## ch3

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### Argentina — Box 3.1: Assessing Imbalances: The Role of Policies—An Example
- Overall assessment and policy responses:
  - Overall Assessment: External position in 2023 weaker than level implied by medium-term fundamentals and desirable policies; elevated external debt vulnerabilities, depleted international reserves and no access to international capital markets.
  - Policy Responses:
    - Continue ambitious stabilization plan centered on a strong fiscal anchor, relative price corrections and structural reforms to: strengthen the trade balance, support FDI and capital repatriation, rebuild international reserves, regain market access, and safeguard external sustainability.
    - As stability reestablishes, gradually ease CFM measures on a conditions-based basis.
    - Phase out remaining multiple currencies practices (MCP) and exchange restrictions as early as possible.
- Foreign asset/liability position and trajectory:
  - Background: NIIP doubled in USD terms during 2016–19; public sector external liability rose by over US$60 billion. Since 2019 external position ~US$110 billion; public reserves declined by US$22 billion; private deposits abroad increased by about US$60 billion.
  - Assessment: Large positive NIIP reflecting household external assets; government foreign position deeply negative (US$130 billion) with rising trade credit vulnerabilities.
  - Key statistics (2023, % GDP):
    - NIIP: 17.0
    - Gross Assets: 68.1
    - Res. Assets: 3.6
    - Gross Liab.: 51.2
    - Ext. Debt.: 44.5
- Current account:
  - Background: CA deficit 3.4 percent of GDP in 2023 (vs −0.7 percent in 2022) due to drought-driven export drop and insufficient import compression; projected CA surplus 0.6 percent in 2024; medium-term CA surplus ~1.5 percent of GDP.
  - Assessment: Cyclically adjusted CA deficit −3.6 percent of GDP in 2023 before drought impact (~2.4 percent of GDP). Staff CA norm 1.5 percent of GDP; staff assesses CA gap −2.6 ±1 percent of GDP.
  - Key statistics (2023, % GDP):
    - CA: −3.4
    - Cycl. Adj. CA: −3.6
    - EBA Norm: 0.4
    - EBA Gap: −3.9
    - Staff Adj.: 1.3
    - Staff Gap: −2.6
- Real exchange rate:
  - Background: REER depreciated >25 percent end-2016 to end-2019, appreciated >30 percent through end-2022 and additional 17 percent through end-November 2023; mid-December step devaluation ~120 percent vs USD; REER appreciated >40 percent through end-March, broadly in line with staff equilibrium estimate.
  - Assessment: Staff-assessed CA gap implies REER gap ~22 percent in 2023 (elasticity 0.12). REER gap range just before December 2023 devaluation 33–38 percent; average in 2023 20–25 percent.
- Capital and financial accounts:
  - Background: CFMs, MCP and exchange restrictions intensified in 2023 (export liquidation incentives, taxes on FX access for imports, financing requirements) → rise in private commercial debt. Since mid-December, administrative import controls replaced by more transparent system; FX access delay ~45 days on average; backlog reprofiling/resolution.
  - Assessment: CFMs may be needed in near term but are not substitutes for sound macro policies; more distortive exchange restrictions and MCPs should be phased out as early as possible.
- FX intervention and reserves:
  - Background: Gross international reserves fell by over US$20 billion to US$23 billion by end-2023 (lowest since 2004). NIR reached $−8.5 billion. Since December 10, BCRA purchased over US$15 billion in FX through end-April.
  - Assessment: Reserve coverage inadequate; gross international reserves ~30 percent of IMF composite metric by end-2023.

### Brazil
- Foreign asset/liability position:
  - Background: NIIP negative since 2001; gross external financing needs <10 percent of GDP annually.
  - Assessment: NIIP remained negative in 2023.
  - 2023 (% GDP):
    - NIIP: −44.9
    - Gross Assets: 46.5
    - Res Assets: 16.3
    - Gross Liab.: 91.4
    - Debt Liab.: 33.7
- Current account:
  - Background: CA deficit narrowed to 1.4 percent of GDP in 2023 (from 2.5 in 2022); trade balance surplus 3.7 percent of GDP; deficits in transport services and primary income offset goods surplus.
  - Assessment: Cyclically adjusted CA −1.7 percent; EBA norm −1.9 percent; IMF staff CA gap range −0.4 to 0.7 percent of GDP (midpoint 0.2). EBA-identified policy gaps −0.4 percent reflecting positive credit growth and more expansionary fiscal stances.
  - 2023 (% GDP):
    - CA: −1.4
    - Cycl. Adj. CA: −1.7
    - EBA Norm: −1.9
    - EBA Gap: 0.2
    - Staff Adj.: 0.0
    - Staff Gap: 0.2
- Real exchange rate:
  - Background: REER appreciated 4.6 percent in 2023 vs 2022 average; NEER appreciated 11.6 percent.
  - Assessment: Staff CA gap implies REER gap −1.7 percent (elasticity 0.12). REER index model gap −25.1 percent; level model −11.2 percent. Staff REER gap range −5.9 to 2.5 percent (midpoint −1.7).
- Capital and financial accounts:
  - Background: Net FDI averaged 2.6 percent of GDP during 2015–22, dropped to 1.7 percent in 2023; portfolio inflows 0.3 percent in 2023.
  - Assessment: Composition favorable medium term if net FDI >1.5 percent of GDP; downside risks from tighter global conditions and limited reform progress.
- FX intervention and reserves:
  - Background: Floating exchange rate; no interventions in 2023; FX swap stock ~US$100 billion since 2022. International reserves increased by US$30 billion to US$355 billion at end-2023.
  - Assessment: Flexible exchange rate an important shock absorber; reserves adequate (IMF metric 130 percent end-2023). Intervention should be limited to alleviate disorderly markets.

### Canada
- Overall: External position in 2023 moderately weaker than implied by fundamentals and desirable policies.
- Foreign asset/liability:
  - NIIP rose to 57.7 percent of GDP in 2023 (from 38.9 in 2022). Gross external debt increased to 143.4 percent of GDP (from 134.9); ~41 percent is short term.
  - 2023 (% GDP):
    - NIIP: 57.7
    - Gross Assets: 310.3
    - Debt Assets: 84.0
    - Gross Liab.: 252.5
    - Debt Liab.: 143.4
- Current account:
  - CA deficit 0.7 percent of GDP in 2023 (vs 0.4 in 2022); terms of trade fell 6 percent y/y. Cyclically adjusted CA −1 percent; EBA norm 2.3 percent → EBA gap −3.3 percent. Staff CA gap midpoint −1.8 percent (range −2.2 to −1.3).
  - 2023 (% GDP):
    - CA: −0.7
    - Cycl. Adj. CA: −1.0
    - EBA Norm: 2.3
    - EBA Gap: −3.3
    - Staff Adj.: 1.5
    - Staff Gap: −1.8
- Real exchange rate:
  - REER average 2023 was 3.6 percent below 2022 average; April 2024 REER −1.3 percent vs 2023 average.
  - Staff assesses REER overvalued between 5.1 and 8.3 percent (midpoint 6.7 percent, semi-elasticity 0.27).
- Capital flows and FX:
  - Financial account net inflows due to other investments; FDI net outflows 1.6 percent of GDP in 2023; free-floating FX regime; no interventions since September 1998 (except joint).

### China
- Overall: External position in 2023 broadly in line with fundamentals and policies.
- Foreign assets/liabilities:
  - NIIP 16.5 percent of GDP in 2023 (from 13.6 in 2022).
  - FX reserves high: $3.4 trillion end-2023 (19.5 percent of GDP).
  - 2023 (% GDP):
    - NIIP: 16.5
    - Gross Assets: 54.3
    - Debt Assets: 15.9
    - Gross Liab.: 37.8
    - Debt Liab.: 13.0
- Current account:
  - CA surplus 1.4 percent of GDP in 2023; cyclically adjusted CA 1.2 percent. IMF staff CA gap midpoint −0.1 percent (range −0.7 to 0.5). EBA policy gaps −0.6 percent.
  - 2023 (% GDP):
    - CA: 1.4
    - Cycl. Adj. CA: 1.2
    - EBA Norm: 0.9
    - EBA Gap: 0.3
    - Staff Adj.: −0.4
    - Staff Gap: −0.1
- Real exchange rate:
  - REER depreciated 8.2 percent in 2023; April 2024 REER −2.7 percent vs 2023 average.
  - Staff REER gap midpoint 0.7 percent (range −3.6 to 5.0; elasticity 0.14).
- Capital/FX:
  - 2023 financial account (ex errors): −1.2 percent of GDP. Authorities adjusted cross-border macroprudential and FX reserve requirements in 2023. Reserves end-2023 ~$3.4 trillion (69 percent of IMF composite metric; 112 percent adjusted for capital controls). CFMs should be gradually phased out consistent with greater exchange rate flexibility.

### Euro Area (aggregate)
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies.
- Foreign assets/liabilities:
  - NIIP rose to 4.1 percent of GDP end-2023.
  - Gross assets 243.0 percent; gross liabilities 238.9 percent of GDP.
  - 2023 (% GDP):
    - NIIP: 4.1
    - Gross Assets: 243.0
    - Debt Assets: 89.7
    - Gross Liab.: 238.9
    - Debt Liab.: 86.6
- Current account:
  - CA balance increased to 1.7 percent of GDP in 2023 (from −0.6 in 2022). EBA norm 0.7 percent; cyclically adjusted CA 1.7 percent → staff CA gap 0.6 percent (range 0 to 1.2).
  - 2023 (% GDP):
    - CA: 1.7
    - Cycl. Adj. CA: 1.7
    - EBA Norm: 0.7
    - EBA Gap: 1
    - Staff Adj.: −0.4
    - Staff Gap: 0.6
- REER and reserves:
  - CPI-based REER appreciated 3.5 percent in 2023; ULC-based 4.4 percent. Reserves typically low relative to metrics; euro floats freely.

### France
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies.
- CA:
  - CA deficit declined to 0.7 percent of GDP in 2023 (from 2 percent in 2022); cyclically adjusted CA −0.9 percent; staff CA gap midpoint −0.9 percent.
  - 2023 (% GDP):
    - CA: −0.7
    - Cycl. Adj. CA: −0.9
    - EBA Norm: 0.0
    - EBA Gap: −0.9
    - Staff Adj.: 0.0
    - Staff Gap: −0.9
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: −29.2; Gross Assets: 334.9; Debt Assets: 190.7; Gross Liab.: 364.1; Debt Liab.: 227.5
- REER:
  - ULC-based REER appreciated 4.1 percent in 2023; CPI-based 1.9 percent. Staff assesses REER overvaluation range 1.7–5.0 percent (midpoint 3.3 percent).

### Germany
- Overall: External position in 2023 stronger than implied by fundamentals and policies.
- CA:
  - CA surplus 5.9 percent of GDP in 2023 (vs 4.2 in 2022); staff CA gap midpoint 2.7 percent of GDP (range 2.2–3.2).
  - 2023 (% GDP):
    - CA: 5.9
    - Cycl. Adj. CA: 5.9
    - EBA Norm: 3.1
    - EBA Gap: 2.7
    - Staff Adj.: 0.0
    - Staff Gap: 2.7
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 70; Gross Assets: 302; Debt Assets: 157; Gross Liab.: 232; Debt Liab.: 148
- REER:
  - CPI-based REER appreciated 3.5 percent in 2023; staff assesses REER undervaluation midpoint 7.5 percent (range ±1.4).

### Hong Kong SAR
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies.
- CA:
  - CA surplus narrowed to 9.2 percent of GDP in 2023 (from 10.2 in 2022); cyclically adjusted CA 8.8 percent. Staff CA gap midpoint −0.9 percent (range −1.8 to 0).
  - 2023 (% GDP):
    - CA: 9.2
    - Cycl. Adj. CA: 8.8
    - EBA Norm: —
    - EBA Gap: —
    - Staff Adj.: —
    - Staff Gap: −0.9
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 468; Gross Assets: 1,620; Debt Assets1: 390; Gross Liab.: 1,152; Debt Liab.1: 211
- REER:
  - REER appreciated 2.6 percent in 2023; staff REER gap midpoint 2.3 percent (REER gap range 0 to 4.5; CA-REER elasticity ~0.4).
- Capital and FX:
  - Open capital account; net outflow in non-reserve financial flows moderated to 11.9 percent of GDP in 2023. FX reserves 111 percent of GDP end-2023; FX operations in 2023 sold US$6.6 billion.

### India
- Overall: External position in fiscal year 2023/24 moderately stronger than level implied by fundamentals and desirable policies.
- Policy responses:
  - Near term: additional government infrastructure spending and strengthening private consumption will raise CA deficit, reducing positive CA gap.
  - Medium term: develop export infrastructure, negotiate FTAs, reduce import tariffs on intermediate goods, liberalize investment regime, implement structural reforms to attract FDI.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: −10.6; Gross Assets: 27.9; Debt Assets: 3.1; Gross Liab.: 38.5; Debt Liab.: 17.1
- Current account:
  - CA deficit estimated −0.8 percent of GDP in fiscal year 2023/24 (from −2.0 prior year); EBA norm −2.2 percent → EBA gap 1.7 percent; staff CA gap 1.7 percent (range 1.1–2.3).
  - 2023 (% GDP):
    - CA: −0.8
    - Cycl. Adj. CA: −0.5
    - EBA Norm: −2.2
    - EBA Gap: 1.7
    - Staff Adj.: 0.0
    - Staff Gap: 1.7
- REER:
  - Average REER 2023 depreciated ~1.6 percent from 2022 average; staff REER gap midpoint −9.4 percent (range −12.7 to −6.1; elasticity 0.18).
- FX and reserves:
  - Reserves $623.2 billion end-2023 and $645.6 billion end-March 2024. Reserves ~219 percent of short-term debt, 109 percent of IMF composite metric, >8 months of import coverage. FX interventions limited to addressing disorderly conditions.

### Indonesia
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies.
- Policy responses:
  - Maintain external balance via structural reforms: higher infrastructure and social spending, reduce restrictions on inward FDI and external trade, promote labor market flexibility; continue exchange rate flexibility.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: −19.0; Gross Assets: 35.3; Res. Assets: 10.7; Gross Liab.: 54.3; Debt Liab.: 29.8
- Current account:
  - CA: −0.1 percent in 2023 (from 1.0 percent in 2022); staff CA gap 0.8 percent of GDP (range 0.3 to 1.3). EBA-identified policy gaps 1.7 percent (tighter fiscal stance 1.3; underspending on health 0.6).
  - 2023 (% GDP):
    - CA: −0.1
    - Cycl. Adj. CA: −0.3
    - EBA Norm: −0.8
    - EBA Gap: 0.5
    - Staff Adj.: 0.3
    - Staff Gap: 0.8
- REER:
  - Average REER depreciated 3.7 percent in 2023; staff REER gap midpoint −5.0 percent (range −7.9 to −2.1; elasticity 0.16).
- FX and reserves:
  - Official reserves US$146 billion in 2023 (10.7 percent of GDP), 123 percent of IMF’s reserve adequacy metric, 6.1 months of prospective imports.

