; nominal appreciation was 1.7 percent, partially offset by weaker euro area inflation relative to trading partners.
  - The ULC-based REER depreciated by 1.7 percent.
  - As of May 2022, the REER was 5.4 percent below its 2021 average.
- Assessment:
  - Consistent with the staff CA gap, the IMF staff assesses the REER gap to be –3.4 percent in 2021, with a range of –1.7 to –5.1 percent, based on an estimated CA-REER elasticity of –0.35.
  - Aggregate REER gap masks heterogeneity across member states, ranging from an undervaluation of 10.8 percent in Germany to an overvaluation of 4.9 percent in Belgium.
  - The EBA REER index and level models suggest overvaluations of 6.8 percent and 7.1 percent, respectively.

### Euro Area — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts:
  - Background: Mirroring the CA surplus in 2020, the euro area experienced net capital outflows, largely driven by lower inbound FDI and portfolio debt investment, which more than offset higher portfolio equity and other investment into the euro area.
  - Assessment: Gross external indebtedness of euro area residents increased by 0.5 percentage point of GDP in 2021 as lower external debt of governments and the nonfinancial sector was offset by higher external debt of the euro system, with stable external debt of deposit-taking institutions.
- FX Intervention and Reserves:
  - Background: The euro has the status of a global reserve currency.
  - Assessment: Reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating.

---

### France — Overall Assessment and Policy Responses
- Overall Assessment:
  - The external position in 2021 was broadly in line with medium-term fundamentals and desirable policies.
  - The CA balance is expected to decline in 2022 driven by the large terms-of-trade shock and lower external demand from trading partners affected by the war in Ukraine, as well as supply-chain effects.
  - Over the medium term, the CA balance is expected to move to a deficit of less than 0.5 percent of GDP as pandemic and war effects fade and structural reforms to improve competitiveness are implemented.
- Potential Policy Responses:
  - France deployed significant fiscal resources in response to COVID-19 to bolster health care and provide targeted support to firms and individuals.
  - Maintaining consistency with medium-term fundamentals will require structural reforms to enhance productivity and sustain higher private investment to facilitate the green transition and digitalization, while rebuilding fiscal space once the shock dissipates.

### France — Foreign Asset and Liability Position and Trajectory
- Background:
  - The NIIP stood at –34.3 percent of GDP in Q4 2021, below the range observed during 2014–19 (between –16 and –23 percent of GDP).
  - The NIIP fell by about four percent of GDP since end-2020, largely driven by a fall in direct and other investment.
  - Gross assets stood at 341 percent of GDP in Q4 2021, of which banks’ non-FDI-related assets accounted for about 39 percent.
  - Gross liabilities reached 375 percent of GDP in Q4 2021, of which external debt was about 237 percent of GDP (54 percent accounted for by banks and 25 percent by the public sector).
  - About three-quarters of France’s external debt liabilities are denominated in domestic currency.
  - The average TARGET2 balance in 2021 was about €6.4 billion.
- Assessment:
  - The NIIP is negative, but its size and projected stable trajectory do not raise sustainability concerns.
  - Vulnerabilities arise from large public external debt (59.2 percent of GDP in Q4 2021) and banks’ gross financing needs—the stock of banks’ short-term debt securities was €116 billion in Q4 2021 (4.6 percent of GDP), and financial derivatives stood at about 39.3 percent of GDP.
- Key 2021 figures (% GDP):
  - NIIP: –34.3
  - Gross Assets: 341
  - Debt Assets: 194.3
  - Gross Liab.: 375.2
  - Debt Liab.: 237.2

### France — Current Account (partial)
- Background:
  - The CA balance moved to a surplus of 0.4 percent of GDP in 2021 (from a deficit of 1.8 percent in 2020), driven by an uptick in services exports.
  - One-off factors continued to weigh on the current account deficit (for example, imports of health-care-sector equipment), together with temporary factors expected to gradually normalize (for example, the services balance, including business and tourism travel).
  - Despite limited direct trade and investment linkages with Russia and Ukraine, the CA balance is expected to move to a deficit of 1.4 percent of GDP in 2022, driven by a large terms-of-trade shock and lower external demand from trading partners affected by the war as well as through supply-chain effects.
  - Over the medium term, IMF staff projects the CA balance to move to a deficit of less than 0.5 percent of GDP by 2026 as temporary factors dissipate, the effects from the war fade, and reforms to improve France’s competitiveness start to pay off.
- Assessment:
  - The 2021 cyclically adjusted CA balance is estimated at 0.2 percent of GDP compared with an EBA-estimated norm of a

*Source: CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS — International Monetary Fund | 2022*

### 0.3 percent surplus. The IMF staff estimates CA net adjustments related to COVID-19 at 0.0 percent of GDP, driven by tra

### ch3 - 0.3 percent surplus

### France — Current Account and COVID-19 Adjustments
- CA: 0.4 percent of GDP (2021)
- Cycl. Adj. CA: 0.2 percent of GDP (2021)
- EBA Norm: 0.3 percent of GDP (2021)
- EBA CA Gap: –0.1 percent of GDP (2021)
- COVID-19 Adj.: 0.0 percent of GDP (2021)
- Other Adj.: 0.0 percent of GDP (2021)
- Staff CA Gap: –0.1 percent of GDP (2021)
- IMF staff estimates CA net adjustments related to COVID-19 at 0.0 percent of GDP, driven by:
  - travel-services-related transitory factors: 0.2 percent of GDP
  - transport: –0.7 percent of GDP
  - exports of aeronautics: 0.4 percent of GDP
  - exports of medical goods: 0.3 percent of GDP
  - shift in household consumption composition to durable goods: –0.2 percent of GDP
- On this basis, IMF staff assess that the CA gap in 2021 is between –0.5 and 0.3 percent of GDP, with a midpoint of –0.1 percent of GDP (compared with –2.7 to –1.7 percent of GDP in 2020).

### France — Real Exchange Rate
- REER movements:
  - 2020: ULC-based REER appreciated by 4.7 percent; CPI-based REER appreciated by 1 percent.
  - 2021: ULC-based REER depreciated by 2.9 percent vs. 2020 average; CPI-based REER depreciated by 0.6 percent.
  - Long-term (2008–2020): both REER measures depreciated by about 7 to 9 percent.
  - As of May 2022, the REER was 4.7 percent below the 2021 average.
- Assessment:
  - IMF staff CA gap implies a REER gap of 0.2 percent in 2021 (applying an estimated elasticity of 0.26).
  - EBA REER index model points to a REER gap of –2.1 percent.
  - EBA REER level model points to a REER gap of 8.2 percent.
  - IMF staff assesses the REER to be overvalued in the range of –1.3 to 1.7 percent, with a midpoint of 0.2 percent.

### France — Capital and Financial Accounts; FX Intervention and Reserves
- Capital account: open.
- Inward foreign direct investment normalized in 2021 after decreasing significantly between 2019 and 2020, by 2.3 percent of GDP.
- Assessment: France remains exposed to financial market risks owing to the large refinancing needs of the sovereign and banking sectors.
- FX Intervention and Reserves:
  - Background: the euro has the status of a global reserve currency.
  - Assessment: Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.

---

### Germany — Overall Assessment and Policy Responses
- Overall Assessment: The external position in 2021 was stronger than the level implied by medium-term fundamentals and desirable policies. This accounts for continued temporary weakness in outbound travel in 2021 due to the ongoing COVID-19 pandemic.
- Russia’s invasion of Ukraine in February 2022 and associated sanctions expected effects:
  - Weaken Germany’s current account significantly in 2022 (energy import prices surge, supply disruptions intensify, exports to Russia collapse).
  - Current account surplus projected to increase in 2023 and 2024 as energy prices and supply bottlenecks ease, before declining over the medium term due to reduced competitiveness and revived domestic demand.
- Potential Policy Responses:
  - Promote investment and diminish excess saving to support external rebalancing and reduce the current account balance towards its norm.
  - Investment priorities: expand generation and distribution of renewable electricity; broaden electric vehicle charging stations; widen coverage of fiber optic and 5G mobile networks.
  - Structural reforms: foster innovation, develop the venture capital market, reduce administrative steps to start a business.
  - Additional tax relief for lower-income households to help reduce excess saving and ameliorate external imbalances.
- Fiscal measures: sizeable fiscal stimulus in response to COVID-19 and fiscal measures to relieve high energy prices are welcome.

### Germany — Foreign Asset and Liability Position
- 2021 (% GDP):
  - NIIP: 65
  - Gross Assets: 302
  - Debt Assets: 170
  - Gross Liabilities: 237
  - Debt Liabilities: 163
- Background and assessment:
  - NIIP reached 65 percent of GDP in 2021, from 67 percent in 2020.
  - TARGET2 claims increased to €1.3 trillion by end-2021, from €1.1 trillion at end-2020.
  - NIIP revised up by 3.4 percent of GDP for 2017–2021 due to new data on safe custody accounts abroad of insurers and pension funds.
  - Allocation of SDRs in 2021 did not affect NIIP (both assets and liabilities rose by same amounts).
  - Between 2017 and 2021, NIIP increased by some 23 percent of GDP.
  - Assessment: Germany’s exposure to the Eurosystem remains large given continued quantitative easing by the ECB.

### Germany — Current Account and REER
- Current Account:
  - CA: 7.4 percent of GDP (2021)
  - Cycl. Adj. CA: 7.6 percent of GDP (2021)
  - EBA Norm: 3.3 percent of GDP (2021)
  - EBA Gap: 4.3 percent of GDP (2021)
  - COVID-19 Adj.: –0.6 percent of GDP (2021)
  - Other Adj.: 0 percent of GDP (2021)
  - Staff Gap: 3.7 percent of GDP (2021)
  - Background: CA surplus 7.4 percent in 2021 (7.1 percent in 2020; 7.8 percent average 2017–19). Strengthening driven by recovery of earnings on FDI; goods trade weaker due to costlier energy imports; services trade stronger due to licensing fees for COVID-19 vaccines and subdued tourism imports. Bulk of CA surplus reflects large saving-investment surplus of households partially offset by government saving-investment deficit.
  - Staff adjustments for pandemic effects: temporary drop in outbound travel (+0.5), shift from services to goods (+0.2), temporarily higher net exports of medical goods (–0.1).
- Real Exchange Rate:
  - REER based on consumer prices depreciated by 2 percent in 2021; further 0.3 percent depreciation between Dec 2021 and Feb 2022.
  - As of May 2022, REER was 3 percent below 2021 average.
  - Assessment: staff CA gap implies a REER gap of 10.8 percent in 2021 (elasticity 0.34). EBA REER level and index models suggest undervaluation of 7.9 percent and overvaluation of 7.7 percent, respectively. Staff assess REER to be undervalued with midpoint 10.8 percent and range of uncertainty ±1.5 percent.

### Germany — Capital and Financial Accounts; FX Intervention
- Background: 2021 reversal of safe-haven inflows seen in 2020, resulting in large portfolio outflows; net FDI outflows resumed in 2021; portfolio and direct investment outflows partially mirrored by “other” inflows reflecting declining net foreign assets of the Bundesbank and banks’ transfer of some securities business from the United Kingdom to Germany.
- Assessment: Risks limited given Germany’s safe haven status and strength of external position.
- FX Intervention and Reserves:
  - Background: the euro has the status of a global reserve currency.
  - Assessment: Reserves held by euro area countries are typically low relative to standard metrics. The currency floats freely.

---

### Hong Kong SAR — Overall Assessment and Policy Responses
- Overall Assessment: External position in 2021 broadly in line with medium-term fundamentals and desirable policies.
- CA surplus widened to 11.3 percent of GDP in 2021 from 7 percent in 2020; expected to gradually decline over the medium term with recovery in domestic demand.
- Under the Linked Exchange Rate System (LERS), REER short-term movements largely reflect US dollar developments.
- Potential Policy Responses:
  - Expansionary fiscal policy in near term to mitigate shocks and support recovery, while ensuring fiscal sustainability over medium to long term given rapidly aging population.
  - Maintain policies supporting wage and price flexibility, robust and proactive financial supervision and regulation, prudent fiscal management, flexible markets, and the LERS.