### Italy
- Overall: External position in 2023 weaker than level implied by fundamentals and desirable policies.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 7.4; Gross Assets: 169.4; Debt Assets: 44.2; Gross Liab.: 162.0; Debt Liab.: 121.8
- Current account:
  - CA surplus 0.5 percent of GDP in 2023 (from −1.6 in 2022); cyclically adjusted CA 0.8 percent; EBA norm 3.8 percent → staff CA gap midpoint −3.0 percent (range −3.7 to −2.3).
  - 2023 (% GDP):
    - CA: 0.5
    - Cycl. Adj. CA: 0.8
    - EBA Norm: 3.8
    - EBA Gap: −3.0
    - Staff Adj.: 0.0
    - Staff Gap: −3.0
- REER:
  - CPI-based REER appreciated 2.8 percent in 2023; staff REER gap midpoint 11.5 percent (range 8.8 to 14.2).

### Japan
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 80.0; Gross Assets: 247.5; Debt Assets: 88.2; Gross Liab.: 167.5; Debt Liab.: 96.1
- Current account:
  - CA surplus 3.6 percent of GDP in 2023 (from 2.1 in 2022); cyclically adjusted CA 3.7 percent; cyclically adjusted CA norm 4.0 percent → CA gap midpoint −0.3 percent (range −1.4 to 0.8).
  - 2023 (% GDP):
    - CA: 3.6
    - Cycl. Adj. CA: 3.7
    - EBA Norm: 4.0
    - EBA Gap: −0.3
    - Staff Adj.: 0.0
    - Staff Gap: −0.3
- REER:
  - REER depreciated ~5 percent in 2023; staff REER gap midpoint 1.7 percent (range −4.6 to 8.0; elasticity 0.18).
- Capital flows:
  - Financial account net outflows 3.9 percent of GDP in 2023; net FDI outflows 3.8 percent; net portfolio outflows 4.7 percent.

### Korea
- Foreign assets/liabilities and NIIP:
  - NIIP 2023: 45.5 percent of GDP; projected to rise to ~60 percent of GDP in 2029 on increasing CA surpluses.
  - 2023 (% GDP):
    - NIIP: 45.5
    - Gross Assets: 133.5
    - Debt Assets: 60.0
    - Gross Liab.: 88.0
    - Debt Liab.: 38.7
- Current account:
  - CA 2023: 2.1 percent of GDP; cyclically adjusted CA 2.3 percent. EBA norm 4.4 percent → staff CA gap midpoint −2.0 percent (range −2.9 to −1.2).
- REER:
  - REER appreciated ~2.1 percent in 2023; staff REER gap midpoint 6.1 percent (range 3.4 to 8.7; elasticity 0.33).
- FX and reserves:
  - Floating exchange rate; 2023 net FX sales $9.6 billion (0.6 percent of GDP). Reserves end-2023 $420 billion (~25 percent of GDP), 2.2 times short-term debt, 6.6 months of imports.

### The Netherlands
- Overall: External position in 2023 substantially stronger than fundamentals and desirable policies suggest.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 71.8; Gross Assets: 931.2; Debt Assets: 228.1; Gross Liab.: 859.4; Debt Liab.: 242.1
- Current account:
  - CA 2023: 10.1 percent of GDP (cyclically adjusted 10.3). EBA norm 4.3 percent → EBA gap 6.1 percent; staff-adjusted CA gap midpoint 4.3 percent after adjusting for portfolio retained earnings bias (−1.8 percent).
  - 2023 (% GDP):
    - CA: 10.1
    - Cycl. Adj. CA: 10.3
    - EBA Norm: 4.3
    - EBA Gap: 6.1
    - Staff Adj.: −1.8
    - Staff Gap: 4.3
- REER:
  - CPI-based REER appreciated 0.8 percent in 2023; staff assesses REER undervaluation ~6.6 percent (range 5.8–7.4).

### Poland
- Overall: External position in 2023 stronger than fundamentals and desirable policies imply.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: −33.5; Gross Assets: 59.6; Reserve Assets: 24; Gross Liab.: 93.1; Gross External Debt: 49
- Current account:
  - CA 2023: 1.6 percent of GDP (from −2.4 in 2022); EBA norm −2.2 percent → EBA gap 3.6 percent. Staff gap 3.6 (±0.5).
  - 2023 (% GDP):
    - CA: 1.6
    - Cycl. Adj. CA: 1.4
    - EBA Norm: −2.2
    - EBA Gap: 3.6
    - Staff Adj.: 0.0
    - Staff Gap: 3.6
- REER and FX:
  - NEER appreciated 6.3 percent and REER appreciated 11.3 percent in 2023; reserves US$194 billion end-2023; gross reserves ~164 percent of IMF reserve adequacy metric.

### Russia
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies, but models do not fully account for sanctions; high uncertainty.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 42.4; Gross Assets: 76.9; Reserve Assets: 29.6; Gross Liab.: 34.5; Debt Liab.: 15.6
- Current account:
  - CA fell to 2.5 percent of GDP in 2023 (from 10.5 in 2022); cyclically adjusted CA 2.6 percent; EBA norm 2.3 percent → staff CA gap 0.3 percent.
  - 2023 (% GDP):
    - CA: 2.5
    - Cycl. Adj. CA: 2.6
    - EBA Norm: 2.3
    - EBA Gap: 0.3
    - Staff Adj.: 0.0
    - Staff Gap: 0.3
- REER and reserves:
  - REER depreciated 24.6 percent in 2023. Official reserves increased to $598.6 billion end-2023; reserves 343.2 percent of IMF reserve adequacy metric end-2023, but share frozen due to sanctions creates high uncertainty.

### Saudi Arabia
- Overall: External position in 2023 weaker than level implied by fundamentals and desirable policies; external balance sheet strong; reserves adequate by IMF metrics; CA projected to deteriorate and shift to deficit by 2025.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: 73.5; Gross Assets: 133.7; Res. Assets: 40.9; Gross Liab.: 60.1; Debt Liab.: 26.2
- Current account and projections:
  - CA surplus 3.2 percent of GDP in 2023 (down from 13.7 percent in 2022). Trade balance fell by 9.5 percent of GDP in 2023. Terms of trade deteriorated by 15 percent in 2023.
  - CA projected: around 0.5 percent of GDP in 2024, shift to deficit in 2025, decline to −2.8 percent of GDP by 2029.
  - IMF staff assesses CA gap −2.6 percent of GDP (EBA-Lite), with range −4.6 to −0.6 percent; alternative rules give CA gaps −2 percent and −5 percent; Investment Needs Model suggests +3.5 percent.
  - 2023 (% GDP):
    - CA: 3.2
    - Cycl. Adj. CA: 3.3
    - Staff Gap: −2.6
- REER:
  - Riyal pegged to USD at 3.75 since 1986; REER appreciated 0.7 percent in 2023 and was 5.7 percent above its 10-year average (2013–22). Staff assesses REER overvalued 12.1 percent (range 2.9 to 21.2; CA elasticity 0.2). EBA-Lite REER model suggests 13.2 percent overvaluation.
- FX and reserves:
  - Net foreign assets decreased to $417.1 billion (39.1 percent of GDP, 15.7 months of imports, 208 percent of ARA metric) end-2023. Reserves expected to stabilize ~13 months of imports medium term.

### Spain (excerpt)
- Capital account surplus high due to NextGenerationEU funds; financial account improved to 4.1 percent of GDP in 2023 (from 1.9 in 2022); large external financing needs increase vulnerability.

### Thailand
- Current account 2023 (% GDP):
  - CA: 1.4; Cycl. Adj. CA: 1.3; EBA Norm: 0.8; EBA Gap: 0.5; Staff Adj.: 2.1; Staff Gap: 2.6.
  - IMF staff CA gap implies 2023 REER undervaluation 3.9–6.7 percent (midpoint 5.3 percent; elasticity 0.49).
- REER and capital flows:
  - REER appreciated 1.1 percent in 2023; April 2024 REER 5.0 percent below 2023 average.
  - Capital and financial account weakened to −2.4 percent of GDP in 2023. Reserves ~49.4 percent of GDP (≈11 months of imports, 237 percent of ARA metric). Recommendation: phase out CFM measures on nonresident baht accounts; maintain flexible exchange rate; use FX intervention for disorderly conditions.

### Türkiye
- Overall: External position in 2023 weaker than implied by fundamentals and desirable policies.
- Foreign assets/liabilities (2023 % GDP):
  - NIIP: −25.5; Gross Assets: 29.4; Debt Assets: 11.5; Gross Liab.: 54.9; Debt Liab.: 39.0
- Current account:
  - CA −4.0 percent of GDP in 2023 (Cycl. Adj. CA −3.0); EBA norm −0.3 → EBA gap −2.6; staff CA gap midpoint −2.6 percent (range −3.3 to −2.0).
- REER:
  - Average REER appreciated 2.4 percent in 2023; staff assesses REER overvalued 9.6 percent (range 7.3–11.9; elasticity 0.27). EBA models show very large residuals.
- Capital/FX:
  - Net capital inflows 4.9 percent of GDP in 2023; gross external financing needs ~24 percent of GDP average 2024–29. Gross international reserves $141 billion in 2023 (97 percent of ARA metric), below recommended 100–150 percent range; quality and net reserves concerns.

### United Kingdom
- Overall: External position in 2023 weaker than implied by fundamentals and desirable policies.
- Key metrics (2023 % GDP):
  - NIIP: −31; Gross Assets: 503; Debt Assets: 257; Gross Liab.: 534; Debt Liab.: 282
- Current account:
  - CA deficit 3.3 percent of GDP in 2023 (from 3.1 in 2022); EBA norm −0.4 → EBA gap −2.9; staff-adjusted CA gap −2.4 percent (range −1.4 to −3.4 after 0.5 percent adjustment for unrecorded valuation effects).
- REER:
  - Pound REER appreciated 2.5 percent in 2023; staff REER gap midpoint 9.2 percent (range 5.4–13; elasticity 0.26).
- Capital flows:
  - CA deficit financed mainly by net other investment (11.1 percent of GDP); portfolio and FDI flows declined.

### United States
- Overall: External position in 2023 broadly in line with fundamentals and desirable policies.
- NIIP and key metrics (2023 % GDP):
  - NIIP: −70.7
  - Gross Assets: 123.6
  - Debt Assets: 37.9
  - Gross Liab.: 194.4
  - Debt Liab.: 87.0
- Current account:
  - CA 2023: −3.0 percent of GDP; cyclically adjusted CA −2.6; EBA norm −1.9 → EBA gap −0.7; staff CA gap midpoint −0.7 (range −1.4 to 0).
- REER:
  - 2022 REER appreciation 8.3 percent; 2023 REER depreciation 0.5 percent; as of April 2024 REER ~2.0 percent above 2023 average. Staff assesses 2023 midpoint REER overvaluation 5.8 percent (range 11.6 to 0 percent).
- Policy recommendations (medium term):
  - Fiscal consolidation to achieve medium-term general government primary surplus ~1 percent of GDP.
  - Structural policies to raise competitiveness and labor force growth (infrastructure, education, training, migration policy).
  - Keep industrial policies narrowly targeted; roll back tariff barriers and trade distortions.

*Italic: Source: CHAPTER 3 — 2023 Individual Economy Assessments (ch3) from the 2024 External Sector Report, International Monetary Fund.*

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

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

### Overall assessment and policy responses (Argentina)
- Overall Assessment: The external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies, an assessment based holistically on elevated external debt vulnerabilities, depleted international reserves and no access to international capital markets.
- Policy Responses:
  - Continued implementation of the ambitious stabilization plan, centered on a strong fiscal anchor, relative price corrections and structural reforms, is necessary to strengthen the trade balance, support FDI and capital repatriation, rebuild international reserves, regain market access, and safeguard external sustainability.
  - As stability is reestablished, a gradual conditions-based easing of CFM measures will be needed.
  - Remaining multiple currencies practices (MCP) and exchange restrictions should be phased out as early as possible.

### Foreign asset and liability position and trajectory
- Background:
  - Argentina’s NIIP doubled in USD terms during 2016-19 reflecting a large increase in private sector foreign assets, which was partly offset (and likely triggered) by an increase in the public sector’s external liability (over US$60 billion).
  - Since 2019, the external position has remained positive and relatively stable (at around US$110 billion), although gross assets and liabilities moved substantially.
  - Public sector: significant declines in reserve assets (US$22 billion) were balanced by a decline in privately held debt.
  - Private sector: increases in private deposits abroad (about US$60 billion), offset by increases in private liabilities in the form of trade credit.
- Assessment:
  - Argentina has a large positive NIIP, mostly reflecting households’ holdings of external assets, while the government’s foreign position remains in deep negative territory (US$130 billion) with rising trade credit adding to vulnerabilities.
- Key statistics (2023, % GDP):
  - NIIP: 17.0
  - Gross Assets: 68.1
  - Res. Assets: 3.6
  - Gross Liab.: 51.2
  - Ext. Debt.: 44.5

### Current account
- Background:
  - The CA reached a deficit of 3.4 percent of GDP in 2023, compared to a deficit of 0.7 percent in 2022, on account of a sharp reduction in exports (due to the drought) and an insufficient compression in imports.
  - The CA balance is projected to reach a surplus of 0.6 percent in 2024, driven by a recovery in grain exports and a significant demand compression.
  - In the medium term, the CA is expected to reach a surplus of about 1.5 percent of GDP supported by a competitive exchange rate, and stronger energy balance.
- Assessment:
  - The cyclically adjusted CA balance reached a deficit of 3.6 percent of GDP in 2023, before accounting for the transitory impact from the drought (about 2.4 percent of GDP).
  - Considering Argentina’s weak reserve coverage and heightened external liabilities, external sustainability considerations suggest a CA norm of 1.5 percent of GDP, which would be consistent with bringing reserves near 100 percent of the ARA metric over the medium-term.
  - IMF staff assesses the CA gap to be −2.6 ±1 percent of GDP.
- Key statistics (2023, % GDP):
  - CA: −3.4
  - Cycl. Adj. CA: −3.6
  - EBA Norm: 0.4
  - EBA Gap: −3.9
  - Staff Adj.: 1.3
  - Staff Gap: −2.6

### Real exchange rate
- Background:
  - The REER, after depreciating by more than 25 percent between end-2016 and end-2019, appreciated by over 30 percent through end-2022 and an additional 17 percent through end-November 2023.
  - In mid-December, a step devaluation (about 120 percent against the USD) was implemented to correct the large exchange rate misalignment.
  - Since then, the REER has appreciated by over 40 percent through end-March, bringing it broadly in line with IMF staff’s estimate of the equilibrium level.
- Assessment:
  - Staff-assessed CA gap implies a REER gap of about 22 percent in 2023 (with an estimated elasticity of 0.12 applied).
  - Overall, staff assesses the REER gap to have been in the range of 33 to 38 percent just before the December 2023 step devaluation, and in the range of 20 to 25 percent on average in 2023 (also consistent with the EBA REER index model).

### Capital and financial accounts: flows and policy measures
- Background:
  - Exchange restrictions, CFM and MCP measures were introduced in late 2019 and were intensified further in 2023, including through (i) incentives to encourage export liquidation, (ii) taxes on FX access for imports, and (iii) financing requirements for imports, which led to an unprecedented rise in private commercial debt.
  - Since mid-December, the previous opaque system of administrative import controls has been replaced by a more transparent system, with a shorter delay in FX access (45 days on average), and a large share of excess commercial debt backlog has been reprofiled or resolved.
- Assessment:
  - While CFMs are not a substitute for sound macroeconomic policies, they may be needed in the near term as imbalances are being addressed.
  - More distortive exchange restrictions and MCP measures should be phased out as early as possible.

### FX intervention and reserves level
- Background:
  - Gross international reserves fell sharply (by over US$20 billion) last year, reaching US$23 billion by end-2023, their lowest level since 2004.
  - Meanwhile, NIR reached $−8.5 billion.
  - Since December 10, the BCRA has purchased over US$15 billion in FX assets through end-April.
- Assessment:
  - Reserve coverage remains inadequate.
  - Gross international reserves are estimated to have fallen to only around 30 percent of the IMF’s composite metric by end-2023.

*Source: CHAPTER 3 — 2023 Individual Economy Assessments (Box 3.1) from the 2024 External Sector Report, International Monetary Fund.*

### 33.7 percent of GDP and 208 percent of exports, from around 35 percent of GDP and 200 percent of exports in 2022.

### ch3 - 33.7 percent of GDP and 208 percent of exports, from around 35 percent of GDP and 200 percent of exports in 2022.

### Foreign Asset and Liability Position and Trajectory (Brazil)
- Background: NIIP negative since series inception in 2001. Gross external financing needs moderate at below 10 percent of GDP annually; capital flows and the exchange rate sensitive to global financing conditions.
- Assessment: NIIP remained negative in 2023.
- 2023 (% GDP)
  - NIIP: −44.9
  - Gross Assets: 46.5
  - Res Assets: 16.3
  - Gross Liab.: 91.4
  - Debt Liab.: 33.7

### Current Account (Brazil)
- Background:
  - CA deficit narrowed to 1.4 percent of GDP in 2023 from 2.5 percent in 2022, driven by a sizable trade balance surplus of 3.7 percent of GDP (compared with 2.3 percent in 2022).
  - Trade surplus owing to strong agriculture and oil exports and lackluster imports; offset by high deficits in transport services and primary income related to profits and dividends.
  - From a saving-investment perspective, CA deficit reflects the saving-investment deficit of the public sector partially offset by the saving-investment surplus of the private sector.
  - The CA deficit is expected to remain at around 1.5 percent of GDP over the medium term, supported by higher oil exports and improved net public savings.
- Assessment:
  - Cyclically adjusted CA balance in 2023: −1.7 percent of GDP.
  - EBA cyclically adjusted CA norm: −1.9 percent of GDP.
  - IMF staff estimate CA gap range: −0.4 and 0.7 percent of GDP, with a midpoint of 0.2 percent of GDP.
  - EBA-identified policy gaps estimated at −0.4 percent of GDP, reflecting positive credit growth and more expansionary fiscal policy stances in Brazil relative to trading partners.
- 2023 (% GDP)
  - CA: −1.4
  - Cycl. Adj. CA: −1.7
  - EBA Norm: −1.9
  - EBA Gap: 0.2
  - Staff Adj.: 0.0
  - Staff Gap: 0.2

### Real Exchange Rate (Brazil)
- Background:
  - REER appreciated by 4.6 percent in 2023 compared to the 2022 average, below NEER appreciation of 11.6 percent, reflecting relatively low inflation in Brazil compared with its major trading partners.
  - As of April 2024, the REER had depreciated by 0.5 percent relative to the 2023 average.
- Assessment:
  - IMF staff CA gap implies a REER gap of −1.7 percent in 2023 (applying an estimated elasticity of 0.12).
  - REER index model gap: −25.1 percent.
  - REER level model gap: −11.2 percent.
  - Staff assesses REER gap range: −5.9 to 2.5 percent, with a midpoint of −1.7 percent.

### Capital and Financial Accounts: Flows and Policy Measures (Brazil)
- Background:
  - Brazil continues to attract sizable capital flows.
  - Net FDI flows averaged 2.6 percent of GDP during 2015–22 (when CA deficits averaged 2.8 percent) before dropping to 1.7 percent of GDP in 2023.
  - Portfolio investment registered net inflows of 0.3 percent of GDP in 2023.
- Assessment:
  - Composition of capital flows expected to have favorable risk profile over medium term, with positive net FDI inflows (above 1.5 percent of GDP) outweighing negative portfolio outflows (around 0.2 percent of GDP) and debt liabilities increasingly denominated by FDI liabilities.
  - Downside risks from tighter global financial conditions and insufficient progress on reforms.

### FX Intervention and Reserves Level (Brazil)
- Background:
  - Brazil has a floating exchange rate.
  - FX interventions in 2022 used spot, repo, and FX swap markets; authorities did not intervene in 2023.
  - Outstanding stock of the FX swap stayed around US$100 billion since 2022.
  - International reserves increased by US$30 billion to US$355 billion at end-2023, mostly owing to valuation effects.
- Assessment:
  - Flexible exchange rate an important shock absorber.
  - Reserves adequate relative to various criteria, including IMF’s reserve adequacy metric (130 percent as of the end of 2023).
  - Recommendation: Intervention should be limited to alleviating disorderly FX market conditions.

---

### Canada: Economy Assessment — Foreign Asset and Liability Position and Trajectory
- Overall Assessment: External position in 2023 moderately weaker than level implied by fundamentals and desirable policies.
- Background:
  - NIIP rose sharply to 57.7 percent of GDP in 2023 from 38.9 percent of GDP in 2022.
  - Gross external debt increased to 143.4 percent of GDP (from 134.9 percent in 2022), of which around 41 percent is short term.
- Assessment:
  - Canada’s foreign assets have a higher foreign-currency component than liabilities, providing a hedge against currency depreciation.
  - NIIP level and trajectory are sustainable.
- 2023 (% GDP)
  - NIIP: 57.7
  - Gross Assets: 310.3
  - Debt Assets: 84.0
  - Gross Liab.: 252.5
  - Debt Liab.: 143.4

### Canada: Current Account
- Background:
  - CA deficit estimated at 0.7 percent of GDP in 2023, slightly higher than 0.4 percent in 2022, mainly due to lower energy prices (terms of trade fell by 6 percent year over year).
  - CA in 2023 somewhat smaller than average CA deficit of 1.1 percent of GDP during 2019–22.
  - CA expected to remain in slight deficit over medium term; export growth projected to slow while import growth picks up.
- Assessment:
  - Cyclically adjusted CA: −1 percent of GDP in 2023.
  - EBA CA norm for Canada: 2.3 percent of GDP, implying gap of −3.3 percent of GDP for 2023.
  - Considering measurement biases, IMF staff assess CA gap range: −2.2 to −1.3 percent of GDP, midpoint −1.8 percent of GDP.
- 2023 (% GDP)
  - CA: −0.7
  - Cycl. Adj. CA: −1.0
  - EBA Norm: 2.3
  - EBA Gap: −3.3
  - Staff Adj.: 1.5
  - Staff Gap: −1.8

### Canada: Real Exchange Rate
- Background:
  - Average REER for 2023 was 3.6 percent below 2022 average.
  - As of April 2024, REER had depreciated by 1.3 percent relative to 2023 average.
- Assessment:
  - EBA REER index model indicates overvaluation of 0.5 percent in 2023; REER level model suggests undervaluation of 12.9 percent.
  - Staff assesses REER overvalued by between 5.1 and 8.3 percent, midpoint 6.7 percent (semi-elasticity 0.27).

### Canada: Capital and Financial Accounts; FX Intervention and Reserves Level
- Background:
  - Financial account recorded net inflows due to other investments, moderated by outflows in FDI and portfolio investments.
  - FDI net outflows of 1.6 percent of GDP in 2023; net portfolio flows around 0.7 of GDP outflow.
  - Other investments inflows around 3.2 percent of GDP.
  - Errors and omissions small at 0.2 percent of GDP.
- Assessment:
  - Canada has an open capital account; vulnerabilities limited by credible commitment to a floating exchange rate.
- FX regime:
  - Free-floating; no interventions since September 1998 (except joint interventions). Limited reserves but standing swap arrangements with US Federal Reserve and other major central banks.

---

### China: Economy Assessment — Foreign Asset and Liability Position and Trajectory
- Overall Assessment: External position in 2023 broadly in line with medium-term fundamentals and desirable policies.
- Background:
  - NIIP reached 16.5 percent of GDP in 2023, from 13.6 percent in 2022 (peak 30.4 percent in 2008).
  - Increase largely reflects CA surplus.
- Assessment:
  - NIIP-to-GDP ratio expected to remain positive and increase modestly over medium term.
  - FX reserves high: $3.4 trillion as of end of 2023 (19.5 percent of GDP).
- 2023 (% GDP)
  - NIIP: 16.5
  - Gross Assets: 54.3
  - Debt Assets: 15.9
  - Gross Liab.: 37.8
  - Debt Liab.: 13.0

### China: Current Account
- Background:
  - CA surplus declined to 1.4 percent of GDP in 2023 as domestic saving declined to pre-pandemic level.
  - Trade balance declined to 3.3 percent of GDP (from 3.7 percent in 2022).
  - Services deficit increased to 1.2 percent of GDP (from 0.5 percent in 2022) as outbound tourism recovered.
  - Over medium term, domestic saving expected to decline faster than investment due to rapid population aging, reducing CA surplus.
- Assessment:
  - IMF staff CA gap range: −0.7 to 0.5 percent of GDP, midpoint −0.1 percent.
  - Travel balance adjustor of −0.4 percent applied.
  - EBA-identified policy gaps estimated at −0.6 percent of GDP (credit conditions −0.3; looser fiscal policy −0.2).
- 2023 (% GDP)
  - CA: 1.4
  - Cycl. Adj. CA: 1.2
  - EBA Norm: 0.9
  - EBA Gap: 0.3
  - Staff Adj.: −0.4
  - Staff Gap: −0.1

### China: Real Exchange Rate
- Background:
  - REER depreciated by 8.2 percent in 2023 from 2022 average; NEER depreciated 3.4 percent.
  - As of April 2024, REER depreciated by 2.7 percent relative to 2023 average.
- Assessment:
  - IMF staff CA gap implies REER gap of 0.7 percent.
  - EBA REER index regression estimates REER gap in 2023: 5.1 percent.
  - EBA REER level regression estimates REER gap: 3.4 percent.
  - Staff assesses REER range: −3.6 to 5.0 percent, midpoint 0.7 percent (estimated elasticity 0.14).

### China: Capital and Financial Accounts; FX Intervention and Reserves Level
- Background:
  - 2023 financial account (excluding net errors and omissions): −1.2 percent of GDP (−1.4 percent in 2022).
  - Inward FDI historically low at 0.2 percent of GDP; portfolio investment 0.1 percent of GDP.
  - Authorities raised cross-border financing macroprudential adjustment parameter from 1.25 to 1.5 in July 2023; cut FX reserve requirements from 6 to 4 percent in September.
  - As of end of May 2024, total Qualified Domestic Institutional Investor quota: $167.8 billion.
- Assessment:
  - Net outflow pressures resurfaced in 2023:H2 due to monetary policy divergence, expectations of weakening prospects, geopolitical risk, and policy uncertainty.
  - Over medium term, further capital account opening likely to create larger two-way gross flows; sequencing should consider domestic financial stability.
  - CFMs should not be used to actively manage capital flow cycle or substitute for warranted macroeconomic adjustment and exchange rate flexibility; gradual phase-out of CFMs recommended consistent with greater exchange rate flexibility.
- FX reserves:
  - Reserves increased by about $110 billion to $3.3 trillion as of end-2023.
  - End-of-2023 reserve assets, including gold, at $3.4 trillion—69 percent of IMF’s standard composite metric at end of 2023 (68 percent in 2022) and 112 percent of the metric adjusted for capital controls (110 percent in 2022)—assessed to be adequate.
  - Temporary FX intervention could be considered in event of large capital outflows that pose significant risks to macroeconomic and financial stability.

---

### Euro Area: Economy Assessment — Foreign Asset and Liability Position and Trajectory
- Overall Assessment: External position in 2023 broadly in line with level implied by fundamentals and desirable policies.
- Background:
  - NIIP rose to 4.1 percent of GDP by end-2023 (from −20.5 percent in 2009).
  - Gross foreign assets: 243.0 percent of GDP; gross liabilities: 238.9 percent of GDP as of end-2023.
- Assessment:
  - Projections of continued CA surpluses imply NIIP-to-GDP ratio will rise moderately over medium term.
  - Aggregate NIIP financing vulnerabilities low, but large net external debtor countries bear elevated sudden stop risk.
- 2023 (% GDP)
  - NIIP: 4.1
  - Gross Assets: 243.0
  - Debt Assets: 89.7
  - Gross Liab.: 238.9
  - Debt Liab.: 86.6

### Euro Area: Current Account
- Background:
  - CA balance increased to 1.7 percent of GDP in 2023 from −0.6 percent in 2022, driven by improvement in goods balance and increase in income balances.
  - Large creditor countries (e.g., Germany, The Netherlands) continued to have sizable surpluses.
- Assessment:
  - EBA model CA norm: 0.7 percent of GDP; cyclically adjusted CA: 1.7 percent of GDP → gap of 1 percent of GDP.
  - Adjustments of −0.4 percent of GDP made to account for CA measurement issues in Ireland and The Netherlands.
  - Staff assesses CA gap: 0.6 percent of GDP in 2023, range 0 to 1.2 percent of GDP.
- 2023 (% GDP)
  - CA: 1.7
  - Cycl. Adj. CA: 1.7
  - EBA Norm: 0.7
  - EBA Gap: 1
  - Staff Adj.: −0.4
  - Staff Gap: 0.6

### Euro Area: Real Exchange Rate
- Background:
  - CPI-based REER appreciated by 3.5 percent in 2023 compared to 2022.
  - ULC-based REER appreciated by 4.4 percent.
  - As of April 2024, CPI-based REER was 0.4 percent below 2023 average.
- Assessment:
  - IMF staff assesses REER gap at −1.7 percent in 2023, range −3.4 to 0 percent (CA-REER elasticity 0.35).
  - Heterogeneity across member states: undervaluation of 7.5 percent in Germany to overvaluation about 11.5 percent in Italy.
  - EBA REER index and level models suggest overvaluations of 5.5 percent and 3.9 percent, respectively.

### Euro Area: Capital and Financial Accounts; FX Intervention and Reserves
- Background:
  - Capital account surplus of 0.3 percent of GDP and financial account surplus of 1.9 percent of GDP in 2023.
- Assessment:
  - Gross external indebtedness of euro area residents decreased by 7.4 percentage points of GDP in 2023.
  - Euro has status of a global reserve currency; reserves held by euro area economies typically low relative to standard metrics but currency is free floating.