### Hong Kong SAR — Foreign Asset and Liability Position
- 2021 (% GDP):
  - NIIP: 578
  - Gross Assets: 1,747
  - Debt Assets: 591
  - Gross Liab.: 1,169
  - Debt Liab.: 433
- Background:
  - NIIP decreased to 578 percent of GDP in 2021 from 615 percent in 2020, mainly due to decrease in gross assets by 76 percentage points of GDP following a large increase of 279 percentage points in 2020.
  - Both gross assets and liabilities are high, reflecting status as an international financial center.
- Assessment:
  - Vulnerabilities low given positive and sizable NIIP and favorable composition.
  - FX reserves large and stable (135 percent of GDP at end-2021).
  - Direct investments account for 35 percent of gross assets and 50 percent of gross liabilities; only 12 percent of gross liabilities are portfolio investments.

### Hong Kong SAR — Current Account and REER
- Current Account:
  - CA: 11.3 percent of GDP (2021)
  - Cycl. Adj. CA: 10.7 percent of GDP (2021)
  - COVID-19 adjustments for 2021: travel (including tourism): 0.8 percent of GDP; medical: –0.8 percent of GDP; transport: –0.5 percent of GDP; net COVID-19 Adj.: –0.5 percent of GDP.
  - After adjustments, CA surplus estimated at 10.4 percent of GDP in 2021.
  - IMF staff–assessed CA norm range: 7.9 to 10.9 percent of GDP.
  - IMF staff–assessed CA gap range: –0.5 to 2.5 percent of GDP, with a midpoint of 1 percent.
- Real Exchange Rate:
  - REER: appreciated about 20 percent over 2012–20; depreciated about 5 percent in 2021 vs. 2020 average.
  - As of May 2022, REER was 2.3 percent above the 2021 average.
  - Assessment: IMF staff assesses the REER gap, based on staff-assessed CA gap range, to be in range –6.4 to 1.2 percent, with midpoint of –2.6 percent (based on average CA-REER elasticity of about 0.4).

### Hong Kong SAR — Capital and Financial Accounts; FX Intervention
- Capital account: open.
- Nonreserve financial flows: net outflow of US$49 billion in 2021 (from net inflow of US$3 billion in 2020), largely driven by portfolio investment outflows.
- Assessment: Large financial resources, proactive supervision, and deep liquid markets help limit risks from volatile capital flows and the war in Ukraine. Greater financial exposure to mainland China could pose risks via trade, tourism, credit exposures, and fundraising by Chinese firms. Banking system assessed to be broadly resilient with high capital buffers and profitability.
- FX Intervention and Reserves:
  - Background: Hong Kong dollar traded smoothly within the Convertibility Zone during COVID-19.
  - Total reserve assets decreased to 135 percent of GDP at end-2021 (or 1.8 times the monetary base) from 143 percent of GDP at end-2020.
  - Assessment: FX reserves adequate for precautionary purposes and should evolve with automatic adjustment in currency board system. Fiscal reserves about 34 percent of GDP at end-2021.

---

### India — Overall Assessment and Policy Responses
- Overall Assessment: External position in fiscal year 2021/22 (ending March 2022) broadly in line with medium-term fundamentals and desirable policies.
- Running CA deficits consistent with India’s per capita income, growth prospects, demographics, and development needs.
- External vulnerabilities: volatile global financial conditions and significant increases in commodity prices.
- CA deficit projected to widen in fiscal year 2022/23 (impact of war in Ukraine on oil prices), then stabilize over medium term.
- Potential Policy Responses:
  - Gradual withdrawal of fiscal and monetary stimulus.
  - Develop export infrastructure; negotiate free trade agreements with main trading partners.
  - Further investment regime liberalization and reduction in tariffs, especially on intermediate goods.
  - Structural reforms to deepen integration in global value chains and attract FDI.
  - Exchange rate flexibility to act as main shock absorber; intervention limited to disorderly market conditions.

### India — Foreign Asset and Liability Position
- 2021 (% GDP):
  - NIIP: –11.1
  - Gross Assets: 30.5
  - Debt Assets: 2.6
  - Gross Liab.: 41.7
  - Debt Liab.: 20.1
- Background and assessment:
  - NIIP improved to –11.1 percent of GDP at end-2021 from –13.5 percent at end-2020 due to relatively low CA deficit and accumulation of reserve assets.
  - Gross foreign assets and liabilities were 30.5 percent and 41.7 percent of GDP, respectively.
  - Assets: bulk in official reserves and FDI; liabilities: mostly FDI and other investments.
  - With projected CA deficit widening in 2022 and stabilizing later, NIIP-to-GDP ratio expected to strengthen marginally over medium term.
  - External debt liabilities moderate compared with peers; short-term rollover risks limited.

### India — Current Account and Staff Assessment
- Current Account:
  - CA returned to small deficit of 1.2 percent of GDP in fiscal year 2021/22 from a surplus of 0.9 percent of GDP in previous year.
  - CA deficit projected to widen to about 3 percent of GDP in fiscal year 2022/23 due to post-COVID recovery and terms-of-trade shock from Ukraine war.
  - Over medium term, CA deficit projected to stabilize and converge to about 2.6 percent of GDP.
- Assessment:
  - EBA cyclically adjusted CA balance: –1.6 percent of GDP in fiscal year 2021/22.
  - EBA CA regression norm: –1.9 percent of GDP, with standard error of 0.7 percent, implying a CA gap of 0.3 percent of GDP.
  - IMF staff judgment: a CA deficit up to 2½ percent of GDP is financeable over time.
  - COVID-19 transitory impacts (total 0.7 percent of GDP) include:
    - travel: 0.4 percent of GDP
    - transportation: 0.6 percent of GDP
    - shifts in household consumption: –0.1 percent of GDP
    - medical goods: –0.1 percent of GDP
  - With staff-assessed CA norm and COVID-19 adjustor, IMF staff assesses the CA gap to be 1 percent of GDP, with a range of 0.3 to [text truncated in source].

*Source: 2022 EXTERNAL SECTOR REPORT, International Monetary Fund | 2022.*

### 1.7 percent of GDP. Positive policy contributions to the CA gap stem mostly from the domestic credit gap.

### 1.7 percent of GDP. Positive policy contributions to the CA gap stem mostly from the domestic credit gap.

### Current Account: background and assessment
- Background (India, 2021):
  - 2021 (% GDP) CA: –1.2; Cycl. Adj. CA: –1.6; EBA Norm: –1.9; EBA Gap: 0.3; COVID-19 Adj.: 0.7; Other Adj.: 0; Staff Gap: 1.0.
  - Unusual CA surpluses in 2020 and early 2021 exerted appreciation pressures on the rupee; the CA returned to deficit in the second half of 2021 and portfolio investments shifted to net outflows.
  - The average REER in 2021 depreciated by about 1.1 percent from its 2020 average. As of May 2022, the REER was 2.4 percent above the 2021 average.
- Assessment (India, fiscal year 2021/22):
  - IMF staff CA gap implies a REER gap of –6 percent (applying an estimated elasticity of 0.16).
  - EBA REER index and level models suggest an overvaluation of 10.1 percent and 8.5 percent, respectively.
  - Consistent with the staff CA gap, the IMF staff assesses the REER gap to be in the range of –10.3 to –1.7 percent, with a midpoint of –6 percent, for fiscal year 2021/22.
- Key finding:
  - Positive policy contributions to the CA gap stem mostly from the domestic credit gap.

### Capital and financial accounts: flows and policy measures
- Background (India, FY2021/22):
  - Financial account balance: about –1.2 percent of GDP (indicating net inflows to India), compared with outflows of 0.8 percent of GDP in 2020/21.
  - FDI inflows decreased to 1.2 percent of GDP (from 1.6 percent of GDP in the prior year).
  - Volatile portfolio investments shifted to outflows of about 0.5 percent of GDP.
  - Other investments (mostly debt-creating) increased to about 2.2 percent of GDP.
  - Authorities increased limits on FDI and portfolio investments, particularly for the oil, gas, and life insurance sectors.
- Assessment:
  - While FDI inflows covered the CA deficit in FY2021/22, structural reforms and improvement of the investment regime to promote FDI are needed.
  - Volatile portfolio investments are very sensitive to changes in global financial conditions and country risk premia.
  - Expected inclusion of India in international bond indices should increase portfolio investment inflows for financing the CA deficit over the medium term.

### FX intervention and reserves level
- Background:
  - Unusual CA surpluses in 2020 and early 2021 allowed the Reserve Bank of India to replenish official FX reserves, which reached a record high of about US$638.5 billion at the end of 2021.
  - Reserves decreased in subsequent months but remained at a comfortable level of about eight months of import coverage.
- Assessment:
  - As of the end of 2021, reserves represented about 223 percent of short-term debt (on residual maturity) and 195 percent of the IMF’s composite metric.
  - Various criteria confirm that official FX reserves are adequate for precautionary purposes.
  - Consequently, accumulation of additional reserves is less warranted, and FX interventions should be limited to addressing disorderly market conditions.

*Source: https://www.imf.org/-/media/files/publications/esr/2022/english/ch3.pdf*

### 67.8 percent in 2020. This has been largely driven by an increase in foreign assets related to outward FDI and portfolio

### ch3 - 67.8 percent in 2020. This has been largely driven by an increase in foreign assets related to outward FDI and portfolio

### Japan — Foreign Asset and Liability Position and Trajectory
- At the end of 2021, Japan holds the world’s largest stock of net foreign assets, valued at US$3.6 trillion.
- Japan’s foreign asset holdings are well diversified, both by geography and risk classes.
- At the end of 2021, gross foreign assets composition:
  - Portfolio investments: about 46 percent of the total.
  - Of portfolio investment: about 21 percent was yen-denominated and 51 percent US dollar–denominated.
- Vulnerability note: In the event of appreciation of the yen against the US dollar, the risk of negative valuation effects could materialize.
- Liabilities structure: equity and direct investment account for a third of gross foreign liabilities.
- Long-term trajectory: Japan’s large positive NIIP is partly related to asset accumulation for old-age consumption. A gradual decumulation of such assets is expected over the long term.
- 2021 (% GDP) figures:
  - NIIP: 75.9
  - Gross Assets: 230.6
  - Debt Assets: 89.9
  - Gross Liab.: 154.8
  - Debt Liab.: 95.9

### Japan — Current Account
- Background:
  - Japan’s CA surplus reflects a sizable income balance, at 3.8 percent of GDP, owing to its large net foreign asset position.
  - From a saving-investment perspective, it reflects a high private sector saving-investment balance, notably net saving by firms, that more than compensates for the low government saving-investment balance.
  - The CA surplus was 2.9 percent of GDP in 2021, broadly unchanged from 3 percent in 2020, and below the average of 3.8 percent during 2016–19.
  - Narrowing in 2020 and 2021 CA surplus was largely driven by a decline in the services trade balance amid international travel restrictions; the goods trade balance remained in surplus.
  - Spillover effects from the war in Ukraine have weighed on Japan’s external balance, primarily through the commodity price channel.
  - Projection: After temporary factors dissipate, the CA surplus is projected to rise to a level slightly above 3 percent of GDP in the medium term.
- Assessment (EBA model and staff adjustments):
  - EBA estimates: cyclically adjusted CA at 2.9 percent of GDP; cyclically adjusted CA norm at 3.9 percent of GDP; standard error 1 percent of GDP.
  - IMF staff COVID-19 adjustments:
    - Travel services: 0.4 percent of GDP
    - Transport balance: 0 percent of GDP
    - Global household consumption composition shift: –0.1 percent of GDP
    - Trade in medical products: 0.1 percent of GDP
  - Including adjustments, 2021 CA gap midpoint: –0.5 percent of GDP.
  - CA gap range: between –1.5 and 0.5 percent of GDP.
  - EBA-identified policy gaps: relatively greater medium-term fiscal consolidation needs and a positive credit gap.
  - Residual: overall gap is accounted for by a relatively large residual, potentially reflecting structural impediments and country-specific factors (investment bottlenecks, entrepreneurship entry barriers, corporate savings distortions).
- 2021 (% GDP) figures:
  - CA: 2.9
  - Cycl. Adj. CA: 2.9
  - EBA Norm: 3.9
  - EBA Gap: –0.9
  - COVID-19 Adj.: 0.4
  - Other Adj.: 0
  - Staff Gap: –0.5

### Japan — Real Exchange Rate
- Background:
  - The REER depreciated sharply by 8.6 percent in 2021, after a slight appreciation during 2017–20.
  - As of May 2022, the REER was 13.4 percent below the 2021 average.
- Assessment:
  - IMF staff CA gap implies a REER gap of 3.6 percent in 2021 (applying an estimated elasticity of 0.15).
  - EBA REER level and index models deliver REER gaps of –18.4 and –20.1 percent, respectively, for the 2021 average REER.
  - Considering all estimates and uncertainties, IMF staff assesses the REER gap to be in the range of –3 to 10.2 percent, with a midpoint of 3.6 percent.

### Japan — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - The 2021 CA surplus is mirrored by an increase in net FDI outflows to about 2.9 percent of GDP from 1.8 percent in 2020, primarily driven by outward FDI flows to North America.
  - Portfolio investment expected to record net inflows of 0.1 percent of GDP in 2021, supported by portfolio inflows from Europe and Oceania (versus net outflows of 0.7 percent in 2020).
  - Net short yen positions emerged since early 2021 due to the relative strength of the US dollar amid changes in monetary policy stances.
  - Increase in reserve assets in 2021 reflects the IMF allocation of SDR 29.5 billion (about US$42.1 billion or 0.9 percent of GDP).
- Assessment:
  - Vulnerabilities are limited.
  - Inward investment tends to be equity based; the home bias of Japanese investors remains strong.
  - Outward spillovers from Japan’s policies to financial conditions in other economies are contained so far.

### Japan — FX Intervention and Reserves Level
- Background:
  - Reserves stood at US$1.3 trillion, or 28 percent of GDP, as of the end of May 2022.
  - There has been no FX intervention in recent years.
- Assessment:
  - Exchange rate is free floating.
  - Interventions are isolated (most recent occurred in 2011) and intended to reduce short-term volatility and disorderly exchange rate movements.

### Korea — Overall Assessment and Potential Policy Responses
- Overall assessment: The external position in 2021 is assessed to be broadly in line with fundamentals and desirable policies.
- CA developments:
  - The CA surplus widened in 2021, primarily due to a narrowing of the service sector deficit and a favorable income balance.
  - The surplus is projected to narrow in 2022 due to high oil prices and supply-chain disruptions, and recover over the medium term as transitory factors related to COVID-19 and the war in Ukraine recede.
- Potential policy responses to support activity following COVID-19:
  - Authorities have deployed fiscal and monetary stimulus, much of which is expected to be temporary.
  - Ensuring the external position remains broadly in line with medium-term fundamentals will require structural policies to stimulate investment and facilitate rebalancing toward services and other new growth drivers.
  - Desirable reforms include:
    - Reducing barriers to firm entry and investment.
    - Deregulating the nonmanufacturing sector.
    - Strengthening the social safety net to lessen the need for precautionary saving.
  - Some reforms are contained in the authorities’ Korean New Deal to be implemented over the next few years.
  - Exchange rate policy: should remain market determined, with intervention limited to preventing disorderly market conditions.

### Korea — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP has been positive since 2014 and stood at 36.4 percent of GDP in 2021.
  - Gross liabilities: 83.9 percent of GDP, of which about 40 percent was gross external debt.
  - 2021 NIIP level marked an increase by about 7 percent of GDP compared with 2020, largely reflecting the increase of residents’ overseas portfolio investment.
  - NIIP projected to rise further to about 50 percent of GDP in the medium term on the back of CA surpluses and search-for-yield activity by financial institutions driven by asset accumulation for old-age consumption.
- Assessment:
  - Positive NIIP is a source of external sustainability.
  - Foreign asset holdings are diversified, with about 39 percent held in equity or debt securities.
  - About 60 percent of foreign assets are denominated in US dollars, implying depreciation of the won could have positive valuation effects.
  - Liability structure limits vulnerabilities, with equity and direct investment accounting for about 60 percent of total liabilities.
- 2021 (% GDP) figures:
  - NIIP: 36.4
  - Gross Assets: 120.3
  - Debt Assets: 59.9
  - Gross Liab.: 83.9
  - Debt Liab.: 34.9

### Korea — Current Account
- Background:
  - CA surplus in 2021 was 4.9 percent of GDP, driven by robust technology exports, a narrowing of the services deficit due to increased transportation exports, and an improvement in the primary income balance.
  - CA surplus has been trending down from the peak of 7.2 percent of GDP in 2015, reflecting a fall in savings (particularly household) and an increase in the investment-to-GDP ratio.
  - CA surplus projected to narrow to around 2.8 percent of GDP in 2022 due to high oil prices and supply-chain disruptions, and recover to around 4 percent of GDP over the medium term.
- Assessment (EBA model and staff adjustments):
  - EBA model estimates cyclically adjusted CA at 5.6 percent of GDP; CA norm estimated at 5 percent of GDP; standard error 0.8 percent of GDP.
  - IMF staff transitory adjustments for COVID-19 impacts:
    - Transportation sector: 0.9 percent of GDP
    - Travel services: 0.2 percent of GDP
    - Shift in household consumption composition from services to goods: –0.2 percent of GDP
  - IMF staff 2021 CA gap midpoint: –0.3 percent of GDP.
  - CA gap range: –1.1 to 0.5 percent of GDP.
  - Relative policy gap contribution: –0.1 percent of GDP, reflecting offsetting effects of larger fiscal stimulus in the rest of the world relative to Korea and a positive domestic credit gap.
- 2021 (% GDP) figures:
  - CA: 4.9
  - Cycl. Adj. CA: 5.6
  - EBA Norm: 5
  - EBA Gap: 0.6
  - COVID-19 Adj.: –0.9
  - Other Adj.: 0
  - Staff Gap: –0.3

### Korea — Real Exchange Rate
- Background:
  - Following sustained appreciation during 2015–18, the REER depreciated in 2019 by about 4.3 percent.
  - REER appreciated in the second half of 2020 by about 4.5 percent, followed by a depreciation in 2021 by about 4.8 percent.
  - The average REER for 2021 remained stable compared with the 2020 average.
  - As of May 2022, the REER was 4.7 percent below the 2021 average.
- Assessment:
  - IMF staff CA gap implies a REER overvaluation of 1 percent (applying an estimated elasticity of 0.31).
  - EBA REER index model estimates a 0.8 percent REER undervaluation; REER level model estimates a 4.2 percent overvaluation.
  - IMF staff uses the estimated CA gap for its assessment and assesses the REER gap to be in a range of –1.6 to 3.7 percent, with a midpoint of 1 percent.

### Korea — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Net FDI and portfolio outflows have declined since 2017, when outflows reached 4.6 percent of GDP.
  - Net portfolio outflows were 1.1 percent of GDP in 2021, reflecting further portfolio diversification and institutional investors’ continued search for yield, but were largely offset by nonresident debt inflow.
  - Net FDI and portfolio outflows made up the bulk of the 2021 financial account (2.4 and 1.1 percent of GDP, respectively), whereas other investments (net) recorded inflows (0.1 percent of GDP).
- Assessment:
  - Present configuration of net and gross capital flows appears sustainable over the medium term.
  - Korea has demonstrated ample capacity to absorb short-term capital flow volatility in recent years, including during the COVID-19 shock.

### Korea — FX Intervention and Reserves Level
- Background:
  - Korea has a floating exchange rate.
  - As of the end of 2021, reserves stood at 25.6 percent of GDP, largely reflecting legacy accumulation.
  - FX intervention data released by the Bank of Korea show net sales of US$14 billion (0.8 percent of GDP) in the second half of 2021, conducted to limit excess exchange rate volatility.
  - With an increase in investment returns, gross reserves rose by US$20 billion (1.1 percent of GDP) year to date.
- Assessment:
  - Intervention has been limited to preventing disorderly market conditions.
  - As of the end of 2021, preliminary data indicate FX reserves were about 99 percent of the IMF’s composite reserve adequacy metric.
  - The US$60 billion swap line with the US Federal Reserve expired at the end of 2021.

*Source: ch3 - 67.8 percent in 2020. This has been largely driven by an increase in foreign assets related to outward FDI and portfolio*

### CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS

### CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS

### Malaysia — Overall Assessment and Potential Policy Responses
- Overall Assessment: Malaysia’s external position in 2021 was moderately stronger than the level implied by medium-term fundamentals and desirable policies.
- Pandemic effects and outlook:
  - CA surplus increased during the COVID-19 pandemic due to strong external demand for pandemic-related exports, including personal protective equipment and electronic and electrical equipment.
  - A temporary increase in the CA surplus is expected in the short term from higher fuel prices following the war in Ukraine, with a projected decline over the medium term as domestic private demand gradually recovers and Malaysia moves from the pandemic to the endemic phase of COVID-19.
- Potential Policy Responses:
  - Near-term: With Malaysia almost fully vaccinated, continue supporting the nascent recovery through a targeted fiscal expansion.
  - Medium-term: Adopt a policy mix promoting domestically led growth to support external rebalancing and bring the CA balance closer to its norm.
  - Fiscal policy: Target a gradual and growth-friendly consolidation.
  - Priorities: Strengthen social safety nets and encourage private investment and productivity growth.

### Malaysia — Foreign Asset and Liability Position and Trajectory
- Background:
  - Malaysia’s NIIP has averaged about 1 percent since 2010 and was 5.5 percent of GDP in 2021 (compared with 5.7 percent of GDP at the end of 2020).
  - Higher gross and reserve assets and an increase in net portfolio investment contributed to the NIIP.
  - Direct investment and portfolio investment abroad contribute most to both assets and liabilities.
  - Total external debt (US dollars) was about 68 percent of GDP in 2021 (compared with 71 percent at the end of 2020).
  - One-third of external debt in foreign currency and just over one-third in short-term debt by original maturity (half of which is held by intragroup borrowing among banks and corporations).
- Assessment:
  - Malaysia’s NIIP is projected to rise over the medium term, reflecting projected CA surpluses.
  - Balance sheet strength, exchange rate flexibility, and increased domestic investor participation should help withstand shocks.
- Key statistics (2021, % GDP):
  - NIIP: 5.5
  - Gross Assets: 136.9
  - Debt Assets: 31.5
  - Gross Liab.: 131.4
  - Debt Liab.: 29.7

### Malaysia — Current Account
- Background:
  - Between 2010 and 2019, Malaysia’s CA surplus contracted by about 7 percentage points to 3.5 percent of GDP.
  - After a rise in 2020, the CA surplus decreased in 2021 to 3.8 percent of GDP (4.2 percent of GDP in 2020) as a recovery in overall imports offset exports.
  - Pandemic-related transitory factors affecting the CA surplus in 2021:
    - Decline in travel income due to continued international travel restrictions.
    - Sustained strong external demand for pandemic-related exports, including rubber glove products and electronic and electrical equipment.
    - Decline in outward remittances from the crisis and lockdown measures in 2021.
- Assessment and adjustments:
  - EBA CA model estimates:
    - Cyclically adjusted CA of 2.6 percent of GDP and a CA norm of –0.1 percent of GDP for 2021.
  - IMF staff adjustments for transitory effects (2021, % of GDP):
    - Net exports of pandemic-related medical goods, including rubber glove products: 1.3 percent of GDP
    - Global household consumption composition shift: 0.9 percent of GDP
    - Lower net remittances: 0.2 percent of GDP
    - Decline in receipts from travel services (including tourism): –1.4 percent of GDP
    - Transport: –0.1 percent of GDP
  - IMF staff estimates:
    - CA gap about 1.8 percent of GDP (±0.5 percent of GDP).
  - Relative policy gaps contributions to CA gap:
    - Low public health care expenditures compared with the rest of the world: 0.6 percentage point.
    - Looser fiscal policies adopted in 2021 in the rest of the world relative to Malaysia: 0.6 percentage point.
- Key statistics (2021, % GDP):
  - CA: 3.8
  - Cycl. Adj. CA: 2.6
  - EBA Norm: –0.1
  - EBA Gap: 2.7
  - COVID-19 Adj.: –0.8
  - Other Adj.: 0.0
  - Staff Gap: 1.8

### Malaysia — Real Exchange Rate
- Background:
  - REER depreciated by 0.5 percent relative to the 2020 average and was about 6 percent lower than in 2015.
  - Mild depreciation in 2021 compared with 2020 (–3 percent) reflects stabilization in capital outflows and the effect of weakened economic outlook and new COVID-19 waves on the NEER.
  - As of May 2022, the REER was 2.5 percent below the 2021 average.
- Assessment:
  - IMF staff CA gap implies a REER undervaluation of 4 percent in 2021, applying an estimated elasticity of 0.46.
  - EBA REER index and level models estimate REER undervaluation of 22.4 percent and 29.1 percent, respectively.
  - Considering lack of underlying macroeconomic stresses and broad stability of FX reserves, IMF staff assesses REER undervaluation in the range of 2.9 to 5.1 percent, with a midpoint of 4 percent.