*Source: ch3 - 33.7 percent of GDP and 208 percent of exports, from around 35 percent of GDP and 200 percent of exports in 2022.*

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMents

### France — Overall Assessment and Policy Responses
- Overall Assessment: The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- 2023 CA outcome: The CA deficit declined to 0.7 percent of GDP in 2023, driven by the unwinding of the terms-of-trade shock and strong non-oil goods export performance.
- Medium-term projection: The CA deficit is expected to continue to shrink as fiscal consolidation and structural reforms to improve competitiveness of the economy are implemented.
- Potential Policy Responses:
  - Maintain sustained fiscal consolidation efforts.
  - Implement structural reforms to support productivity and attract higher private investment to facilitate the green and digital transitions.
  - Deploy industrial policies cautiously, targeted to specific objectives where externalities or market failures prevent effective market solutions.
  - Avoid favoring domestic producers over imports to minimize trade and investment distortions.

### France — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP stood at −29.2 percent of GDP in 2023, slightly above the range observed during 2014–19 (between −15 and −26 percent of GDP).
  - The NIIP worsened by 5.5 percent of GDP since the end of 2022, largely driven by a decrease in direct and portfolio investment.
  - Gross assets: 334.9 percent of GDP in 2023; banks’ non-FDI-related assets accounted for about 46.2 percent.
  - Gross liabilities: 364.1 percent of GDP in 2023; external debt about 227.5 percent of GDP (58 percent accounted for by banks and 24 percent by the public sector).
  - About three-quarters of France’s external debt liabilities are denominated in domestic currency.
  - The average TARGET2 balance in 2023 was about €120.5 billion.
- Assessment:
  - The NIIP is negative, but its size and projected stable trajectory do not raise sustainability concerns.
  - Vulnerabilities: large public external debt (53.7 percent of GDP in 2023) and banks’ gross financing needs—stock of banks’ short-term debt securities was €149 billion in 2023 (5.3 percent of GDP), and financial derivatives stood at about 47.7 percent of GDP.
- Key 2023 figures (% GDP):
  - NIIP: −29.2
  - Gross Assets: 334.9
  - Debt Assets: 190.7
  - Gross Liab.: 364.1
  - Debt Liab.: 227.5

### France — Current Account
- Background:
  - CA deficit declined to 0.7 percent of GDP in 2023 (from a deficit of 2 percent in 2022).
  - Drivers: unwinding of the large terms-of-trade shock; strong export performance by the aeronautics, naval, and textile sectors and in capital goods; lower energy imports from ongoing price corrections.
  - Gross national savings increased in 2023 by 0.4 percent of GDP, driven by private savings.
  - Domestic investment declined somewhat after reaching a peak in 2022.
  - CA expected to decrease slightly to about 0.6 percent of GDP in 2024, driven by continued recovery in the aeronautics and automobile sectors.
  - Over the medium term, CA deficit projected to shrink to a small deficit by 2029 as recent reforms improve competitiveness; fiscal consolidation will also help reduce the CA deficit.
- Assessment:
  - 2023 cyclically adjusted CA balance estimated at −0.9 percent of GDP compared with an EBA-estimated norm of 0 percent.
  - IMF staff assesses the CA gap in 2023 is between −1.3 and −0.5 percent of GDP (compared with −2.5 and −1.6 percent of GDP in 2022), with a midpoint of −0.9 percent of GDP.
  - Main contributors to overall positive policy gap of 0.1 percent of GDP: positive credit gap of 0.4 percent; health expenditure gap is −0.3 percent.
  - Fiscal policy gap is 0 percent despite a negative domestic gap of 1.2 percent.
- Key 2023 figures (% GDP):
  - CA: −0.7
  - Cycl. Adj. CA: −0.9
  - EBA Norm: 0.0
  - EBA Gap: −0.9
  - Staff Adj.: 0.0
  - Staff Gap: −0.9

### France — Real Exchange Rate
- Background:
  - ULC-based REER appreciated by 4.1 percent in 2023 versus 2022.
  - CPI-based REER appreciated by 1.9 percent in 2023 versus 2022.
  - As of April 2024, ULC-based REER was 0.6 percent below the 2023 average; CPI-based measure was about 0.5 below the 2023 average.
  - France has not regained the loss of about one-third of its export market share registered in the early 2000s (while the export market share of the euro area remained broadly stable between 2000 and 2023).
  - Recommendation: advance reform agenda with emphasis on horizontal efforts to support competitiveness and foster efficient investment allocation.
- Assessment:
  - CA gap implies a REER gap of 3.3 percent in 2023 (applying an estimated semi-elasticity of 0.27).
  - EBA REER index model points to a REER gap of −5.1 percent; EBA REER level model points to a REER gap of 2.9 percent.
  - IMF staff assesses the REER to be overvalued in the range of 1.7 to 5 percent, with a midpoint of 3.3 percent.

### France — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - After postpandemic normalization in 2021–22, inward FDI declined from 3.8 to 0.7 percent of GDP in 2023; outward FDI declined from 4.2 to 2.2 percent of GDP in 2023.
  - Financial account is open.
  - Public external debt and banks’ gross financing needs have increased in 2023.
- Assessment:
  - France remains exposed to financial market risks owing to large refinancing needs of the sovereign and banking sectors.

### France — FX Intervention and Reserves Level
- 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 2023 was stronger than the level implied by medium-term fundamentals and desirable policies.
- 2023 CA outcome: The CA strengthened in 2023 versus 2022 mainly due to normalization in the prices of energy imports.
- 2024 outlook: CA expected to strengthen slightly from improved terms of trade and as demand from Asia recovers.
- Medium-term projection: CA projected to taper slightly as higher wage growth pushes up imports.
- Potential Policy Responses:
  - Promote investment and diminish excess saving to support external rebalancing.
  - Over the medium term, higher fiscal deficits than currently planned are likely needed to ensure adequate public investment in the green transition, digitalization, and transport infrastructure.
  - Structural reforms to foster innovation, including strengthening venture capital financing for start-ups and streamlining administrative procedures to start a business.
  - Training to enhance employability of older workers with outdated skills to extend working lives and reduce excess saving.
  - Deploy industrial policies cautiously, targeted to specific objectives, and avoid favoring domestic producers over imports.

### Germany — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP largely unchanged at 70 percent of GDP in 2023 versus 2022 despite the year’s CA surplus because of valuation losses on external assets versus liabilities.
  - Germany’s external assets include holdings of sovereign securities whose market prices fell in response to global policy rate tightening.
  - Germany’s TARGET2 claims fell to €1.1 trillion at the end of 2023, down from €1.3 trillion at the end of 2022 as the ECB initiated quantitative tightening from March 2023 onwards.
  - Between 2017 and 2023, the NIIP increased by some 24 percent of GDP.
- Assessment: Germany’s exposure to the Eurosystem remains large.
- Key 2023 figures (% GDP):
  - NIIP: 70
  - Gross Assets: 302
  - Debt Assets: 157
  - Gross Liab.: 232
  - Debt Liab.: 148

### Germany — Current Account
- Background:
  - CA surplus: 5.9 percent of GDP in 2023, compared with 4.2 percent in 2022 and 8.0 percent on average over 2017–19.
  - Strengthening driven mainly by a significant increase in the goods balance due to sharply lower commodity import costs (mainly natural gas and other energy sources), despite slightly weaker goods exports.
  - Services balance decreased significantly due to normalization of travel, transport, and vaccine-related intellectual property exports after the pandemic.
  - Primary and secondary income accounts largely unchanged.
  - Increase in CA surplus reflected a sharp increase in Germany’s CA surplus with non–euro area countries; trade balance with Asia improved, reflecting a reduced deficit with China as both exports and imports contracted.
  - Government savings-investment balance increased slightly, in line with a tight fiscal stance; savings-investment surpluses of households and firms also increased slightly.
- Assessment:
  - Cyclically adjusted CA balance estimated by the EBA model to be 5.9 percent of GDP in 2023.
  - IMF staff assess the CA norm to be between 2.6 and 3.6 percent of GDP, with a midpoint of 3.1 percent of GDP.
  - The CA gap for 2023 was in the range of 2.2–3.2 percent of GDP, with a midpoint of 2.7 percent of GDP.
- Key 2023 figures (% GDP):
  - CA: 5.9
  - Cycl. Adj. CA: 5.9
  - EBA Norm: 3.1
  - EBA Gap: 2.7
  - Staff Adj.: 0.0
  - Staff Gap: 2.7

### Germany — Real Exchange Rate
- Background:
  - REER recovered to prepandemic levels after strong depreciation during the energy crisis (early 2021 to mid-2022).
  - REER based on consumer prices appreciated by 3.5 percent in 2023, driven by real appreciation against China and Japan.
  - As of April 2024, the REER was 0.5 percent below the 2023 average.
- Assessment:
  - IMF staff CA gap implies a REER gap of −7.5 percent in 2023 (with an estimated elasticity of 0.36 applied).
  - EBA REER level and index models suggest an undervaluation of 9.3 percent and an overvaluation of 8.0 percent, respectively.
  - Consistent with the staff CA gap, the staff assesses the REER to be undervalued, with a midpoint of 7.5 percent and a range of uncertainty of ±1.4 percent.

### Germany — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - In 2023, significant capital exports corresponding to the CA surplus were largely in the “other investments” category due to transactions via accounts of monetary and financial institutions by firms, households, and governments.
  - FDI (inward and outward) and portfolio investment declined versus the previous year, partly due to global rate tightening; derivatives transactions largely unchanged.
  - Foreign institutions reduced deposits with German banks, reflecting in part a decline in excess liquidity in the euro area.
  - German investors bought euro area securities and foreign investors bought German securities.
- Assessment: Risks are limited given Germany’s safe-haven status and the strength of its external position.

### Germany — FX Intervention and Reserves Level
- 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. The currency floats freely.

*International Monetary Fund | 2024*

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts

### Hong Kong Special Administrative Region — Overall Assessment
- The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
- The CA surplus (in percent of GDP) narrowed in 2023 as the goods balance deficit widened due to weaker external demand while the services balance registered a subdued recovery from COVID-era disruptions as slower growth in key markets impacted the performance of the tourism sector.
- The CA surplus is expected to decline moderately over the medium term with the recovery in domestic demand broadly offsetting the impact of improved external conditions.
- Under the Linked Exchange Rate System (LERS), short-term movements in the REER largely reflect US dollar developments.
- The credibility of the currency board arrangement has been ensured by a transparent set of rules governing the arrangement, large fiscal and FX reserves, strong financial regulation and supervision, the flexible economy, and a prudent fiscal framework.

### Hong Kong Special Administrative Region — Potential Policy Responses
- A gradual pace of fiscal consolidation in the near term to secure a balanced recovery, while taking measures to ensure fiscal sustainability over the medium to long term given the rapidly aging population, would help ensure that the external position will remain broadly in line with fundamentals.
- Maintaining policies that support wage and price flexibility is crucial to preserving competitiveness under the currency board arrangement.
- Robust and proactive financial supervision and regulation, prudent fiscal management, flexible markets, and the LERS have worked well, and continuation of these policies will help keep the external position broadly in line with fundamentals.

### Hong Kong Special Administrative Region — Foreign Asset and Liability Position and Trajectory
- Background:
  - The NIIP decreased to 468 percent of GDP in 2023 from 492 percent in 2022.
  - Significant decreases in both gross assets (by 68 percentage points of GDP), and gross liabilities (44 percentage points of GDP).
  - Both gross assets and liabilities are high, reflecting Hong Kong Special Administrative Region’s status as an international financial center.
  - Valuation effects in 2023 were sizable as the change in the NIIP (−24 percentage points of GDP) far exceeded the financial account balance (−9.2 percent of GDP).
- Assessment:
  - Vulnerabilities are low given the positive and sizable NIIP and its favorable composition.
  - FX reserves remain large (111 percent of GDP at the end of 2023).
  - Direct investments account for a large share of gross assets and liabilities (36 and 53 percent, respectively).
  - Only 10.9 percent of gross liabilities are portfolio investments.
- Key statistics (2023 (% GDP)):
  - NIIP: 468
  - Gross Assets: 1,620
  - Debt Assets1: 390
  - Gross Liab.: 1,152
  - Debt Liab.1: 211

### Hong Kong Special Administrative Region — Current Account
- Background:
  - The CA surplus narrowed to 9.2 percent of GDP in 2023 from 10.2 percent in 2022.
  - Goods deficit widened, driven by a decline in exports due to the economic slowdown in Mainland China.
  - Services recovery moderated in part due to lingering COVID restrictions (in place until late-2022), leaving the services surplus stable but well below the pre-pandemic level.
  - Income balance rose strongly, driven by higher investment income flows, in part reflecting higher global interest rates.
  - CA balance projected to continue to gradually decline over the medium term with the recovery in domestic demand broadly offsetting the impact of improved external conditions.
- Assessment:
  - After adjusting for cyclical and other temporary factors, the CA surplus is estimated to be 9.5 percent of GDP in 2023, compared to the mid-point of the staff assessed range for the norm of 10.4 percent of GDP (9.5 to 11.3 percent of GDP).
  - The IMF staff-assessed CA gap range is between −1.8 to 0 percent of GDP, with an estimated mid-point of −0.9 percent of GDP.
  - Since Hong Kong Special Administrative Region is not in the EBA sample, the CA norm was estimated by applying EBA-estimated coefficients to Hong Kong Special Administrative Region and was adjusted for measurement issues related to the large valuation effects in the NIIP and the discrepancies between stocks and flows.
- Key statistics (2023 (% GDP)):
  - CA: 9.2
  - Cycl. Adj. CA: 8.8
  - EBA Norm: —
  - EBA Gap: —
  - Staff Adj.: —
  - Staff Gap: −0.9

### Hong Kong Special Administrative Region — Real Exchange Rate
- Background:
  - Under the currency board arrangement, REER dynamics are largely determined by U.S. dollar developments and inflation differentials between the United States and Hong Kong Special Administrative Region.
  - The REER appreciated by 2.6 percent in 2023, somewhat slower than the 3.7 percent appreciation in 2022.
  - As of April 2024, the REER had appreciated by 2.6 percent relative to the 2023 average.
- Assessment:
  - The IMF staff assesses the REER gap, based on the staff-assessed CA gap range, to be around 2.3 percent (mid-point of the REER gap range of 0 to 4.5 percent and based on the average CA-REER elasticity of about 0.4).

### Hong Kong Special Administrative Region — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - As an international financial center, Hong Kong Special Administrative Region has an open capital account.
  - The net outflow in non-reserve financial flows moderated to 11.9 percent of GDP in 2023, well below the 22.9 percent recorded in 2022, driven by net portfolio and other investment outflows.
  - The financial account is typically very volatile, reflecting financial conditions in Hong Kong Special Administrative Region and Mainland China, shifting expectations of U.S. monetary policy, and related arbitraging in the FX and rates markets.
- Assessment:
  - Large financial resources, proactive financial supervision and regulation, and deep and liquid markets should help limit the risks from potentially volatile capital flows.
  - Greater financial exposure to Mainland China could pose risks to the financial sector through real sector linkages, particularly trade and tourism, credit exposures of the banking sector, and fundraising by Chinese firms in local financial markets.
  - Hong Kong Special Administrative Region’s banking system, with its high capital buffers and profitability, is assessed to be broadly resilient to macro-financial shocks.