### Malaysia — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Periods of significant capital flow volatility since the global financial crisis, largely driven by portfolio flows in and out of the local-currency-debt market.
  - 2020 capital outflows during the March 2020 global risk-off episode; stabilizing thereafter.
  - Capital flows remained broadly stable in 2021 despite COVID-19 waves and lockdowns.
  - Net portfolio flows reached US$7.4 billion by December 2021, primarily driven by sustained net debt inflows (US$8.2 billion).
  - Since late 2016, the Financial Markets Committee implemented measures to develop the onshore FX market and increase hedging opportunities, some considered CFM measures under the IMF’s Institutional View.
- Assessment:
  - Continued exchange rate flexibility and macroeconomic policy adjustments, such as those in the IMF’s Integrated Policy Framework, are necessary to manage capital flow volatility.
  - CFM measures should be gradually phased out, with due regard for market conditions.

### Malaysia — FX Intervention and Reserves Level
- Background:
  - Reserve levels have steadily increased during the COVID-19 pandemic after capital outflows stabilized.
  - Reserve levels stood at US$116.9 billion as of December 2021 (compared with US$107.6 billion at the end of December 2020).
- Assessment:
  - Under the IMF’s composite ARA metric, reserves remain broadly adequate; further accumulation is not called for.
  - Gross official reserves were about 122 percent of the ARA metric at the end of December 2021.
  - FX interventions should be limited to preventing disorderly market conditions; the exchange rate should continue to adjust as a first line of defense.

---

### Mexico — Overall Assessment and Potential Policy Responses
- Overall Assessment: The external position in 2021 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- Drivers:
  - Rebalancing of Mexico’s external position in 2021 led by economic reopening and recovery and a smaller fiscal policy gap.
  - Narrowing cross-country differences in pandemic-related fiscal policy support compared with the previous year.
  - Current account deficit expected to rise toward 1 percent of GDP in the medium term.
- Potential Policy Responses:
  - Further structural reforms to address investment obstacles to boost growth and exports in the medium and long term.
  - Reform priorities: tackle economic informality and governance gaps, increase private sector participation in energy, and reform Pemex’s business strategy and governance.
  - Exchange rate policy: Continue floating exchange rate as a shock absorber; use FX interventions only to prevent disorderly market conditions.
  - The IMF’s Flexible Credit Line continues as an added buffer against global tail risks.

### Mexico — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP projected to improve from –41 percent of GDP in 2021 to about –40 percent of GDP over the medium term, driven mainly by decline in foreign liabilities.
  - Foreign assets in 2021 were mostly direct investment (18 percent of GDP) and international reserves (16 percent of GDP).
  - Foreign liabilities were mostly direct investment (49 percent of GDP) and portfolio investment (39 percent of GDP).
  - Gross public external debt estimated at 23 percent of GDP at the end of 2021, of which roughly one-quarter comprised holdings of local currency government bonds.
- Assessment:
  - NIIP sustainable; a relatively high share of local currency denomination of foreign public liabilities reduces FX risks.
  - Large gross foreign portfolio liabilities could be a source of vulnerability in case of global financial volatility.
  - Vulnerabilities from exchange rate volatility are moderate due to natural hedges and active FX exposure management by firms.
- Key statistics (2021, % GDP):
  - NIIP: –41
  - Gross Assets: 58
  - Debt Assets: 19
  - Gross Liab.: 99
  - Debt Liab.: 38

### Mexico — Current Account
- Background:
  - CA balance moved to a deficit of 0.4 percent of GDP in 2021 after a surplus of 2.4 percent of GDP in 2020, reflecting recovery of import demand and restocking of intermediate goods.
  - Increase in investment and decline in saving contributed roughly equally to the CA change in 2021.
  - Private sector saving-investment balance declined by 3.1 percentage points of GDP; public sector balance improved by 0.7 percentage point.
  - 2022 outlook: CA deficit expected to widen with higher global commodity prices, given Mexico’s net commodity importer status.
  - Domestic fuel price ceiling and associated fuel subsidies will weaken substitution and income effects of higher oil prices and amplify their impact on the CA balance.
  - 2022 CA deficit projected to increase to 0.5 percent of GDP, with considerable forecast uncertainty.
  - Medium-term CA balance projected to move to a deficit of about 1 percent of GDP.
- Assessment and adjustments:
  - EBA model estimates cyclically adjusted CA norm of –1.2 percent of GDP in 2021, implying a CA gap of –0.2 percent of GDP (range –1.2 to 0.8 percent of GDP).
  - Contribution from overall policy gap estimated at 1.3 percent of GDP, driven by fiscal gap (1.2 percent).
  - IMF staff adjustments (2021, % of GDP) for transitory COVID-19 impacts:
    - Travel services: 0.1 percent of GDP
    - Transport balance: 0.6 percent of GDP
    - Household consumption composition shift: –0.3 percent of GDP
    - Trade in medical products: 0.1 percent of GDP
    - Remittances: –0.3 percent of GDP
  - IMF staff assesses midpoint CA gap at –0.2 percent of GDP (range –1.2 to 0.8 percent of GDP).
- Key statistics (2021, % GDP):
  - CA: –0.4
  - Cycl. Adj. CA: –1.5
  - EBA Norm: –1.2
  - EBA Gap: –0.2
  - COVID-19 Adj.: 0.1
  - Other Adj.: 0
  - Staff Gap: –0.2

### Mexico — Real Exchange Rate
- Background:
  - Peso fluctuated in a narrow range of about 20 to 21 pesos per US dollar in 2021.
  - Average REER in 2021 appreciated by about 6 percent compared with the 2020 average, mostly driven by a nominal appreciation.
  - As of May 2022, the REER had appreciated by 4 percent compared with its 2021 average.
- Assessment:
  - IMF staff CA gap implies a REER gap of 0.5 percent (applying semielasticity of 0.33).
  - EBA REER level and index models estimate an overvaluation of 7.7 percent and an undervaluation of 9.1 percent, respectively, in 2021.
  - IMF staff overall assessment: REER gap in the range of –2.6 to 3.5 percent, with a midpoint of 0.5 percent.

### Mexico — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - 2021 recorded a small amount of net financial account inflows.
  - Net portfolio outflows increased compared with the previous year due to higher purchases of foreign assets by residents and larger sales of Mexican assets by nonresidents.
  - Outflows were offset by a turnaround in other investment flows and continued strong net FDI inflows.
- Assessment:
  - Long maturity of sovereign debt and relatively high share of local-currency-denominated debt reduce exposure to FX depreciation and refinancing risks.
  - Banking sector resilient; FX risks of nonfinancial corporate debt generally covered by natural and financial hedges.
  - Strong presence of foreign investors leaves Mexico exposed to capital flow reversals and risk premium increases.

### Mexico — FX Intervention and Reserves Level
- Background:
  - Central bank committed to a free-floating exchange rate and uses discretionary FX intervention to prevent disorderly market conditions.
  - Gross international reserves were US$208 billion at end-2021 (16 percent of GDP), up from US$199 billion at end-2020, largely owing to the IMF’s general SDR allocation.
  - In 2021, no FX intervention was conducted.
- Assessment:
  - Reserves at end-2021: 131 percent of the ARA metric and 254 percent of short-term debt (at remaining maturity); assessed as adequate.
  - IMF staff recommends continuing to maintain reserves at an adequate level over the medium term.
  - The Flexible Credit Line arrangement continues to provide an additional buffer.

---

### The Netherlands — Overall Assessment and Potential Policy Responses
- Overall Assessment: The external position in 2021 was stronger than the level implied by medium-term fundamentals and desirable policies.
- Contextual challenges:
  - Netherlands’ role as a base for multinational corporations and as a trading hub and financial center makes external assessment particularly challenging.
  - In the medium term, the current account surplus is expected to shrink moderately as population aging, pension reform, and some fiscal loosening reduce domestic saving.
- Potential Policy Responses:
  - Continued use of fiscal buffers for health care and economic support during COVID-19 waves has been appropriate.
  - Repercussions from the war in Ukraine (commodity markets and refugee flows) likely to call for additional government expenditure, facilitated by EU Stability and Growth Pact escape clause activation.
  - Beyond crisis-related spending, prioritize fostering investment in physical and human capital and facilitating access to finance, particularly for SMEs, to nurture potential growth and aid external rebalancing.
  - Structural investment and reform plans by the new government to address housing market shortages, reinforce education, and advance climate transition and digitalization are welcome.

### The Netherlands — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP reached 93.8 percent of GDP in 2021, reflecting gross assets and liabilities of 1,119.8 and 1,026.1 percent of GDP, respectively, compared to a nearly balanced NIIP at end-2009.
  - Largest component of NIIP comes from net FDI stock—about €1,057 billion (122.8 percent of GDP) in 2021.
  - According to the Coordinated Direct Investment Survey, inward and outward FDI positions were second only to the United States at end-2020.
  - Largest gross bilateral stocks: United States (US$1.98 trillion), United Kingdom (US$1.23 trillion), Luxembourg (US$0.77 trillion).
  - Reflecting a persistent CA surplus, NIIP tends to increase as a ratio of GDP over time absent large valuation effects.
  - Relocation of Shell’s headquarters to the United Kingdom may dampen NIIP fluctuations by substituting portfolio investment liabilities with less volatile FDI liabilities.
- Assessment:
  - Safe haven status and sizable foreign assets limit risks from large foreign liabilities.
- Key statistics (2021, % GDP):
  - NIIP: 93.8
  - Gross Assets: 1,119.9
  - Debt Assets: 254.1
  - Gross Liab.: 1,026.1
  - Debt Liab.: 285.7