### Hong Kong Special Administrative Region — FX Intervention and Reserves Level
- Background:
  - The Hong Kong dollar traded in a smooth and orderly manner within the Convertibility Zone in 2023.
  - The HKMA conducted FX operations as part of the currency board operations, selling US$6.6 billion, substantially less than US$30.8 billion sold in 2022.
  - Total reserve assets decreased to 111 percent of GDP at the end of 2023 (or 1.8 times the monetary base) from 118 percent of GDP at the end of 2022.
- Assessment:
  - FX reserves are currently adequate for precautionary purposes and should continue to evolve in line with the automatic adjustment inherent in the currency board system.
  - Despite a large fiscal deficit in 2023, Hong Kong Special Administrative Region still holds significant fiscal reserves (about 25 percent of GDP at the end of 2023) built up through strong fiscal discipline in previous years.

---

### India — Overall Assessment
- The external position in fiscal year 2023/24 (ending in March 2024) was moderately stronger than the level implied by medium-term fundamentals and desirable policies, suggesting that the CA deficit was somewhat smaller than implied by India’s level of per capita income, favorable growth prospects, demographic trends, and development needs.
- External vulnerabilities stem from weakening demand in some partner countries and potentially volatile global financial conditions and commodity prices.
- In part reflecting buoyant services exports and steady oil prices, the CA deficit is projected to remain smaller than its estimated norm in fiscal year 2024/25 but converge to it over the medium term.
- The authorities have made some progress in external trade promotion and the liberalization of FDI and portfolio flows, enabling India’s inclusion in global bond indices, but India’s trade and capital account regimes remain relatively restricted, weighing on both exports and imports.

### India — Potential Policy Responses
- Near term: government additional infrastructure spending and expected strengthening of private consumption will contribute to raising the CA deficit, thereby reducing the positive CA gap.
- To facilitate external rebalancing over the medium term:
  - Develop export infrastructure and negotiate free trade agreements with main trading partners to provide a sustainable boost to exports.
  - Accompany trade measures with further investment regime liberalization and a reduction in import tariffs, especially on intermediate goods.
  - Implement structural reforms to improve the business environment, induce private investment, deepen integration into global value chains, and attract FDI.
- Industrial policies should be pursued cautiously, remain narrowly targeted, and aim to minimize trade and investment distortions.
- Exchange rate flexibility should act as the main shock absorber, with intervention limited to addressing disorderly market conditions.

### India — Foreign Asset and Liability Position and Trajectory
- Background:
  - As of the end of 2023, India’s NIIP had improved marginally to −10.6 percent of GDP, from −11.1 percent of GDP at the end of 2022, reflecting valuation changes and a base effect of fast nominal GDP growth more than offsetting the CA deficit.
  - Gross foreign assets increased to 27.9 percent of GDP (from 26.1 percent of GDP at the end of 2022), while gross foreign liabilities rose to 38.5 percent of GDP, from 37.2 percent of GDP at the end of the previous year.
  - The bulk of assets were in the form of official reserves and FDI, whereas liabilities included mostly debt and FDI.
- Assessment:
  - With the CA deficit projected to remain below its medium-term norm in 2024 and converge to it by 2029, the NIIP-to-GDP ratio is expected to remain broadly unchanged over the medium term, as robust nominal GDP expansion will offset the nominal NIIP decline resulting from the projected CA deficits.
  - India’s external debt liabilities are relatively low compared with those of its peers, and short-term rollover risks are limited.
  - The moderate level of foreign liabilities reflects India’s incremental approach to capital account liberalization, including focus on attracting FDI.
- Key statistics (2023 (% GDP)):
  - NIIP: −10.6
  - Gross Assets: 27.9
  - Debt Assets: 3.1
  - Gross Liab.: 38.5
  - Debt Liab.: 17.1

### India — Current Account
- Background:
  - The CA deficit is estimated to have narrowed to about 0.8 percent of GDP in fiscal year 2023/24, from 2.0 percent of GDP in the previous year, supported by improving terms of trade and fiscal consolidation.
  - From the domestic perspective, gross savings increased from 31 to 32.5 percent of GDP, while gross domestic investment grew from 33 to 33.3 percent of GDP.
  - Amid steady oil prices (in part reflecting India’s proactive diversification of oil import sources), buoyant services exports increasingly offset the contained merchandise trade deficit.
  - Trade restrictions—including food export restrictions and an information technology hardware import management system—are weighing on both exports and imports.
  - The CA deficit is projected to increase to about 1.4 percent of GDP in fiscal year 2024/25, largely reflecting rebounding domestic demand.
  - Over the medium term, the CA deficit is projected to converge to its norm of about 2.2 percent of GDP.
- Assessment:
  - The EBA cyclically adjusted CA balance stood at −0.5 percent of GDP in fiscal year 2023/24.
  - The EBA CA regression estimates a norm of −2.2 percent of GDP, with a standard error of 0.6 percent, implying a CA gap of 1.7 percent of GDP.
  - IMF staff assesses the CA gap to be 1.7 percent of GDP, within a range of 1.1 to 2.3 percent of GDP.
  - Positive policy contributions to the CA gap stem mostly from the fiscal balance and changes in FX reserves amid elevated capital controls, while negative contributions come mostly from the domestic credit gap.
  - IMF staff’s judgment: a CA deficit of up to 2½ percent of GDP is financeable in the medium term by a combination of steady FDI inflows, public and private external borrowing, and portfolio flows, though the latter may remain susceptible to changes in global risk appetite.
- Key statistics (2023 (% GDP)):
  - CA: −0.8
  - Cycl. Adj. CA: −0.5
  - EBA Norm: −2.2
  - EBA Gap: 1.7
  - Staff Adj.: 0.0
  - Staff Gap: 1.7

### India — Real Exchange Rate
- Background:
  - In early 2023, policy tightening in advanced economies and portfolio investment outflows resulted in depreciation pressures on the rupee.
  - Pressures abated and reversed when the CA deficit narrowed and global investor sentiment improved in the second half of 2023 and early 2024.
  - The average REER in 2023 depreciated by about 1.6 percent from its 2022 average.
  - As of April 2024, the REER was 1.8 percent above the 2023 average.
- Assessment:
  - The IMF staff CA gap implies a REER gap of −9.4 percent (with an estimated elasticity of 0.18).
  - EBA REER index and level models suggest an overvaluation of 5.9 percent and 5.2 percent, respectively.
  - Consistent with the staff CA gap, the IMF staff assesses the REER gap to be in the range of −12.7 to −6.1 percent, with a midpoint of −9.4 percent, for fiscal year 2023/24.

### India — Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - In fiscal year 2023/24, net FDI inflows decreased to about 0.3 percent of GDP, mostly reflecting rising repatriations and disinvestment.
  - Net portfolio investment inflows strengthened to about 1.2 percent of GDP in anticipation of India’s inclusion in global bond indices.
  - Other investments, reflecting mostly debt-creating inflows, remained at about 1.1 percent of GDP.
  - The Indian authorities widened the scope of government bonds available for foreign investors, which should help moderate the interest costs associated with financing the CA deficit.
- Assessment:
  - While net FDI inflows covered most of the CA deficit in fiscal year 2023/24, the decline in FDI inflows as share of GDP warrants further structural reforms and improvement of the investment regime to promote FDI.
  - Volatile portfolio flows are sensitive to changes in global financial conditions and country risk premia.
  - The planned inclusion of India in international bond indices has significantly increased foreign participation in India’s bond market (though from a low base) and supported net portfolio inflows that more than covered the CA deficit.

### India — FX Intervention and Reserves Level
- Background:
  - Official FX reserves increased in 2023 and early 2024, reflecting a decreasing CA deficit, FDI and portfolio investment inflows, and valuation changes.
  - The Reserve Bank of India’s FX interventions aimed to smooth excessive market volatility and contributed to the rupee’s exchange rate stability.
  - Reserves stood at $623.2 billion at the end of 2023 and $645.6 billion at end-March 2024.
- Assessment:
  - Various criteria confirm that the official FX reserves are adequate for precautionary purposes.
  - As of the end of 2023, reserves represented about 219 percent of short-term debt (on residual maturity), 109 percent of the IMF’s composite metric (for a de facto stabilized exchange rate arrangement), and more than eight months of import coverage.
  - In view of India’s moderately strong external position, generally deep and liquid FX markets, limited FX mismatches, well-anchored inflation expectations, and adequate reserves level, Integrated Policy Framework analysis indicates that FX interventions should be limited to addressing disorderly market conditions.

*International Monetary Fund | ch3 - CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts*

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts

CHAPTER 3 2023 IndIvIdual EconoMy assEssMents

### Indonesia: Economy Assessment
- Overall Assessment:
  - The external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies.
  - In the medium term, exchange rate flexibility and structural policies are expected to contain the CA deficit.
  - Reliance on foreign portfolio investment exposes the economy to sharp swings in market sentiment and risk premiums, and to fluctuations in global financial conditions.

- Potential Policy Responses:
  - Projected fiscal expansion may support import growth and increase the CA deficit.
  - Maintaining external balance will require structural reforms, including:
    - higher infrastructure investment and higher social spending to foster human capital development and strengthen the social safety net;
    - reduction of restrictions on inward FDI and external trade, including by moving away from nontariff barriers;
    - promotion of greater labor market flexibility.
  - Flexibility of the exchange rate should continue to support external stability.

- Foreign Asset and Liability Position and Trajectory:
  - Background:
    - NIIP remained unchanged at −19.0 percent of GDP at the end of 2023.
    - Gross external assets and liabilities increased by 1.1 percentage points respectively to 35.3 and 54.3 percent of GDP.
    - Increase in gross external assets supported by higher FDI abroad, portfolio investment, and reserve assets.
    - Increase in gross external liabilities reflected fully the increase in FDI inflows.
    - Gross external debt: 29.8 percent of GDP at end-2023, down from 30.1 percent in 2022.
    - External rollover risks contained due to large share of long-term debt.
  - Assessment:
    - NIIP and gross external debt indicate sustainability and limited rollover risk.
    - Dependence on foreign portfolio investment (20.1 percent of GDP in 2023) increases vulnerability to global financial market sentiment.
    - NIIP as percent of GDP projected to stabilize at current levels in the medium term as robust nominal GDP growth offsets projected small CA deficits.
  - Key 2023 figures (% GDP):
    - NIIP: −19.0
    - Gross Assets: 35.3
    - Res. Assets: 10.7
    - Gross Liab.: 54.3
    - Debt Liab.: 29.8

- Current Account:
  - Background:
    - CA balance: −0.1 percent in 2023 (after surpluses of 1.0 percent in 2022).
    - 2023 deficit driven by non-oil and gas trade balance, weaker growth in major trading partners, and broad-based decline in commodity prices.
    - Resilient domestic demand led to smaller decline in imports relative to exports.
    - On savings-investment side: higher government revenue broadly offset by lower private savings and higher private investment.
    - CA deficit expected to widen moderately in 2024 due to lower commodity prices and robust domestic demand supporting import growth; expected to remain close to the norm throughout projection horizon.
  - Assessment:
    - Staff estimates a CA gap of 0.8 percent of GDP for 2023, consistent with:
      - cyclically adjusted CA deficit of −0.3 percent of GDP;
      - staff assessed norm of −0.8 percent of GDP;
      - adjustor of 0.3 percentage point for demographics.
    - Considering uncertainty, CA gap range for 2023: 0.3 to 1.3 percent of GDP.
    - EBA-identified policy gaps: 1.7 percent of GDP, driven by:
      - tighter fiscal stance than in other countries: 1.3 percent;
      - underspending on health care: 0.6 percent.
  - Key 2023 figures (% GDP):
    - CA: −0.1
    - Cycl. Adj. CA: −0.3
    - EBA Norm: −0.8
    - EBA Gap: 0.5
    - Staff Adj.: 0.3
    - Staff Gap: 0.8

- Real Exchange Rate:
  - Background:
    - Average REER depreciated by 3.7 percent in 2023 compared to 2022 average (3.2 percent relative to 2016–19 average).
    - Depreciation due to rapid tightening in global monetary policy and high volatility in global financial markets.
    - Rupiah recovered some losses toward end-2023 due to easier global financial conditions and Bank Indonesia’s policy responses.
    - As of end-April 2024, REER was 2.4 percent below its 2023 average.
  - Assessment:
    - Staff CA gap of 0.8 percent of GDP implies a REER gap of −5.0 percent (elasticity 0.16).
    - REER index and level models point to REER gaps of 0.8 percent and −15.9 percent, respectively.
    - Staff assesses REER gap range: −7.9 to −2.1 percent, midpoint −5.0 percent.

- Capital and Financial Accounts: Flows and Policy Measures:
  - Background:
    - Net capital and financial flows: 0.6 percent of GDP in 2023 (from −0.7 percent in 2022).
    - Recovery driven by portfolio investment, concentrated in Q4 2023, reflecting Bank Indonesia open market instruments to attract capital flows.
    - Net FDI inflows declined to 1.1 percent of GDP in 2023 (1.4 percent in 2022; 1.5 percent in 2021).
    - Nonresident holdings of rupiah-denominated government bonds rose by 0.6 percentage point to 14.9 percent in 2023 (vs 39 percent in 2019).
  - Assessment:
    - Recovery in portfolio investment helped support small negative CA deficit in 2023.
    - Continued strong policies—safeguarding fiscal position, advancing financial deepening, easing structural reforms—should help sustain capital inflows in medium term.

- FX Intervention and Reserves Level:
  - Background:
    - More flexible exchange rate framework since mid-2013.
    - Official foreign reserves: US$146 billion in 2023, up from US$137 billion in 2022.
    - Increase reflected higher deposits abroad and withdrawal of government foreign loans, more than offsetting decline in securities from FX intervention.
  - Assessment:
    - Current reserves: 10.7 percent of GDP, 123 percent of the IMF’s reserve adequacy metric, and 6.1 months of prospective imports.
    - Provide sufficient buffer against external shocks.
    - Predetermined drains manageable though increased due to short positions on financial derivatives.
    - FX interventions appropriate under certain shocks, particularly when shocks trigger spikes in market premia given shallow FX markets, while preserving reserve buffers.

*Italic: Table 3.12. Indonesia: Economy Assessment — Source: ch3 - CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts*

### Italy: Economy Assessment
- Overall Assessment:
  - External sector position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies.
  - CA balance increased by 2.1 percentage points to a surplus of 0.5 percent of GDP, largely on the fall in the energy import bill.
  - Capital account surplus: 0.8 percent of GDP on inflows of NextGenerationEU grants.
  - Rise in external position reflected a 2.2 percentage point decrease in the investment rate mainly on large inventory decumulation.
  - Chronic weak productivity, rapid population aging, and uncertain medium-term growth prospects could depress investment once tax credits and fiscal programs under the National Recovery and Resilience Plan are completed.

- Potential Policy Responses:
  - Comprehensive structural reforms to encourage private investment and modernize capital stock.
  - Strengthen external position via increased public sector saving supported by a frontloaded fiscal adjustment program.
  - Reduce vulnerabilities associated with public debt rollover through frontloaded fiscal adjustment, improved budget efficiency, containing social benefit spending, comprehensive and progressive tax reform, and full implementation of the National Recovery and Resilience Plan.
  - Industrial policies should be cautious, targeted, and avoid favoring domestic producers over imports.

- Foreign Asset and Liability Position and Trajectory:
  - Background:
    - NIIP increased to 7.4 percent of GDP at end-2023.
    - Gross foreign assets and liabilities decreased to 169.4 and 162.0 percent of GDP, respectively.
    - TARGET 2 liabilities declined from 36 percent of GDP in 2022 to 25 percent of GDP at end-2023.
    - Over half of external debt attributed to public sector; nearly 40 percent of debt is short term.
    - External debt owed by Bank of Italy (30 percent of GDP) relates to TARGET 2 liabilities, short term and remunerated at ECB policy rate.
  - Assessment:
    - Strengthening public balance sheets and structural reforms would lessen vulnerabilities associated with high public debt.
  - Key 2023 figures (% GDP):
    - NIIP: 7.4
    - Gross Assets: 169.4
    - Debt Assets: 44.2
    - Gross Liab.: 162.0
    - Debt Liab.: 121.8

- Current Account:
  - Background:
    - 2017–22 CA averaged 2.2 percent of GDP; shifted from deficit of 1.6 percent in 2022 to surplus of 0.5 percent in 2023 due to reduced energy imports.
    - Exports to non-EU countries grew strongly, while exports to other EU members declined, causing a 1.8 percentage point drop in goods exports to GDP ratio.
    - Primary income balance declined by more than 1 percent of GDP largely from increased interest payments on TARGET 2 liabilities.
    - CA improvement supported by large reduction in private investment, mainly inventory decumulation.
    - CA expected to gradually increase but remain somewhat below norm due to high EU-financed public investment and slow improvement in government saving.
  - Assessment:
    - Cyclically adjusted CA: 0.8 percent of GDP for 2023.
    - EBA-estimated CA norm: 3.8 percent of GDP.
    - IMF staff assesses CA gap range: −3.7 to −2.3 percent of GDP, midpoint −3.0 percent of GDP.
    - Fiscal policy gap: −1.2 percent of GDP; credit policy gap: 1.0 percent of GDP; total policy gap: −0.2 percent of GDP.
  - Key 2023 figures (% GDP):
    - CA: 0.5
    - Cycl. Adj. CA: 0.8
    - EBA Norm: 3.8
    - EBA Gap: −3.0
    - Staff Adj.: 0.0
    - Staff Gap: −3.0

- Real Exchange Rate:
  - Background:
    - 2017–22 CPI-based REER depreciated by 2.5 percent; ULC-based REER depreciated by 1.1 percent.
    - 2023 CPI-based REER appreciated by 2.8 percent due to strengthening euro, partly offset by Italy’s relatively lower inflation.
    - As of April 2024, CPI-based REER depreciated by 1.7 percent relative to 2023 average.
  - Assessment:
    - IMF staff CA gap implies REER gap of 11.5 percent in 2023 (elasticity 0.26).
    - CPI-based REER level and index models suggest overvaluation of 10.8 percent and 8.9 percent, respectively.
    - Staff assesses REER gap range: 8.8 to 14.2 percent, midpoint 11.5 percent.

- Capital and Financial Accounts: Flows and Policy Measures:
  - Background:
    - Capital account surplus: 0.8 percent of GDP in 2023 due to NextGenerationEU grants.
    - Financial account net outflows: 1.7 percent of GDP in 2023 due to reduction in TARGET 2 liabilities by €165 billion partly offset by repatriation of foreign assets.
  - Assessment:
    - Tightening of monetary policy through September 2023 pushed up government bond yields, which have since decreased on expectations of policy loosening.
    - Large refinancing needs of sovereign and banking sector leave Italy vulnerable to market volatility.

- FX Intervention and Reserves Level:
  - Background:
    - Euro has status of a global reserve currency.
    - Italy’s reserves remained largely unchanged in 2023.
  - Assessment:
    - Reserves held by the euro area are typically low relative to standard metrics, but the currency is freely floating.

*Italic: Table 3.13. Italy: Economy Assessment — Source: ch3 - CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts*

### Japan: Economy Assessment
- Overall Assessment:
  - External position in 2023 is broadly in line with level implied by medium-term fundamentals and desirable policies.
  - CA surplus increased to 3.6 percent of GDP in 2023 from 2.1 percent in 2022.
  - Lower primary income surplus more than offset by higher inbound tourism and auto exports and reduced imports from lower commodity prices.
  - CA surplus expected to continue over medium term, mainly driven by primary income surplus from large positive NIIP and high rate of return on net foreign assets.

- Potential Policy Responses:
  - Structural reforms and fiscal sustainability (credible and specific medium-term fiscal consolidation plan) are needed.
  - Desirable policies should shift drivers from unsustainable public saving-investment position to private sector-driven investment to raise potential growth.
  - Priority: labor market and fiscal reforms, support private demand, raise potential growth, promote digital and green investment.
  - Fiscal consolidation will push CA surplus higher but offset by higher investment and decrease in private savings due to demographic factors.
  - Industrial policies should be narrowly targeted; Japan should prioritize global leadership in open, stable, transparent trade policies.

- Foreign Asset and Liability Position and Trajectory:
  - Background:
    - NIIP rose to 80 percent of GDP at end-2023 from 72.6 percent in 2022; pre-pandemic (2016–19) average: 61.7 percent.
    - Increase driven by net FDI and portfolio outflows and valuation effects from yen depreciation.
    - Japan’s net foreign assets valued at $3.4 trillion at end-2023.
  - Assessment:
    - Foreign asset holdings well diversified by geography and risk classes.
    - Gross foreign assets composition: portfolio investment about 41 percent, FDI 21 percent.
    - Of portfolio investment: about 20 percent yen denominated and 56 percent dollar denominated.
    - Risk: yen appreciation vs dollar could cause negative valuation effects.
    - Liabilities vulnerabilities contained: equity and direct investment about 33 percent of gross foreign liabilities.
    - NIIP generated net annual investment income return of 7.4 percent in 2023 (8.7 percent in 2022; pre-pandemic average 6.3 percent).
    - Large positive NIIP partly related to asset accumulation for old-age consumption; gradual decumulation expected long term.
  - Key 2023 figures (% GDP):
    - NIIP: 80.0
    - Gross Assets: 247.5
    - Debt Assets: 88.2
    - Gross Liab.: 167.5
    - Debt Liab.: 96.1

- Current Account:
  - Background:
    - CA surplus reflects sizable primary income balance from large net foreign asset position.
    - CA surplus increased to 3.6 percent of GDP in 2023 from 2.1 percent in 2022.
    - Supported by higher net savings by private sector offsetting decline in public sector net savings.
    - Merchandise trade deficit improved from −2.7 percent of GDP in 2022 to −1.1 percent in 2023 due to lower commodity import prices.
    - Offshoring has limited positive impact of yen depreciation on exports; auto exports surged as supply disruptions faded.
    - Inbound tourism boosted services balance from deficit of 1 percent in 2022 to 0.5 percent in 2023.
    - Primary income balance declined to 5.9 percent from 6.3 percent of GDP in 2022.
    - Overall trade (goods and services) balance improved by 2 percent of GDP.
    - Medium term CA projected to average 3.5 percent.
  - Assessment:
    - 2023 cyclically adjusted CA: 3.7 percent of GDP.
    - Cyclically adjusted CA norm: 4.0 percent of GDP (range 2.9 to 5.1 percent).
    - 2023 CA gap midpoint: −0.3 percent of GDP (range −1.4 to 0.8 percent).
    - EBA-identified policy gaps reflect greater medium-term fiscal consolidation needs and positive credit gap.
  - Key 2023 figures (% GDP):
    - CA: 3.6
    - Cycl. Adj. CA: 3.7
    - EBA Norm: 4.0
    - EBA Gap: −0.3
    - Staff Adj.: 0.0
    - Staff Gap: −0.3

- Real Exchange Rate:
  - Background:
    - REER depreciated close to 5 percent in 2023, after 14 percent depreciation in 2022.
    - Reflects relatively higher inflation in trading partners and yen nominal depreciation from widening real interest rate differentials.
    - As of April 2024, REER was 6.9 percent below the 2023 average.
  - Assessment:
    - IMF staff CA gap implies REER gap of 1.7 percent in 2023 (elasticity 0.18).
    - EBA REER level and index models deliver gaps of −31.7 and −35.5 percent.
    - Staff assesses REER gap range: −4.6 to 8.0 percent, midpoint 1.7 percent.

- Capital and Financial Accounts: Flows and Policy Measures:
  - Background:
    - Financial account recorded net outflows in 2023, increasing to 3.9 percent of GDP from 1.1 percent in 2022.
    - Net FDI outflows: 3.8 percent of GDP, driven by outward FDI to Asia, Europe, and North America.
    - Net portfolio outflows: 4.7 percent of GDP (vs net inflows of 3.4 percent in 2022) reflecting lower demand for yen-denominated assets.
  - Assessment:
    - Vulnerabilities limited: inward investment tends to be equity based; strong home bias of Japanese investors.
    - Outward spillovers to other economies contained so far.

- FX Intervention and Reserves Level:
  - Background:
    - Reserves: $1.1 trillion, about 26 percent of GDP, at end-2022; remained broadly unchanged in 2023.
  - Assessment:
    - Exchange rate free floating; no FX interventions in 2023.
    - FX interventions should be limited to exceptional circumstances such as disorderly markets or when economies are vulnerable to sharp currency fluctuations.

*Italic: Table 3.14. Japan: Economy Assessment — Source: ch3 - CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts*

### Korea: Economy Assessment (excerpt)
- Overall Assessment:
  - External position in 2023 was moderately weaker than level implied by medium-term fundamentals and desirable policies.
  - CA surplus increased in 2023 relative to 2022 due to lower import values from declining commodity prices.
  - Weaker semiconductor exports prevented a larger CA improvement; strong recovery of semiconductor exports expected to significantly increase CA surplus in 2024 and medium term.
  - Geopolitical tension risks could impede trade and investment.

- Potential Policy Responses:
  - Restrictive monetary and fiscal stance appropriate to contain domestic demand and import growth in near term.
  - Over medium term: increase precautionary savings given aging-related healthcare and pension spending, orderly deleveraging of private debt, and policies to mitigate geopolitical risk.
  - Exchange rate flexibility with intervention limited to prevent disorderly markets would help absorb external shocks.
  - Industrial policies should remain narrowly targeted to minimize trade and investment distortions.

- Foreign Asset and Liability Position and Trajectory:
  - Background:
    - NIIP has been positive and significantly increased in past decade.
    - In 2023, nominal value of NIIP improved slightly ($8.5 billion) while NIIP-to-GDP ratio decreased modestly (by about 0.5 percent of GDP reflecting the denominator effect).

*Italic: Table 3.15. Korea: Economy Assessment — Source: ch3 - CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts*

### 45.5 percent. The NIIP is projected to rise further in the medium term, to about 60 percent of GDP in 2029, on the back 

### Korea: Economy Assessment (NIIP 45.5 percent)

### Foreign Asset and Liability Position and Trajectory
- NIIP in 2023: 45.5 percent of GDP.
- NIIP projection: rise to about 60 percent of GDP in 2029, on the back of increasing CA surpluses.
- 2023 (% GDP) statistics:
  - NIIP: 45.5
  - Gross Assets: 133.5
  - Debt Assets: 60.0
  - Gross Liab.: 88.0
  - Debt Liab.: 38.7
- Assessment findings:
  - Large and positive NIIP supports external sustainability.
  - Foreign asset holdings diversified, with about 35 percent in equity or debt securities.
  - About 60 percent of foreign assets are denominated in dollars, implying depreciation of the won can have large positive valuation effects in aggregate.
  - Liabilities structure limits vulnerabilities: direct investment and long-term loans together account for 55 percent of liabilities and 70 percent of liabilities are denominated in Korean won.

### Current Account
- 2023 CA: 2.1 percent of GDP.
- Background developments:
  - CA surplus increased from 1.5 percent of GDP in 2022 to 2.1 percent of GDP in 2023.
  - Semiconductor exports decreased sharply by about 2 percent of GDP in 2023 following a surge during 2021-22.
  - Semiconductor exports were up by about 50 percent (y/y) in the first quarter of 2024, with recovery expected to continue in 2024.
  - Sustained semiconductor export growth and expected stabilization of commodity import prices projected to increase CA surplus to 4.5 percent of GDP in 2029.
  - In Q1 2024, the CA surplus reached $16.8 billion, equivalent to about 1 percent of GDP.
- Model assessments and staff estimates:
  - Cyclically adjusted CA: 2.3 percent of GDP.
  - EBA Norm: 4.4 percent of GDP (standard error of 0.9 percent of GDP).
  - EBA Gap: −2.0 percent of GDP.
  - Staff Adj.: 0
  - Staff Gap: −2.0 percent of GDP.
  - IMF staff estimates 2023 CA gap midpoint at −2.0 percent of GDP, with a range of −2.9 to −1.2 percent of GDP.
  - Net contribution of the relative policy gap: 0.6 percent of GDP (contributions from lower health spending and tighter fiscal stance outweighing a more positive credit gap).
  - A large unexplained residual potentially reflects country-specific factors not included in the model.

### Real Exchange Rate
- Background movements:
  - REER appreciated by about 2.1 percent in 2023 on average relative to 2022.
  - This reversed a sustained depreciation of 11.4 percent accumulated during 2019-2022.
  - REER appreciation in 2023 mainly driven by won appreciation against currencies of some major trading partners, notably the Japanese Yen and Chinese Yuan.
  - As of April 2024, the REER depreciated by about 2 percent relative to the 2023 average.
- Assessment and model estimates:
  - EBA CA gap implies a REER overvaluation of 6.1 percent (with an estimated elasticity of 0.33 applied).
  - EBA REER index model estimates an undervaluation of 4.1 percent.
  - EBA level model estimates a 3.1 percent undervaluation.
  - Staff assesses the REER gap to be in the range of 3.4 to 8.7 percent, with a midpoint of 6.1 percent.
  - Given wide range of estimates, the REER gap should be interpreted with caution.

### Capital and Financial Accounts: Flows and Policy Measures
- Background flows:
  - Net capital outflows declined to 2 percent of GDP in 2023 from 3.3 percent of GDP in 2022.
  - Both net FDI and portfolio outflows dropped by about 1.2 percent of GDP in 2023.
  - Decline reflects reduction of residents’ outbound direct investment and resumption of foreigners’ net purchases of equity securities.
- Assessment:
  - Korea demonstrated resilience in weathering short-term capital flow volatility amid multiple global shocks.
  - Present configuration of capital flows appears sustainable over the medium term, mirroring projected increase in CA surplus and NIIP.