### The Netherlands — Current Account
- Background:
  - CA surplus rebounded to 9 percent of GDP in 2021 (9.2 percent cyclically adjusted).
  - Goods and services surplus expanded to 10.3 percent of GDP as key trading partners, concentrated in the EU, recovered.
  - Primary income balance improved to –0.4 percent of GDP, reflecting higher net FDI income.
  - Secondary income deficit contracted to 0.8 percent of GDP due to lower current transfers abroad.
  - Household net lending has turned positive since the global financial crisis, partly reflecting substantial mandatory contributions to second-pillar occupational pension funds.
  - Multinationals based in The Netherlands keep nonfinancial corporate net lending high and have sustained substantial net FDI outflows since the early 2000s.
  - 2022 projection: CA surplus projected to shrink to 8.8 percent of GDP; Shell’s relocation estimated to account for about 0.2 percentage point of the decline; energy market disruptions related to the war in Ukraine expected to moderately worsen energy trade deficit.
- Assessment and adjustments:
  - EBA CA model estimates:
    - CA norm: 5.1 percent of GDP and CA gap: 4.1 percent of GDP in 2021.
  - Large part of CA gap (2.2 percent of GDP) attributable to an unexplained residual reflecting high gross savings of multinationals and a second-pillar retirement scheme with large coverage and strict pre-funding.
  - Possible measurement errors or biases in official statistics may overstate net accumulation of wealth attributed to Dutch residents.
  - IMF staff adjustment of –1.7 percent of GDP to offset bias, calculated with granular data from the Dutch central bank.
  - Additional –0.4 percent of GDP adjustment applied to correct for temporary COVID-19 effects, mainly reflecting shifts of household consumption toward goods in 2021.
  - Taking these into consideration, and against a norm in a range of 4.6 to 5.6 percent of GDP, IMF staff assesses a CA gap of 1.5 to 2.5 percent of GDP.
- Key statistics (2021, % GDP):
  - CA: 9.0
  - Cycl. Adj. CA: 9.2
  - EBA Norm: 5.1
  - EBA Gap: 4.1
  - COVID-19 Adj.: –0.4
  - Other Adj.: –1.7
  - Staff Gap: 2.0

### The Netherlands — Real Exchange Rate
- Background:
  - Annual average CPI-based REER appreciated by 0.2 percent in 2021; part of the rise in the euro NEER offset by inflation in The Netherlands staying below that of trading partners.
  - Average ULC-based REER appreciated by 1.7 percent.
  - REER assessment hampered by COVID-19 distortions affecting consumer prices and ULCs across countries.
  - As of May 2022, the CPI-based REER was 1.7 percent below its 2021 average.
- Assessment:
  - Assuming a semielasticity of 0.6, the IMF staff CA gap of 2.0 percent of GDP implies a REER undervaluation of about 12 percent of GDP (text truncated in source after "about").
  - (Note: Source text truncates the full quantitative REER implication at this point.)

*Source: CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS, International Monetary Fund | 2022*

### 3.3 percent. EBA REER model estimates for 2021 range from an overvaluation of 6 percent (level model) to 21.9 percent (i

### ch3 - 3.3 percent. EBA REER model estimates for 2021 range from an overvaluation of 6 percent (level model) to 21.9 percent (i

### Real Exchange Rate (REER)
- EBA REER model estimates for 2021 range from an overvaluation of 6 percent (level model) to 21.9 percent (index model), largely reflecting unexplained residuals.
- Consistent with the staff CA gap, the IMF staff assesses the REER as undervalued by about 2.5 to 4.1 percent, with a midpoint of 3.3 percent.
- For Poland (2021):
  - EBA REER index model estimate: –1 percent gap.
  - EBA REER level model estimate: –20.2 percent gap.
  - IMF staff assesses REER as undervalued in 2021 in the range of –4.4 to –2.5 percent, with a midpoint of –3.5 percent (using an estimated elasticity of 0.41).
- For Russia (2021):
  - Average REER depreciated by 1.1 percent in 2021 and by 13.2 percent over 2017–21.
  - IMF staff CA gap implies a REER undervaluation of 10.6 percent in 2021 (applying an estimated elasticity of 0.19).
  - EBA REER index and level model estimates: undervaluation of 11.2 and 33.8 percent, respectively.
  - IMF staff assesses REER as undervalued in 2021 in the range of 6 to 15.2 percent, with a midpoint of 10.6 percent.

### Current Account (CA) — Findings and Projections
- Poland (2021):
  - CA moved from large deficits toward surplus between 2008 and 2020; CA swung to a deficit of 0.6 percent of GDP in 2021, from a (revised) surplus of 2.9 percent in 2020.
  - Main drivers of 2021 balance: (1) lower exports due to global supply-chain disruptions, (2) higher import growth due to higher energy prices and recovering domestic demand, (3) normalization of the primary income deficit.
  - Medium-term projection: CA deficit expected to reach 2 percent of GDP in the medium term under domestic-demand-led expansion and Next Generation EU grants use.
  - EBA CA model: cyclically adjusted CA of –0.3 percent of GDP; CA norm of –2.4 percent of GDP; standard error 0.4 percent of GDP.
  - COVID-19 adjustment to cyclically adjusted CA: –0.6 percent of GDP (components: +0.3 pp travel services contraction, +0.2 pp medical supplies net exports, –1.1 pp shift in household consumption).
  - Resulting IMF staff CA gap: 1.4 (±0.4) percent of GDP, including identified policy gaps of 2.7 percent of GDP and an unexplained residual of –0.6 percent of GDP.
  - 2021 (% GDP) summary: CA: –0.6; Cycl. Adj. CA: –0.3; EBA Norm: –2.4; EBA Gap: 2.1; COVID-19 Adj.: –0.6; Other Adj.: 0; Staff Gap: 1.4.
- Russia (2021):
  - CA surplus increased to US$122 billion (6.9 percent of GDP) in 2021 from US$36 billion (2.4 percent of GDP) in 2020.
  - Drivers: sharp increase in oil and gas prices and other commodity prices; gross national savings rose from 25.3 to 29.3 percent of GDP while gross national investment changed from 23.5 to 22.5 percent of GDP.
  - 2022 (year to May) CA reached US$110 billion; as of June 30, 2022 surplus projected at US$265 billion (about 12 percent of GDP).
  - EBA CA model: norm of 4.4 percent of GDP for 2021; cyclically adjusted CA surplus of 7.1 percent of GDP.
  - COVID-19 adjustment: –0.6 percent of GDP (tourism service imports –0.8 pp; higher transport costs 0.1 pp).
  - IMF staff CA gap: 2.1 percent of GDP, range 1.2 to 3 percent of GDP; identified policies contributed 1.8 percent of GDP to the gap.
  - 2021 (% GDP) summary: CA: 6.9; Cycl. Adj. CA: 7.1; EBA Norm: 4.4; EBA Gap: 2.6; COVID-19 Adj.: –0.6; Other Adj.: 0; Staff Gap: 2.1.
- Saudi Arabia (2021):
  - CA surplus of 5.3 percent of GDP in 2021, compared to a deficit of 3.2 percent in 2020.
  - Trade balance improvement estimated at 9.6 percent of GDP due to higher price and volume of oil exports.
  - Oil prices assumed US$105.9 a barrel in 2022; terms of trade estimated to have improved by 48.4 percent.
  - CA expected to register a large surplus in 2022 (17.2 percent of GDP); terms of trade projected to improve by 37 percent.
  - EBA-Lite methodology: CA gap of –1.0 percent of GDP using CA regression approach.
  - COVID-19 upward adjustor: 1.1 percent of GDP (travel services 0.87 pp; transportation 0.05 pp; shift to tradable goods 0.19 pp).

### Foreign Asset and Liability Position and Trajectory
- Netherlands (background snippet):
  - Special-purpose entities account for 25 and 27 percent of gross foreign assets and liabilities, respectively, contributing to capital flow volatility.
- Poland (2021):
  - NIIP strengthened to –38 percent of GDP in 2021, from –46 percent in 2020.
  - Gross assets: 55.5 percent of GDP; Gross liabilities: 93.4 percent of GDP.
  - Stock of net FDI equivalent to 38 percent of gross external liabilities; gross external debt: 54 percent of GDP.
  - 30 percent of gross external debt was intercompany lending; 72 percent of debt was of long maturity.
  - Short-term debt (excluding intercompany) amounted to 17 percent of total debt (9 percent of GDP), mostly bank liabilities (currency and deposits) and nonfinancial private sector (trade credit).
  - Gross reserves about 162 percent of short-term debt in 2021.
  - 2021 (% GDP) summary: NIIP: –38; Gross Assets: 55.5; Reserve Assets: 25; Gross Liab.: 93.4; Gross External Debt: 54.
  - Assessment: sizable external debt but rollover risk mitigated by long-term debt and intercompany lending; NIIP improved in size and structure.
- Russia (end-2021):
  - NIIP: US$483.4 billion or 27.2 percent of GDP (declined from 34.9 percent in 2020).
  - Gross assets: 93 percent of GDP; liabilities: 65 percent of GDP; external debt: 27 percent of GDP.
  - As of Q3 2021, slightly more than a quarter of external debt was in domestic currency.
  - Share of nonresidents’ holdings of domestic government debt fell from 32.2 percent (end-2019) to 17.8 percent (February 2022).
  - 2021 (% GDP) summary: NIIP: 27.2; Gross Assets: 93; Res. Assets: 35.5; Gross Liab.: 65; Debt Liab.: 27.
- Saudi Arabia (end-2021):
  - Net external assets: 73.5 percent of GDP (down from 85.2 percent in 2020).
  - Composition of external assets: portfolio and other investments 51 percent, reserves 37 percent, FDI 12 percent.
  - 2021 (% GDP) summary: NIIP: 73.5; Gross Assets: 150.3; Res. Assets: 54.6; Gross Liab.: 76.8; Debt Liab.: 34.4.

### Capital and Financial Accounts: Flows and Policy Measures
- Netherlands:
  - Special-purpose entities and financial vehicles account for sizable shares of gross foreign assets and liabilities (25 and 27 percent), channeling corporate profits abroad as FDI and contributing to capital flow volatility.
  - Assessment: strong external position limits vulnerabilities to capital outflows; financial account deficit is primarily the flip side of sustained structural CA surpluses.
- Poland:
  - Capital account dominated by inflows of EU funds, averaging about 2 percent of GDP over past 10 years; declined to 1.6 percent of GDP in 2021 from 2.3 percent in 2020; projected to decline to 1 percent of GDP over medium term.
  - Financial account inflows in 2021: 2.1 percent of GDP.
  - Foreign holdings of domestic government securities at end-2021: 15.2 percent of total; foreign holdings of government debt noted as 4.8 percent of GDP.
  - Assessment: capital account projected to remain a strong source for investment; diversified foreign investor base mitigates volatility risk; central bank has tools to manage volatility.
- Russia:
  - 2020–early 2021: high volatility and moderate outflows by banking and nonbanking private sectors; volatility abated through 2021 though moderate outflows continued.
  - Since war onset: central bank raised policy rate to 20 percent then lowered to 9.5 percent; broad capital flow measures introduced (bans on selling securities by nonresidents; bans on FX lending to nonresidents; limits on residents placing FX abroad; permission requirements to lend rubles/sell securities/real estate to nonresidents of sanctioning countries; restrictions on nonresidents transferring money abroad).
  - Assessment: large FX reserves and floating exchange rate provided buffers before war; sanctions and capital flow measures have materially affected dynamics.

### FX Intervention and Reserves Level
- Netherlands:
  - Background: the euro has the status of a global reserve currency.
  - Assessment: reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating.
- Poland (end-2021):
  - FX reserves increased by about US$12 billion to US$166 billion by end-2021; IMF SDR allocation in August 2021 contributed US$5.6 billion.
  - Net reserves (netting central bank repo operations and government FX deposits): about US$151 billion by end-2021.
  - Central bank converted portion of EU funds to zloty as part of reserve strategy.
  - Zloty is free floating.
  - Assessment: gross reserves about 141.4 percent of the IMF’s reserve adequacy metric; level of gross reserves deemed adequate.
  - 2021 (% GDP) reserve asset: 25.
- Russia:
  - Central bank resumed FX purchases under fiscal rule in 2021: US$63.5 billion; international reserves rose to US$632.2 billion at end-2021 from US$596.8 billion at end-2020.
  - Reserves fell by US$24.2 billion from end-2021 to US$606.4 billion by end-March 2022 due to FX sales to support the ruble.
  - Assessment: international reserves in 2021 equivalent to 339 percent of IMF’s reserve adequacy metric; additional commodity buffer of US$77 billion appropriate, yielding a buffer-augmented ratio of 239 percent.
  - Note: significant share of reserves frozen as a result of sanctions.
- Saudi Arabia:
  - Reserves and asset composition noted above; pegged exchange rate provides credible anchor.
  - Policy: continued fiscal consolidation and structural reforms recommended to align CA with norm.