### FX Intervention and Reserves Level
- Background data:
  - Korea has a floating exchange rate.
  - FX intervention since 2015 has been two-sided (based on IMF staff estimates and published data).
  - FX intervention in 2023: net sales reduced to $9.6 billion (0.6 percent of GDP), down from net sales of $45.9 billion (2.8 percent of GDP) in 2022.
  - 2023 interventions mostly conducted in the second and third quarters during periods of heightened exchange rate volatility.
  - Reserves as of end-2023: $420 billion (lower than $423 billion as of end-2022).
  - As of end-2023, FX reserves were about 25 percent of GDP, 2.2 times short-term debt, 6.6 months of imports, or 14 percent of M2.
- Assessment and policy guidance:
  - Exchange rate volatility generally does not pose significant economic challenges given limited currency mismatches and manageable passthrough to consumer prices.
  - FX market depth higher than in most emerging markets but lags advanced economy peers; herding behavior in shallow markets could lead to sharp FX movements and impaired market functioning during high global financial market uncertainty.
  - Intervention should remain limited to preventing disorderly market conditions.
  - Systemwide stress tests show reserves provide sufficient FX liquidity buffers under a wide range of plausible shocks.

*CHAPTER 3, 2023 Individual Economy Assessments, International Monetary Fund | 2024*

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts

### CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts

### The Netherlands — Overall Assessment and Policy Responses
- Overall Assessment: The external position in 2023 was substantially stronger than the level implied by medium-term fundamentals and desirable policies.
- Key drivers: Status as a base for multinational corporations, trading hub, and financial center complicates assessment; CA surplus rebound in 2023 expected to contract over the medium term as population aging and a progressively higher fiscal deficit reduce domestic saving.
- Potential Policy Responses:
  - Foster investment in physical and human capital.
  - Facilitate access to finance, particularly for small and medium enterprises.
  - Continue structural investment and reform plans to safeguard energy security, allay housing market shortages, reinforce the education system, advance the climate transition, and promote digitalization.

### The Netherlands — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP reached 71.8 percent of GDP in 2023, compared with 75.2 percent in 2022.
  - Positive NIIP impacts from CA surpluses in 2023 were more than offset by denominator effects from strongly increasing nominal GDP and negative valuation effects, particularly affecting portfolio investment and financial derivatives.
  - FDI accounts for more than half of external assets and liabilities.
  - Debt liabilities composition: long-term debt securities 48 percent (69 percent denominated in euro, 22 percent in US dollars), currency and deposits 29 percent (60 percent denominated in euro), long-term loans 7 percent.
- Assessment: Safe haven status and sizable foreign assets limit risks from large foreign liabilities.
- Key statistics (2023 % GDP):
  - NIIP: 71.8
  - Gross Assets: 931.2
  - Debt Assets: 228.1
  - Gross Liab.: 859.4
  - Debt Liab.: 242.1

### The Netherlands — Current Account
- Background:
  - Statistics Netherlands refinements over 2020–22 shifted 2022 CA surplus from 4.4 to 9.3 percent of GDP (higher trade balance +1.5 percentage points; primary income +3.2 percentage points).
  - 2023 CA surplus estimated at 10.1 percent of GDP (10.3 percent of GDP cyclically adjusted).
  - Support measures in 2023 weighed on public net savings; private net savings recovered due to strong labor market, accelerating wage growth, and weakening residential investment.
  - Measurement biases: portfolio equity–retained earnings may overstate net accumulation of wealth attributed to Dutch residents; foreign ownership of publicly listed firms >80 percent in recent years.
  - 2024 projection: CA projected to decline to 9.1 percent of GDP.
- Assessment:
  - EBA CA model CA norm: 4.3 percent of GDP.
  - Cyclically adjusted CA surplus (2023): 10.3 percent of GDP.
  - EBA CA gap: 6.1 percent of GDP.
  - 3.7 percentage points of the CA gap attributable to policy gaps (primarily reflecting a relatively tighter fiscal stance and a negative credit gap).
  - Portfolio retained earnings bias assessed to be −1.8 percent of GDP.
  - Taking factors into account and against a norm in the range of 3.8 to 4.8 percent of GDP, IMF staff assesses the CA gap to be in the range of 3.7 to 4.8 percent of GDP, with a midpoint of 4.3 percent of GDP. This gap reflects a second-pillar retirement scheme with large coverage, robust replacement ratios, and strict prefunding requirements.
- Key statistics (2023 % GDP):
  - CA: 10.1
  - Cycl. Adj. CA: 10.3
  - EBA Norm: 4.3
  - EBA Gap: 6.1
  - Staff Adj.: −1.8
  - Staff Gap: 4.3

### The Netherlands — Real Exchange Rate
- Background:
  - CPI-based REER appreciated by 0.8 percent in 2023 vs 2022 average.
  - ULC-based REER appreciated by 0.7 percent.
  - As of April 2024, CPI-based REER was 0.6 percent above its 2023 average.
- Assessment:
  - Assuming a semi-elasticity of 0.65, the IMF staff CA gap of 4.3 percent of GDP implies a REER undervaluation of about 6.6 percent.
  - EBA REER model estimates for 2023 range from overvaluation of 2.8 percent (level model) to 18.9 percent (index model).
  - IMF staff assesses the REER as undervalued by about 5.8 to 7.4 percent, with a midpoint of 6.6 percent.

### The Netherlands — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and Financial Accounts:
  - Background: Large share of gross foreign assets and liabilities attributable to special purpose entities; notable capital outflows reflect channeling of corporate profits abroad as FDI.
  - Assessment: Strong external position limits vulnerabilities to capital outflows; financial account deficit is primarily the flip side of sustained structural CA surpluses.
- 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 floats freely.

---

### Poland — Overall Assessment and Policy Responses
- Overall Assessment: The external position in 2023 was stronger than the level implied by medium-term fundamentals and desirable policies.
- 2023 CA shifted from a deficit of 2.4 percent in 2022 to a surplus of 1.6 percent of GDP.
- Near-term outlook: As economic recovery continues in 2024, consumption and credit growth anticipated to pick up; REER appreciation in 2023 and release of EU funds expected to support imports. CA projected to decline to −1 percent of GDP over the medium term.
- Potential Policy Responses:
  - Boost investment by easing regulatory hurdles to private investments in the energy sector to catalyze investment and financing additional to NextGenerationEU grants.
  - Strengthen the pension system in a financially sustainable manner to reduce pressures on precautionary household savings from declining replacement ratios.

### Poland — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP reached −33.5 percent of GDP in 2023 from −33.7 percent in 2022.
  - Gross external debt declined to 49 percent of GDP in 2023 from 54 percent in 2022.
- Assessment:
  - Transition to more stable FDI financing; rollover risk mitigated by large share of long-term debt (70 percent of total debt) and intercompany lending (30 percent of total debt).
  - Gross reserves (158 percent of short-term debt) are adequate.
- Key statistics (2023 % GDP):
  - NIIP: −33.5
  - Gross Assets: 59.6
  - Reserve Assets: 24
  - Gross Liab.: 93.1
  - Gross External Debt: 49

### Poland — Current Account
- Background:
  - CA volatility driven by shocks from pandemic and war, increased government spending, robust service exports, and strong reinvested earnings.
  - 2023 CA surplus: 1.6 percent of GDP (from −2.4 percent in 2022), driven by decline of commodity imports, subdued domestic demand, and drawdown in import-intensive inventories.
  - Total national savings broadly stable in 2023; inventory destocking dampened investment despite pickup in fixed investment.
  - Near term: CA expected to decline as growth picks up, EU fund-supported investment rises, and inventories normalize; medium term: CA projected to converge to −1 percent due to robust consumption growth, sustained EU fund inflows, and increased military spending.
- Assessment:
  - EBA CA norm: −2.2 percent of GDP.
  - Cyclically adjusted CA surplus (2023): 1.4 percent of GDP.
  - EBA model CA gap: 3.6 percent of GDP.
  - Staff CA gap: 3.6 (±0.5) percent of GDP; includes identified policy gaps of 1.8 percent of GDP and unexplained residual of 1.8 percent of GDP.
  - One-off inventory drawdown may not be fully captured.
  - Credit gap was largest contributor to the policy gap; desirable policies and cyclical recovery expected to help narrow credit gap over medium term.
- Key statistics (2023 % GDP):
  - CA: 1.6
  - Cycl. Adj. CA: 1.4
  - EBA Norm: −2.2
  - EBA Gap: 3.6
  - Staff Adj.: 0.0
  - Staff Gap: 3.6

### Poland — Real Exchange Rate; Capital and Financial Accounts; FX Intervention and Reserves
- Real Exchange Rate:
  - Background: NEER appreciated by 6.3 percent in 2023; REER appreciated by 11.3 percent in 2023. As of April 2024, CPI-based REER further appreciated by 5.2 percent from its 2023 average.
  - Assessment: EBA REER index and level models estimate 2023 REER gap of 11.8 and −11.7 percent, respectively. Staff assesses REER undervaluation within range −7.3 to −9.4 percent, midpoint −8.4 percent (using elasticity 0.43).
- Capital and Financial Accounts:
  - Background: Capital account surplus declined to 0.2 percent of GDP in 2023 from 0.5 percent in 2022; projected to stabilize around 0.5 percent of GDP medium term supported by EU funds. Financial account net inflow 1.6 percent of GDP in 2023. FDI inflows net 2.3 percent of GDP in 2023 (from 3.7 percent in 2022).
  - Assessment: Capital account projected to remain strong support for investment; vulnerability to capital outflows contained due to decline in foreign holdings of domestic government securities and diversified investor base; central bank has adequate tools for volatility.
- FX Intervention and Reserves:
  - Background: FX reserves increased to US$194 billion in 2023 from US$167 billion in 2022. Net reserves about US$167 billion in 2023 from US$146 billion in 2022. No intervention in 2023; zloty considered free floating.
  - Assessment: Gross reserves about 164 percent of IMF reserve adequacy metric; adequate to guard against external shocks and disorderly market conditions.

---

### Russia — Overall Assessment and Policy Responses
- Overall Assessment: Russia’s external position in 2023 was broadly in line with the level implied by medium-term fundamentals and desirable policies; models do not fully account for idiosyncratic situation due to sanctions. CA surpluses may not translate into accumulation of readily accessible foreign assets in reserve currencies; projections subject to exceptionally large uncertainty.

### Russia — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP stood at 42.4 percent of GDP end-2023, an increase of 9.2 percentage points from 2022.
  - Gross assets increased by 7.6 percentage points of GDP in 2023; remained below 2020 peak of 105 percent of GDP.
  - Gross liabilities 34.5 percent of GDP (down from 36.1 percent in 2022).
  - About one-third of external debt held in domestic currency; no obvious maturity mismatches.
  - Nonresident holdings of domestic government debt declined from 32.2 percent (end-2019) to 7.4 percent (end-2023).
- Assessment: Recurring positive CA surpluses maintain positive NIIP trends and accumulation of external buffers; part of international reserves frozen due to sanctions and further accumulation in traditional reserve currencies hampered.
- Key statistics (2023 % GDP):
  - NIIP: 42.4
  - Gross Assets: 76.9
  - Reserve Assets: 29.6
  - Gross Liab.: 34.5
  - Debt Liab.: 15.6

### Russia — Current Account
- Background:
  - CA surplus fell from 10.5 percent of GDP in 2022 to 2.5 percent of GDP in 2023 due to export-led decline in trade balance (lower global energy prices and sharply lower gas exports to Europe).
  - CA projected to increase slightly to 2.7 percent of GDP in 2024, but projection is highly uncertain.
- Assessment:
  - EBA CA norm (2023): 2.3 percent of GDP.
  - Cyclically adjusted CA surplus (2023): 2.6 percent of GDP.
  - Identified policy gaps account for 1.5 percentage points (half driven by fiscal balance gap); unexplained residual −1.2 percentage points.
  - Range of uncertainty exceptionally large given sanctions.
- Key statistics (2023 % GDP):
  - CA: 2.5
  - Cycl. Adj. CA: 2.6
  - EBA Norm: 2.3
  - EBA Gap: 0.3
  - Staff Adj.: 0.0
  - Staff Gap: 0.3

### Russia — Real Exchange Rate; Capital and Financial Accounts; FX Intervention and Reserves
- Real Exchange Rate:
  - Background: Ruble lost close to 40 percent between end-2022 and summer 2023 partly due to CA decline. Bank of Russia raised policy rate by cumulative 850 basis points to 16 percent by end-2023, intervened in FX market, re-introduced repatriation and surrender requirements, tightened FX controls. REER depreciated by 24.6 percent in 2023, reversing 2022 gains. As of April 2024, REER 3.7 percent below 2023 average.
  - Assessment: IMF staff CA gap implies REER undervaluation of 1.8 percent in 2023 (assuming elasticity 0.17). EBA REER index models suggest overvaluation of 3.3 percent; EBA REER level model points to undervaluation of 18.6 percent. Staff assess REER gap range −6.7 percent to 3.1 percent, midpoint −1.8 percent (undervalued). Models do not fully account for idiosyncratic situation.
- Capital and Financial Accounts:
  - Background: Capital flow measures introduced in early 2022 were relaxed, but restrictions remain on repatriation of foreign investment, cash FX withdrawals, and cash exports. Net private capital outflows declined from 9.5 percentage points of GDP in 2022 to 2.5 percentage points of GDP in 2023.
  - Assessment: Large FX reserves and floating exchange rate help absorb shocks. Remaining capital controls curtailed capital outflows and helped preserve buffers despite sanctions.
- FX Intervention and Reserves:
  - Background: Official reserves increased by $16.6 billion to $598.6 billion in 2023 due to revaluation effects. Despite positive CA, reserves accumulation constrained by sanctions. Bank of Russia implemented FX interventions and resumed buying/selling FX only in Chinese RMB since January 2023. 2023 fiscal rule set benchmark oil and gas revenues in rubles; Ministry of Finance reverted to earlier benchmark oil price–based fiscal rule from January 2024.
  - Assessment: International reserves stood at 343.2 percent of IMF reserve adequacy metric end-2023; share of reserves frozen due to sanctions makes adequacy assessment subject to high uncertainty.

---

### Saudi Arabia — Overall Assessment and Policy Responses
- Overall Assessment: The external position in 2023 was weaker than the level implied by medium-term fundamentals and desirable policies. External balance sheet remains strong; reserves adequate by standard IMF metrics, but savings insufficient from intergenerational equity perspective. Lower oil exports and investment-driven imports expected to shift CA surplus to deficit. External adjustment will be driven primarily by fiscal policy; pegged exchange rate provides credible anchor.
- Potential Policy Responses:
  - Additional fiscal consolidation through enhanced revenue mobilization and energy price reforms to bring CA closer to norm.
  - Sustain ambitious structural reform agenda to diversify the economy, lift productivity, and boost non-oil tradable sector.
  - Minimize risks associated with industrial policies; avoid discriminatory policies that could create distortions or elicit retaliatory trade actions.