*Italic: Content derived from chapter excerpts and tables in the provided IMF chapter content.*

### 0.1 percent of GDP for constant real per capita annuity allocation rules. The Investment Needs Model suggests a CA gap o

### ch3 - 0.1 percent of GDP for constant real per capita annuity allocation rules. The Investment Needs Model suggests a CA gap o

### Saudi Arabia — Current Account and External Assessment
- 2021 (% GDP):
  - CA: 5.3
  - Cycl. Adj. CA: 5.4
  - COVID-19 Adj.: 1.1
  - Staff Gap: –1.0
- IMF staff assess a CA gap of –1.0 percent of GDP, with a range from –2.8 to 0.8 percent of GDP in 2021.
- The Investment Needs Model suggests a CA gap of 5.2 percent of GDP.

### Saudi Arabia — Real Exchange Rate
- Background:
  - Riyal pegged to the US dollar at 3.75 since 1986.
  - REER depreciated by 1.9 percent in 2021 and was 4 percent above its 10-year average.
  - As of May 2022, the REER was 4.1 percent above the 2021 average.
- Assessment:
  - Short-run exchange rate movements have limited impact on competitiveness because most exports are oil or oil-related and imports have limited substitutability.
  - IMF staff, consistent with the CA gap and using an elasticity of 0.2, assess the REER to be overvalued by 4.1 percent, with a range of –4.9 and 13.1 percent.

### Saudi Arabia — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts:
  - Background: Net financial outflows continued in 2021 as the PIF and other entities invested abroad; equity market saw inflows later in 2021.
  - Assessment: Analysis complicated by lack of detailed flow information; strong reserves position limits risks and vulnerabilities to capital flows.
- FX Intervention and Reserves:
  - Background:
    - Total reserve assets: US$453.7 billion at end-2020 (down from US$499.6 billion end-2019 and US$732.4 billion in 2014).
    - 2021: total reserves reached US$455.4 billion; net foreign assets declined from US$449.2 billion to US$438.2 billion.
    - Net foreign assets: 52.6 percent of GDP, 22 months of imports, and 254 percent of the ARA metric in 2021.
  - Assessment:
    - Reserves adequate for precautionary purposes (measured by IMF metrics).
    - Fiscal prudence needed over the medium term to strengthen the CA and increase savings for future generations.
  - Going forward, reserves expected to increase significantly with rising oil export revenues.

---

### Singapore — Overall Assessment and Current Account
- Overall Assessment:
  - External position in 2021 was substantially stronger than implied by medium-term fundamentals and desirable policies.
  - Near-term: war in Ukraine expected to narrow the CA surplus via a negative terms-of-trade shock.
  - Medium term: CA surplus projected to narrow gradually due to increased household consumption, recovery of capital-related imports, and higher public spending.
- Potential Policy Responses:
  - Planned implementation of major green infrastructure projects should help reduce external imbalances in the near term.
  - Over the medium term, higher public investment in health care, green and physical infrastructure, and human capital would reduce external imbalances by lowering net public saving.
- Current Account:
  - 2021 (% GDP):
    - CA: 18.1
    - Cycl. Adj. CA: 18.8
    - COVID-19 Adj.: –1.4
    - Staff Gap: 5.2
  - Background:
    - CA surplus 18.1 percent of GDP in 2021, up from 16.8 percent in 2020.
    - Drivers: strong goods balance, small services surplus, deficit in income account.
    - Structural drivers: financial center status, consecutive fiscal surpluses in most years, rapid aging, mandatory defined-contribution pension assets ~94.8 percent of GDP in 2021.
    - CA surplus projected to narrow over the medium term due to infrastructure and social spending increases.
  - Assessment:
    - Guided by the EBA framework, IMF staff assess 2021 CA gap range 3.4 to 7 percent of GDP, midpoint 5.2 percent.

### Singapore — Real Exchange Rate
- Background:
  - REER depreciated by 0.3 percent in 2021; NEER depreciated by 0.4 percent in 2021.
  - As of May 2022, REER appreciated by 4.1 percent relative to the 2021 average.
- Assessment:
  - Consistent with staff CA gap and using an estimated elasticity of 0.5, IMF staff assess REER as undervalued in the range of 6.8 to 14 percent, with midpoint 10.4 percent in 2021.

### Singapore — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts:
  - Background: Open capital account; financial center exposures to market sentiment; 2021 capital and financial account switched to outflows of 2.1 percent of GDP from inflows of 4.6 percent in 2020.
  - Assessment: Financial account likely to remain in deficit as long as trade surplus remains large.
- FX Intervention and Reserves:
  - Background:
    - MAS official reserves: US$417.9 billion (105.3 percent of GDP) in 2021.
    - Aggregate FX intervention data published since April 2020.
  - Assessment:
    - In addition to MAS reserves, Singapore has official foreign assets managed by Temasek and GIC.
    - Current level of official external assets appears adequate; no clear case for further precautionary accumulation.

---

### South Africa — Overall Assessment and Current Account
- Overall Assessment:
  - External position in 2021 moderately weaker than level implied by fundamentals and desirable policies.
  - Exceptional CA surplus in 2021 (3.7 percent of GDP) explained by commodity price increases and pandemic-related factors; expected to be temporary.
  - If war in Ukraine subsides and commodity prices normalize, CA expected to return to structural deficit.
- Potential Policy Responses:
  - Require bold structural reforms and gradual but substantial fiscal consolidation while preserving room for infrastructure and social spending.
  - Reforms should improve governance, product market efficiency, labor market functioning to attract longer-term capital inflows and boost exports.
  - Accumulate international reserves when possible to strengthen shock resilience.
- Current Account:
  - 2021 (% GDP):
    - CA: 3.6
    - Cycl. Adj. CA: 1.3
    - EBA Norm: 2.6
    - EBA Gap: –1.3
    - COVID-19 Adj.: –2.7
    - Other Adj.: 2.2
    - Staff Gap: –1.7
  - Background:
    - CA surplus 3.7 percent of GDP in 2021 (first surplus in nearly two decades in 2020 at 2 percent).
    - Drivers: buoyant terms of trade and commodity exports; weaker income and services balances; subdued tourism; anemic private investment.
    - CA projected to remain 1.5 percent of GDP in 2022 then widen to ~ –2 percent of GDP over medium term as trade balance deteriorates.
  - Assessment:
    - IMF staff estimate a CA gap in range –2.4 to –1 percent of GDP in 2021.
    - Cyclically adjusted CA estimated at 0.2 percent of GDP in 2021 after COVID-19 related adjustors totalling –2.7 percent of GDP and other statistical treatments.
    - Adjusted CA norm for 2021 is 2 percent of GDP (EBA norm 2.6 percent minus 0.6 percentage point to reflect lower life expectancy).

### South Africa — Real Exchange Rate
- Background:
  - CPI-based REER depreciated by 4.5 percent in 2021 after depreciating during 2019–20.
  - As of May 2022, REER was 1.5 percent below the 2021 average.
- Assessment:
  - IMF staff CA gap implies an overvalued REER midpoint of 7.3 percent for 2021 (using elasticity 0.23).
  - REER-based regressions range from 1.2 percent (index approach) to 15.9 percent (level approach).
  - Based on CA approach, IMF staff assess REER overvaluation of 7.3 percent, range between 4.3 and 10.3 percent.

### South Africa — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts:
  - Background:
    - Net FDI increased from 1.5 percent of GDP in 2020 to 9.7 percent in 2021.
    - Net portfolio investment recorded outflows of –13 percent of GDP in 2021.
    - Gross external financing needs: 6.4 percent of GDP in 2021.
  - Assessment:
    - COVID-19–related market volatility persisted; risks from reliance on non-FDI inflows mitigated by flexible exchange rate, small currency mismatches, large equity liability composition of NIIP, and large domestic institutional investor base.
    - South Africa obtained US$4.3 billion (100 percent of quota) under IMF Rapid Financing Instrument in July 2020.
- FX Intervention and Reserves:
  - Background:
    - Exchange rate regime classified as floating; central bank intervention rare.
    - In 2021, international reserves were about 13.8 percent of GDP, 214.7 percent of gross external financing needs, and 5.6 months of imports.
    - Reserves below IMF composite adequacy metric: 80.8 percent without CFM measures, 89.3 percent after considering them.
  - Assessment:
    - Reserve accumulation desirable over the medium term if conditions allow, while maintaining inflation objective primacy.
    - South Africa received US$4.2 billion as part of IMF SDR allocation in August 2021.

---

### Spain — Overall Assessment and Current Account
- Overall Assessment:
  - External position in 2021 broadly in line with level implied by medium-term fundamentals and desirable policies.
  - IMF staff assess Spain’s CA norm relatively high due to external sustainability risks from large negative NIIP.
  - NIIP improved in 2021; strengthening it further requires sustaining a relatively high CA surplus in coming years.
  - Baseline: CA expected to recover and reach 1.5 percent of GDP in the medium term, supported by full resumption of foreign tourism and resolution of supply bottlenecks.
  - Significant downside risks from war in Ukraine via trading partners’ growth and energy prices.
- Potential Policy Responses:
  - Keep CA in line with norm via fiscal consolidation and higher private saving achieved through productivity gains, wage flexibility, addressing labor market duality, enhancing education outcomes, and encouraging innovation.
  - Recovery plan includes investments and reforms to diversify and improve tourism quality.
- Current Account:
  - Background:
    - CA surplus increased slightly in 2021 to 0.9 percent of GDP from 0.8 percent in 2020, supported by services surplus (tourism) partially offset by wider goods deficit.
    - Higher public saving offset rise in public investment and drawdown of excess private savings from pandemic.
    - First quarter 2022 trade balance deteriorated due to sharp import increase from high energy prices, partly offset by strong services export growth.
    - CA projected to gradually recover with tourism resumption and supply bottleneck resolution, offsetting higher imports from stronger domestic demand and Next Generation EU-funded investment.
  - Assessment:
    - 2021 cyclically adjusted CA balance is –0.1 percent of GDP.
    - This mainly reflects pandemic transitory impacts not captured by EBA model: adjustors of 1.6 percent for travel services (including tourism) and 0.2 percent for transport, among others.

*Source: IMF, CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS (excerpts).*

### 0.3 percent for medical goods, and –0.4 percent for the global shift of household consumption from services to consumer 

### ch3 - 0.3 percent for medical goods, and –0.4 percent for the global shift of household consumption from services to consumer

### Current Account: Sweden (2021)
- CA: 5.5 percent of GDP.
- Cyclically adjusted CA: 5.3 percent of GDP.
- EBA Norm: 1.2 percent of GDP.
- EBA Gap: 4.1 percent of GDP.
- COVID-19 Adj.: –0.5 percent of GDP (travel –0.4 percent; transport –0.1 percent; medical imports +0.1 percent; household consumption 0 percent).
- Staff Gap: 3.6 percent of GDP (range: 3.2 to 4 percent of GDP).
- Background findings:
  - CA surplus decreased by 0.6 percentage point to 5.5 percent of GDP in 2021 (from 6.1 percent of GDP in 2020).
  - Decline driven mainly by a decline in primary income from investments and stronger growth of imports than exports as domestic demand recovered.
  - Tourism services imports picked up in 2021 but remain below pre-pandemic levels; lower-than-usual tourism imports estimated to have kept the CA surplus higher by about 0.3 percentage point.
  - Sweden has limited direct exposure to Russia (exports and imports are less than 0.4 percent of GDP each).
  - Over the medium term, the CA is projected to return to its long-term average of 3.5 percent of GDP.
- Assessment points:
  - The cyclically adjusted CA is 4.1 percentage points above the cyclically adjusted EBA norm.
  - EBA norm for Sweden is low and has been below actual CA outcomes for two decades, suggesting model omissions (for example, mandatory contributions to fully funded pension schemes and an older labor force with a high share of workers age 65 or older).
  - Policies that would explain the CA gap make up 0.2 percentage point, with fiscal policy accounting for 1 percent and partially offset by gaps in health (–0.1 percent), reserves (–0.1 percent), and credit (–0.6 percent).
  - Complementary EBA tools suggest Sweden’s labor market regulation (more flexible than average) and its pension system could explain about 1.5 percentage points of the gap.

### Real Exchange Rate: Sweden (2021)
- CPI-based REER appreciation: 0.9 percent (2021 vs 2020).
- ULC-based REER depreciation: 1.7 percent (2021 vs 2020).
- As of May 2022, the REER was 1.5 percent below the 2021 average.
- EBA REER models estimate overvaluation of 8.8 percent (index) to 26.4 percent (level) for 2021 (context earlier in document).
- IMF staff REER assessment (using elasticity of 0.26 and the CA gap range):
  - REER gap range: –2.3 to 3 percent.
  - REER midpoint: 0.4 percent.
- Background/context: Both CPI and ULC indicators show at least a partial reversal of the significant appreciation from euro entry in 1999–2008.

### Capital and Financial Accounts: Spain (2021) and Sweden (2021) — flows and vulnerabilities
- Spain (selected points):
  - Financial account balance increased from 1.6 to 2.4 percent of GDP in 2021.
  - Outflows by the Bank of Spain partially offset net inflows by other resident sectors, particularly in portfolio investment.
  - Capital account surplus increased due to flows associated with Next Generation EU funds.
  - Assessment: Large external financing needs leave Spain vulnerable to sustained market volatility; ECB policies mitigate risk by maintaining favorable liquidity conditions and monetary accommodation.
- Sweden (selected points):
  - Financial account declined by almost half in 2021 to 2.2 percent of GDP (from 3.7 percent of GDP in 2020).
  - Reversal in other investments (from 2.2 to –3.9 percent of GDP) and FDI (from 0.9 to –1.1 percent of GDP); portfolio investments more than tripled from 2.2 to 7.5 percent of GDP.
  - Assessment: Sweden’s large banks are vulnerable to liquidity risks from global wholesale markets, but structural liquidity positions have improved and liquidity coverage ratio requirements in foreign and domestic currency have created substantial buffers.

### FX Intervention and Reserves Level
- Euro area:
  - Background: The euro has the status of a global reserve currency.
  - Assessment: Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating.
- Sweden:
  - Foreign currency reserves increased by US$4.5 billion to stand at US$62 billion in December 2021.
  - Reserves equivalent to 21 percent of short-term external debt of monetary and financial institutions, about 10 percent of GDP, and 2.8 months of imports.
  - Increase reflects the general SDR allocation effective in August 2021.
  - There were no FX interventions in 2021.
  - Assessment: Given high dependence of Swedish banks on wholesale funding in foreign currency and past funding disruptions, Sweden should maintain adequate foreign reserves.
  - A US$60 billion swap facility with the US Federal Reserve was agreed to address dollar funding risks related to COVID-19; it was extended three times before expiring by the end of 2021, was not used, but provided an important backstop.

### Foreign Asset and Liability Position and Trajectory
- Sweden (2021):
  - NIIP: 16.8 percent of GDP.
  - Gross Assets: 296.3 percent of GDP.
  - Debt Assets: 84.9 percent of GDP.
  - Gross Liabilities: 279.5 percent of GDP.
  - Debt Liabilities: 173 percent of GDP.
  - NIIP increase: estimated to have risen by 1.3 percentage points to reach 16.8 percent of GDP in 2021; increase lower than the CA balance due to valuation effects.
  - Projections subject to uncertainty as IIP data include large errors and omissions averaging –2.2 percent of GDP over the past 10 years.
  - Gross liabilities increased to 279.5 percent of GDP in 2021, with a bit more than half being gross external debt (173 percent of GDP).
  - Distribution of net foreign assets: other financial institutions (mostly pension funds) 82 percent of GDP, social security funds 24 percent of GDP, households 20 percent of GDP, central bank 7 percent of GDP.
  - Net external debtors: nonfinancial corporations 70 percent of GDP, monetary financial institutions 39 percent of GDP, government 6 percent of GDP.
  - Assessment: Rollovers of external debt (including banks’ covered bonds) pose vulnerability, but risks are moderated by banks’ ample liquidity and large capital buffers.
- Switzerland (selected points):
  - NIIP: 89.8 percent of GDP.
  - Gross Assets: 753.1 percent of GDP.
  - Reserve Assets: 136.5 percent of GDP.
  - Gross Liabilities: 663.3 percent of GDP.
  - Debt Liabilities: 205.6 percent of GDP.
  - NIIP declined in 2021 by 18.5 percentage points of GDP, mainly driven by negative valuation effects due to price changes.
  - Assessment: Large gross liability position and volatility of financial flows present some risk, mitigated by large gross asset position and CHF denomination of about two-thirds of external liabilities.

### Policy recommendations and potential responses (extracts)
- Sweden:
  - Scope for greener and growth-enhancing private and public investments to facilitate structural transformation.
  - Once recovery is well underway, address past imbalances and policy distortions through reforms that raise productive investment and potential output.
  - Policies to lower household debt to safeguard the economy from a severe consumption shock following a crisis.
  - Maintain adequate foreign reserves given bank dollar funding risks; use swap facilities or targeted FX intervention if significant downside risks materialize.
- Switzerland:
  - Fiscal policy should remain broadly balanced in structural terms, in line with the authorities’ debt-brake rule framework, accommodating additional spending related to the war in Ukraine and continuing COVID-19 support where needed.
  - SNB should closely monitor inflation developments and be ready to adjust FX market operations and policy interest rates if needed.
  - Consider targeted FX interventions if significant downside risks materialize (large safe haven inflows or a deep/sustained downturn).
  - Macroprudential policies should focus on containing real estate imbalances and reducing financial sector risks.
  - Continue efforts to promote green transition and energy security.

*Source: ch3 - 0.3 percent for medical goods, and –0.4 percent for the global shift of household consumption from services to consumer*

### 9.9 percent and the norm, the overall EBA-estimated CA gap equaled +3.1 percent of GDP in 2021.

### ch3 - 9.9 percent and the norm, the overall EBA-estimated CA gap equaled +3.1 percent of GDP in 2021.

### Current Account: Switzerland (2021)
- CA: 9.3 (% GDP)
- Cycl. Adj. CA: 9.9 (% GDP)
- EBA Norm: 6.8 (% GDP)
- EBA Gap: 3.1 (% GDP)
- COVID-19 Adj.: –0.6 (% GDP)
- Other Adj.: –3.4 (% GDP)
- Staff Gap: –0.9 (% GDP)
- Domestic policy gaps accounted for –0.9 percentage points and included:
  - excessive private sector credit: –1.8 percentage points
  - fiscal underspending: 0.2 percentage point
- Policy gaps in the rest of the world contributed +0.9 percentage points.
- Adjustments that reduced the CA gap to –0.9 percent of GDP (±0.8 percentage points) included:
  - valuation losses on fixed-income securities arising from inflation: –3.3
  - retained earnings on portfolio equity investment: –0.1
  - transitory impacts of the COVID-19 pandemic: –0.6

### Real Exchange Rate: Switzerland (2021 and trends)
- Average NEER: virtually unchanged relative to 2020 (qualitative)
- CPI-based REER: depreciated by 2.4 percent (2021 vs 2020)
- PPI-based REER: depreciated by 8.9 percent (2021 vs 2020)
- Q1 2022:
  - average NEER appreciated by 2.7 percent
  - PPI-based REER depreciated by 9.6 percent
- As of May 2022:
  - CPI-based REER was 2.7 percent below the 2021 average
- Long-term (since 2010) changes:
  - NEER appreciated by 38 percent since 2010
  - CPI-based REER appreciated by 6 percent since 2010
  - PPI-based REER depreciated by 9 percent since 2010
- IMF staff CA gap implies REER overvaluation of 1.9 percent in 2021 (applying an elasticity of 0.47).
- EBA REER models:
  - EBA REER index suggests average REER in 2021 was overvalued by 10.5 percent
  - EBA REER level model suggests overvaluation of 16.8 percent
- IMF staff assesses the REER gap in 2021 to be in the range of +0.2 to +3.6 percent (overvalued), with a midpoint of +1.9 percent.

### Capital and Financial Accounts: Switzerland (flows and policy measures)
- Net financial outflows in 2021: 3.7 percent of GDP
  - private inflows: 2.3 percent of GDP
  - increase in SNB reserve assets: 6 percent of GDP
- During 2009–20:
  - net private inflows averaged 2.9 percent of GDP
  - average annual increase in SNB reserves was 10.5 percent of GDP
- Assessment: financial flows are large and volatile; sizable net private financial outflows prior to the global financial crisis have declined and, on average, turned into net capital inflows.

### FX Intervention and Reserves Level: Switzerland (2021)
- Official reserve assets (including gold) at end-2021: US$1.11 trillion (136.5 percent of GDP)
- Change from end-2020: up US$26 billion (including valuation changes)
- SNB net FX purchases (interventions) in 2021: CHF 21 billion (down from CHF 110 billion in 2020)
- Assessment:
  - Reserves are large relative to GDP but more moderate compared with short-term foreign liabilities.
  - High reserve levels reflect monetary operations to avoid persistent undershooting of inflation amid FX inflow surges and limited scope for easing via other monetary policy tools.
  - Supply of domestic assets for purchase is limited.
  - Marginal interest rate on bank deposits at the SNB: –0.75 percent.
  - SNB’s initiation of quarterly publication of (net) FX intervention information in 2020 was an important transparency step.

*Source: IMF 2022 — chapter content as provided.*

### CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS

### CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS

### Türkiye: Economy Assessment — Overall Assessment
- The external position in 2021 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- The CA deficit narrowed as exports (including tourism revenues) rebounded, while imports were contained by official restrictions on gold imports.
- Türkiye’s negative NIIP position, while remaining large, narrowed significantly as a result of a steep decline in the value of FDI liabilities.
- The REER is estimated to have remained undervalued, as the non-energy CA continues to adjust, although significant uncertainties remain surrounding the scale of that undervaluation.
- Monetary conditions sharply eased, leading to a sharp depreciation of the lira—reversing some of the reserve gains made earlier in the year—and rising inflation.
- Türkiye’s vulnerability to shocks remains high amid still-elevated gross external financing needs.
- Over the medium term, the CA deficit is projected to narrow as the REER undervaluation feeds through and as commodity price pressures ease.

### Türkiye: Economy Assessment — Potential Policy Responses
- While Türkiye’s external position is assessed to be broadly in line with fundamentals and desirable policies, strengthening the policy framework would help underpin external sustainability going forward.
- Tighter monetary policy would help lower inflation and anchor inflation expectations and would help strengthen policy credibility.
- Credit growth should be monitored carefully.
- A broadly neutral fiscal stance, with a focus on targeted measures that protect the most vulnerable, should be accompanied by a credible medium-term fiscal plan.
- This overall tightening of the policy stance and the rebuilding of policy credibility would:
  - help contain demand and reduce imports, thus improving the CA;
  - help sustain capital inflows, support de-dollarization, and allow for a needed buildup of reserves over time;
  - pave the way for the relaxation of gold import restrictions and CFM measures.

### Türkiye: Foreign Asset and Liability Position and Trajectory — Background and Assessment
- Background:
  - Türkiye’s NIIP averaged –44 percent of GDP over 2017–21, declining to –53 percent in 2020.
  - The NIIP increased to –31 percent of GDP in 2021, driven largely by a marked decrease in FDI equity liabilities (overall liabilities fell from 89 to 65 percent of GDP) due to a decline in the stock market in dollar terms.
  - External debt decreased from 60 to 56 percent of GDP.
  - Almost 70 percent of external debt is held by the private sector, while less than a third is short term (on a remaining maturity basis).
  - Debt is expected to remain sustainable over the medium term.
- Assessment:
  - The size and composition of 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.
  - While the FX exposure of nonfinancial corporations is high, it has improved in recent years, and the short-term net FX position is positive, providing some liquidity buffer.
  - The NIIP is projected to remain at about –30 percent of GDP through 2027.
- Key 2021 statistics (% GDP):
  - NIIP: –31.4
  - Gross Assets: 35.7
  - Debt Assets: 16.4
  - Gross Liab.: 67.1
  - Debt Liab.: 48.9

### Türkiye: Current Account — Background and Assessment
- Background:
  - The CA deficit narrowed from 4.9 percent of GDP in 2020 to 1.7 percent of GDP in 2021.
  - The improvement was driven by an increase in goods exports (+4.5 percent of GDP) and net services (+1.5 percent of GDP) due to tourism.
  - The overall increase in goods imports (+2.8 percent of GDP) was driven by oil imports (+2.3 percent of GDP) and contained by the decline in gold imports (–2.8 percent of GDP) following new regulations.
  - Higher commodity prices resulting from the war in Ukraine are expected to widen the CA deficit in 2022.
- Assessment:
  - The EBA CA model norm for Türkiye is estimated at –0.8 percent of GDP, with a standard error of ±0.6 percent of GDP.
  - The actual CA deficit of 1.7 percent of GDP in 2021 narrows to 0.6 percent of GDP after cyclical and terms-of-trade adjustment.
  - Adjusting for temporary pandemic-related shocks (travel, 0.8 percent of GDP; transport, –0.5 percent; household consumption shift, –0.4 percent; medical, –0.1 percent) results in a 0 percent of GDP gap.
  - Reflecting uncertainty around this assessment, the IMF staff assesses a CA gap in the range of –0.6 to 0.6 percent of GDP, with a midpoint of 0.
- Key 2021 statistics (% GDP):
  - CA: –1.7
  - Cycl. Adj. CA: –0.6
  - EBA Norm: –0.8
  - EBA Gap: 0.2
  - COVID-19 Adj.: –0.2
  - Other Adj.: 0.0
  - Staff Gap: 0.0

### Türkiye: Real Exchange Rate — Background and Assessment
- Background:
  - The REER remained undervalued in 2021, having depreciated by an annual average of 9.4 percent over 2017–21.
  - The average REER depreciated by 9 percent in 2021, with an average nominal depreciation against the US dollar of 27 percent.
  - As of May 2022, the REER was 1.4 percent below the 2021 average.
- Assessment:
  - Any assessment of the lira currency valuation is fraught with uncertainty.
  - The IMF staff estimate of the CA gap implies a REER gap of 0 percent in 2021 (applying an estimated elasticity of 0.26).
  - However, the EBA REER index and level approaches suggest the REER was undervalued in 2021 by 41.1 and 50.5 percent, respectively.
  - Giving more weight to the EBA REER approaches as the non-energy CA continues to adjust, the IMF staff assesses the lira to be undervalued by about 20 to 25 percent in 2021, with large uncertainties surrounding these estimates.

### Türkiye: Capital and Financial Accounts — Flows and Policy Measures
- Background:
  - Net capital inflows rebounded in 2021 from US$8 billion to US$28 billion.
  - This was mainly on account of one-off flows, including US$6.4 billion from Türkiye’s SDR allocation, large positive errors and omissions of US$10 billion, and increases in bilateral swap line agreements.
  - Positive net inflows were also driven by FDI, while net portfolio inflows weakened further over the year.
  - Two CFM measures remain, albeit each with some modifications:
    1. limits to bank swaps and other derivative transactions with foreign counterparties (introduced in August 2018)
    2. export surrender/repatriation requirements (introduced in 2018).
  - In early 2022, among others, a new requirement for exporters to convert 25 percent of their export earnings within 180 days was introduced, which was later increased to 40 percent.
- Assessment:
  - While net capital inflows rebounded in 2021, much of these were either one-off transactions or of unknown origin.
  - With annual gross external financing needs projected at about 25 percent of GDP on average over 2022–27 (22 percent of GDP in 2021), Türkiye remains vulnerable to adverse shifts in global investor sentiment.
  - CFM measures should be phased out as conditions improve to increase market liquidity and support de-dollarization.

### Türkiye: FX Intervention and Reserves Level — Background and Assessment
- Background:
  - The de jure exchange rate is classified as free floating.
  - After declining due to significant central bank intervention in 2020, gross reserves increased from US$93.5 billion at the end of 2020 to US$109.5 billion by the end of 2021, with one reason being the US$6.4 billion SDR allocation from the IMF.
  - Central bank FX intervention increased toward the end of 2021 as the currency came under pressure.
  - Net international reserves dropped further to US$10.8 billion by the end of 2021.
- Assessment:
  - Gross reserves increased from 77 to 91.2 percent of the IMF’s ARA metric during 2021, still below the floor of the recommended 100 to 150 percent range and covering 89 percent of short-term external debt (at remaining maturity).
  - The quality of reserves remains an issue, with non-SDR-basket currencies continuing to account for a large share of the central bank’s FX reserves.
  - Steady reserve accumulation over the medium term is needed given Türkiye’s large external liabilities, dependence on short-term and portfolio funding, and large domestic FX deposits.

*International Monetary Fund | 2022*

### 1.6 percent, and the EBA REER level model suggests an overvaluation of 8.9 percent. Considering all the estimates and th

### ch3 - 1.6 percent, and the EBA REER level model suggests an overvaluation of 8.9 percent. Considering all the estimates and th

### REER valuation assessment (United States)
- IMF staff assesses the 2021 midpoint REER overvaluation to be 8.7 percent, with a range of 3.8 to 13.6 percent.
- The range is obtained from the CA account standard error and the corresponding CA elasticity.
- An EBA REER level model suggests an overvaluation of 8.9 percent.
- Other individual model estimates referenced include a figure of 1.6 percent (context in source text).

### Capital and Financial Accounts: flows and composition (United States)
- Background: The financial account balance was about –3.1 percent of GDP in 2021, compared with –3.5 percent of GDP in 2020.
- Drivers of change between 2020 and 2021:
  - Net direct investment decreased from 0.5 to 0.2 percent of GDP.
  - Portfolio investment changed from –2.3 to –10 percent of GDP.
  - Other investments changed from –1.3 to –2.5 percent of GDP.
  - The changes in portfolio investment and other investments broadly cancel each other out.

- Assessment highlights:
  - The United States has an open capital account.
  - Vulnerabilities are limited by the dollar’s status as a reserve currency, with 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 and reserves level (United States)
- Assessment:
  - The dollar has the status of a global reserve currency.
  - Reserves held by the United States are typically low relative to standard metrics.
  - The currency is free floating.

### Selected technical endnote points and adjustments (excerpted examples)
- Argentina:
  - A band of ±1 percent of GDP (two standard errors of the CA norm) is applied to account for elevated country-specific uncertainty.
  - SDR allocation effect of US$4.3 billion in 2021 is included.
- Canada:
  - Estimated temporary impact of the COVID-19 crisis on travel, transport, household consumption composition, and trade in medical products are –0.4, 0.1, 0.2, and 0.2 percent of GDP, respectively, with a net impact of 0.1 percent of GDP.
  - Statistical treatment biases estimated to generate a downward bias in the income balance of the current account of 0.7 and 0.8 percent of GDP, totaling 1.5 percent of GDP.
  - The semielasticity of the CA with respect to the REER is set to 0.25.
- Hong Kong SAR:
  - Applying EBA coefficients yields a CA norm of 20.6 percent of GDP and a CA gap of –9.4 percent of GDP before adjustments.
  - Adjustments include: NIIP contribution adjustment of 4.7 to 6.7 percentage points (midpoint 5.7), gold trade balance decline of 4 to 4½ percentage points (midpoint 4¼), and logistics/trading activity decline of 1 to 1½ percentage points (midpoint 1¼).
- Indonesia:
  - 2021 assessment includes travel, transport, consumption composition, medical equipment, and demographic adjustments; demographic adjustor is –0.4 percentage point to the CA norm.
  - A range of ±0.5 percent is added to reflect EBA regression uncertainty (standard error 0.5 percent).
  - Semielasticity of the CA-to-GDP ratio with respect to the REER is estimated to be 0.14.
- Japan:
  - IMF staff recommends allowing the estimated credit-to-GDP gap to decline gradually over the medium term from its currently estimated level of 18.9 percent of GDP with a corresponding policy setting (P*) for the credit-to-GDP gap in five years of 9 percent of GDP.
- Saudi Arabia:
  - Using CA regression approach, cyclically adjusted CA norm is estimated at 7.5 percent of GDP (slightly higher than the CA norm of 6.5 percent of GDP in 2020).
  - Consumption Allocation Rules estimates: 1.0 percent of GDP and 5.3 percent of GDP for two different allocation rules.
  - Investment Needs Model produced a CA gap of 5.2 percent over the medium term.
  - The CA gap in 2021 of –1.0 percent of GDP represents staff’s overall assessment anchored on the CA-regression based approach.
- Singapore:
  - Applying EBA coefficients yields a CA norm of about 14.8 percent of GDP in 2021 before adjustments.
  - COVID-19 transitory impact adjustments total –1.4 percent of GDP (travel –1.3; transport 0.7; household consumption shift –0.8; medical goods 0).
  - Additional adjustments: public health expenditure adjustor –1.2 percentage points; NFA composition and return differentials adjustor –3.7 percentage points; measurement biases due to inflation and portfolio equity retained earnings adjustor –2.4 percentage points of GDP (components –4.9 and +2.5 percent of GDP respectively).
  - Adjusted IMF staff CA gap estimate about 5.2 percent of GDP, with contributions: fiscal gap about 0.6 percent of GDP, credit gap about –0.5 percent of GDP, public health spending about –0.1 percent of GDP, reserves about 0.0 percent of GDP.
  - A maximum range of ±1.8 percent is applied in the EBA sample for the CA gap.
- South Africa:
  - COVID-19 specific adjustors for 2021 of –2.7 percent of GDP composed of travel services (0.9), medical spending imports (–0.3), transportation (0.2), consumption shift to tradable goods (–0.2), gold and other mineral exports (–2.8), and improved income balance (–0.5).
  - Net current transfers related to SACU in 2021 warrant an adjustment to the cyclically adjusted CA by 0.7 percent of GDP.
  - Measurement issues in the income balance likely contribute to an underestimation of the CA by 0.9 percent of GDP in 2021.
  - Demographic indicator adjustment of –0.6 percent of GDP to the model-based CA norm for 2021.
- Spain:
  - EBA model suggests a cyclically adjusted CA norm of 0 percent of GDP, with a standard error of 0.7 percent of GDP.
  - IMF staff considers a CA norm of 1.7 percent of GDP, with a range of 1 to 2.4 percent of GDP, guided by objective of raising NIIP to at least –50 percent over the medium term.
  - REER gap midpoint obtained using CA gap and estimated CA-to-REER semielasticity of 0.26; REER gap range ±2.7 percent.
- Sweden:
  - Upper and lower REER range derived by subtracting the standard deviation of the ULC-based REER index (5 percent) from the average outcome, which is the midpoint.
- Switzerland:
  - Historical BOP and IIP data revisions materially affect assessments; example: 2020 net incurrence of direct investment liabilities revised from CHF 129 billion to CHF 245 billion.
  - Underlying CA adjusted for portfolio equity retained earnings bias and nominal interest recording effects; COVID-19 trade adjustors aggregated would reduce underlying CA by about 0.6 percent of GDP.
- Thailand:
  - Change in transport services balance between 2020 and 2021 was –2.8 percent of GDP.
  - Staff estimates impact of high freight costs on Thailand’s transport service balance and current account to be a worsening of around 65 percent (1.93 percent of GDP); proposes a transportation adjustor of 1.93 percent.
- United Kingdom:
  - Official NIIP data may understate true position; market-value estimates of FDI stocks imply a much higher NIIP.
  - Estimates suggest that, in 2017, about 90 percent of external assets were denominated in foreign currency compared with 60 percent for external liabilities.
  - Post-Brexit stockpiling offset adjustment of –0.1 percent of GDP applied.

*International Monetary Fund | CHAPTER 3 2021 INDIVIDUAL ECONOMY ASSESSMENTS (excerpted content from source PDF)*

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_Source: https://www.imf.org/-/media/files/publications/esr/2022/english/ch3.pdf_