### Saudi Arabia — Foreign Asset and Liability Position and Trajectory
- Background:
  - Net external assets estimated at 73.5 percent of GDP end-2023, up from 70.9 percent in 2022 and down from 81.2 percent in 2021.
  - Medium-term NIIP expected to stabilize at 65 percent of GDP.
  - Composition of external assets (broad categories): portfolio and other investments 55 percent, reserves 31 percent, FDI 14 percent of total external assets.
- Assessment: External balance sheet very strong; substantial accumulated assets protect against oil price volatility and save exhaustible resource revenues for future generations.
- Key statistics (2023 % GDP):
  - NIIP: 73.5
  - Gross Assets: 133.7
  - Res. Assets: 40.9
  - Gross Liab.: 60.1
  - Debt Liab.: 26.2

### Saudi Arabia — Current Account
- Background:
  - CA balance registered a surplus of 3.2 percent of GDP in 2023, down from historical high of 13.7 percent surplus in 2022.

*Source: CHAPTER 3 2023 IndIvIdual EconoMy assEssMEnts*

### 2022. The trade balance decreased by 9.5 percent of GDP as the price and volume of oil exports decreased and imports pic

### ch3 - 2022. The trade balance decreased by 9.5 percent of GDP as the price and volume of oil exports decreased and imports pic

### Current Account and Trade Balance
- The trade balance decreased by 9.5 percent of GDP as the price and volume of oil exports decreased and imports picked up in 2023—primarily driven by domestic-driven policies of reducing oil production and promoting investment.
- Higher consumption and reduced oil windfalls led to lower savings in 2023.
- The terms of trade deteriorated by 15 percent in 2023.
- For the projections, oil production is assumed to follow the OPEC+ (Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters) agreement, with a further decline in 2024 and a recovery in 2025.
- The CA surplus is expected to deteriorate to around 0.5 percent of GDP in 2024 before shifting to a deficit in 2025 and decline further to a 2.8 percent of GDP deficit by 2029, reflecting increases in investment-driven imports and decline in oil export revenues.

### External Position Assessment and CA Gap Estimates
- IMF staff assesses a CA gap of −2.6 percent of GDP using the EBA-Lite CA model (April 2024 World Economic Outlook).
- The assessment is subject to significant model uncertainty due to the idiosyncratic characteristics of the Saudi Arabian economy and wide swings of oil prices between 2020 and 2023.
- The EBA-lite commodity module and Consumption Allocation Rules suggest:
  - CA gap of −2 percent of GDP for constant real annuity rules.
  - CA gap of −5 percent of GDP for constant real per capita annuity allocation rules.
- The Investment Needs Model suggests a CA gap of 3.5 percent of GDP.
- The estimated CA gap of −2.6 percent of GDP has an estimated range from −4.6 to −0.6 percent of GDP.
- 2023 (% GDP) indicators:
  - CA: 3.2
  - Cycl. Adj. CA: 3.3
  - Staff Gap: −2.6

### Real Exchange Rate (REER) and Assessment
- Background facts:
  - The riyal has been pegged to the US dollar at a rate of 3.75 since 1986.
  - On average, the REER appreciated by 0.7 percent in 2023 and was 5.7 percent above its 10-year average (2013–22).
  - The NEER appreciated by 3.4 percent in 2023.
  - As of April 2024, the REER was 0.7 percent above the 2023 average.
- Assessment:
  - Exchange rate movements have a limited impact on competitiveness in the short term because most exports are oil or oil-related products denominated in dollars.
  - The EBA-Lite REER model suggests an overvaluation of 13.2 percent.
  - Based on the IMF staff CA gap and a 0.2 elasticity of the CA to a change in REER, the staff assesses the REER to be overvalued by 12.1 percent, with a range of 2.9 to 21.2 percent.

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Net financial outflows in 2023 were $43 billion, returning to the historical average (2013–21) from a record high in 2022 ($123 billion), mainly due to the decline of CA balance associated with reduced oil exports and oil prices.
  - Net outflows continued as the Public Investment Fund (sovereign wealth fund) and other entities continued to invest abroad.
  - Reserves are expected to remain at a stable level over the medium term through reduced asset accumulation abroad.
- Assessment:
  - A lack of detailed information on the nature of financial flows complicates the analysis of the financial account.
  - The strong reserve position, including sizable assets of the Public Investment Fund, limits risks and vulnerabilities to capital flows.

### FX Intervention and Reserves Level
- Background:
  - The Public Investment Fund’s investments abroad are increasing, although most of the government’s foreign assets are still held at the central bank within international reserves.
  - Net foreign assets decreased to $417.1 billion (39.1 percent of GDP, 15.7 months of imports, and 208 percent of the ARA metric) at the end of 2023, down from $440.5 billion at the end of 2022 (and from $724 billion in 2014).
  - This trend was, in part, driven by financial outflows.
  - Reserves are expected to stabilize at about 13 months of imports in the medium term.
- Assessment:
  - Reserves play a dual role: they are saving for both precautionary motives and future generations.
  - Reserves are adequate for precautionary purposes (measured by the IMF’s metrics).
  - Significant buffers are also available through external assets held by the Public Investment Fund and national oil company.
  - Nevertheless, fiscal consolidation is needed over the medium term to strengthen the CA and increase saving for future generations.

*Source: CHAPTER 3 2023 Individual Economy Assessments (excerpt).*

### 2008. As of April 2024, the CPI-based REER was 1.0 percent above the 2023 average.

### ch3 - 2008. As of April 2024, the CPI-based REER was 1.0 percent above the 2023 average.

### Assessment
- The IMF staff CA gap implies a REER gap of −6.4 percent in 2023 (with an estimated elasticity of 0.28 applied).
- The EBA REER index and level models suggest instead an overvaluation of 3.8 percent and 18.6 percent for 2023, respectively, mostly driven by large unexplained residuals.
- Consistent with the staff CA gap, the staff assesses the REER to be moderately undervalued, with a midpoint of 6.4 percent and a range of uncertainty of ±2.8 percent.

### Capital and Financial Accounts: Flows and Policy Measures
- Background: The capital account surplus has remained high due to flows associated with NextGenerationEU funds.
- The financial account balance improved to 4.1 percent of GDP in 2023 (from 1.9 percent of GDP in 2022).
- The increase in the financial account surplus was largely driven by changes in the Bank of Spain’s balance sheet, which were only partially offset by net outflows in the other components.
- Assessment: Large external financing needs leave Spain vulnerable to sustained market volatility and tighter global financial conditions.

### FX Intervention and Reserves Level
- Background: The euro has the status of a global reserve currency.
- Assessment: Euro area economies typically hold low reserves relative to standard metrics, but the currency is free floating.

*International Monetary Fund | 2024 EXTERNAL SECTOR REPORT — ch3*

### 1.9 to 3.3 percent of GDP range, with a midpoint of 2.6 percent of GDP for 2023. However, the results are subject to unc

### ch3 - 1.9 to 3.3 percent of GDP range, with a midpoint of 2.6 percent of GDP for 2023. However, the results are subject to unc

### Thailand — Current Account and External Assessment
- 2023 (% GDP) CA: 1.4; Cycl. Adj. CA: 1.3; EBA Norm: 0.8; EBA Gap: 0.5; Staff Adj.: 2.1; Staff Gap: 2.6.
- Current account assessment: IMF staff CA gap implies a 2023 REER undervaluation in the 3.9 to 6.7 percent range, with a midpoint of 5.3 percent (using an elasticity of 0.49).
- EBA REER results: EBA index REER gap in 2023 estimated at 7.4 percent; EBA level REER gap estimated at −1.4 percent.

### Thailand — Real Exchange Rate (REER) Background and Assessment
- Background:
  - The baht has been on a gradual real appreciation trend since the mid-2000s.
  - In 2023, the real exchange rate appreciated by 1.1 percent relative to 2022.
  - As of April 2024, the REER was 5.0 percent below its 2023 average.
- Assessment:
  - Using elasticity 0.49 and IMF staff CA gap: 2023 REER undervalued 3.9 to 6.7 percent, midpoint 5.3 percent.
  - EBA index REER gap 2023: 7.4 percent.
  - EBA level REER gap 2023: −1.4 percent.

### Thailand — Capital and Financial Accounts: Flows and Policy Measures
- Background (2023):
  - Capital and financial account balance (excluding change in reserves) weakened to −2.4 percent of GDP from 1.4 percent in 2022.
  - Portfolio investment: 1.2 percent in 2022 to −2.6 percent of GDP in 2023.
  - Inward FDI: 2.3 percent in 2022 to 0.6 percent of GDP in 2023.
  - Other net investments: −0.6 to 0.9 percent of GDP.
- Assessment and policy advice:
  - Thailand maintains strong external buffers and fundamentals.
  - Authorities expanded the Non-resident Qualified Company scheme to allow nonresidents providing cross-border payment services to participate.
  - IMF team recommends phasing out CFM measures on nonresident baht accounts.
  - Recommend a comprehensive package of macroeconomic, financial, and structural policies to address volatile capital flows, complemented with gradual and prudent financial account liberalization.

### Thailand — FX Intervention and Reserves Level
- Background:
  - Exchange rate regime classified as (de jure and de facto) floating.
  - International reserves (including net forward position) declined to 49.4 percent of GDP from 49.6 percent of GDP in 2022.
  - Reserves equivalent to around 2.5 times short-term debt, 11 months of imports, and 237 percent of the IMF’s standard ARA metric.
  - Exchange rate allowed to adjust, with some two-sided FX interventions during large volatility.
- Assessment:
  - Reserves are higher than IMF reserve adequacy metrics range; no need to build up reserves for precautionary purposes.
  - Exchange rate should move flexibly as a shock absorber.
  - FX intervention could be used to address disorderly market conditions and mitigate policy trade-offs when the FX market becomes dysfunctional.

---

### Türkiye — Overall Assessment and Key Metrics
- Overall assessment: External position in 2023 assessed weaker than level implied by medium-term fundamentals and desirable policies; driven mainly by sizable CA gap, low reserves, large external financing needs, and NIIP composition with high debt component.
- 2023 (% GDP) NIIP: −25.5; Gross Assets: 29.4; Debt Assets: 11.5; Gross Liab.: 54.9; Debt Liab.: 39.0.

### Türkiye — Foreign Asset and Liability Position and Trajectory
- Background:
  - NIIP averaged −36.8 percent of GDP over 2019–23.
  - NIIP improved from −34.7 percent of GDP at end-2022 to −25.5 percent of GDP at end-2023, driven by valuation effects including a large decrease in direct investment (equity) liabilities in dollar terms.
  - Debt liabilities account for around 70 percent of gross liabilities.
  - External debt declined from 51 percent of GDP in 2022 to 45 percent of GDP in 2023.
  - Private sector holds almost 50 percent of Türkiye’s external debt; public sector holds remainder.
  - About 45 percent of external debt is short term (remaining-maturity basis).
- Assessment:
  - Size and composition of gross external liabilities and low reserves increase vulnerability to liquidity shocks and sudden investor sentiment shifts.
  - NIIP expected to stabilize and hover around −33 percent of GDP in 2029 due to projected CA improvement.
  - External debt sustainable over medium term but subject to risks, particularly from a large depreciation in the REER.

### Türkiye — Current Account
- Background:
  - CA deficit averaged 2.4 percent of GDP over 2019–23.
  - CA deficit in 2023 remained significant at 4.0 percent of GDP (versus 5.1 percent of GDP in 2022).
  - Nonenergy surplus declined from 3.8 percent of GDP in 2022 to 0.7 percent of GDP in 2023 due to a slowdown in exports amid robust imports.
  - In 2023:H2, CA deficit narrowed to around −1.4 percent of GDP.
- Assessment:
  - EBA CA model estimates cyclically adjusted CA of −3.0 percent of GDP and CA norm of −0.3 percent of GDP in 2023.
  - Overall CA gap assessed in range of −3.3 to −2.0 percent of GDP, midpoint −2.6 percent of GDP.
- 2023 (% GDP) CA: −4.0; Cycl. Adj. CA: −3.0; EBA Norm: −0.3; EBA Gap: −2.6; Staff Adj.: 0.0; Staff Gap: −2.6.

### Türkiye — Real Exchange Rate
- Background:
  - CPI-based REER depreciated by an annual average of 8.3 percent over 2019–22.
  - Average REER appreciated by 2.4 percent in 2023 following several years of depreciation.
  - PPI-based REER appreciated by around 8 percent in 2023.
  - As of April 2024, CPI-based REER and PPI-based REER appreciated by 7 percent and 3 percent, respectively, relative to the 2023 average.
- Assessment:
  - Staff assesses REER overvalued in range of 7.3 to 11.9 percent with midpoint of 9.6 percent (applying estimated REER elasticity of 0.27).
  - EBA REER index and level models suggest REER was undervalued in 2023 by 45.7 and 55.7 percent, respectively, though models’ residuals are very large for Türkiye.

### Türkiye — Capital and Financial Accounts; FX Intervention and Reserves
- Capital and financial accounts background (2023):
  - Net capital inflows increased to 4.9 percent of GDP in 2023 from 3.9 percent of GDP in 2022.
  - Portfolio investments: net inflow of 0.8 percent of GDP in 2023 after May 2023 election.
  - Direct investment: moderate net inflow of 0.4 percent of GDP.
- Assessment:
  - Annual gross external financing needs projected at around 24 percent of GDP on average over 2024–29; vulnerability to adverse shifts in global investor sentiment remains.
  - Authorities’ policy normalization since May 2023 contributed to modest rebound in capital flows.
  - As conditions improve, CFMs on capital outflows should be phased out.
- FX intervention and reserves:
  - De jure exchange rate is free floating; de facto classification assessed as crawl-like arrangement.
  - Gross international reserves increased to $141 billion in 2023 from $129 billion in 2022, but have fallen subsequently as depreciation pressures increased in early 2024.
  - Gross international reserves were at 97 percent of the IMF’s ARA metric as of end-December 2023, below recommended 100 to 150 percent range.
  - International reserves net of off-balance-sheet swaps and other short-term liabilities remain deeply negative.
  - Quality of reserves issue: non–SDR basket currencies account for about 15 percent.
  - Given shallow FX market, interventions may be needed to avoid excessive exchange rate volatility, while not preventing warranted macroeconomic adjustments.
  - Significant reserves buildup is needed, but accumulation should be opportunistic given uncertain market environment.

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### United Kingdom — Overall Assessment and Key Metrics
- Overall assessment: External position in 2023 weaker than level implied by medium-term fundamentals and desirable policies.
- 2023 (% GDP) NIIP: −31; Gross Assets: 503; Debt Assets: 257; Gross Liab.: 534; Debt Liab.: 282.

### United Kingdom — Current Account and Assessment
- Background:
  - CA deficit increased marginally from 3.1 percent of GDP in 2022 to 3.3 percent in 2023.
  - CA deficit was higher than 2019–23 average of 2.5 percent.
  - Deterioration in 2023 likely due to higher interest payments on pound-denominated external debt.
  - Public dissaving 6 percent of GDP exceeded private saving 2.7 percent of GDP.
- Assessment:
  - EBA CA model estimates norm of −0.4 percent of GDP; cyclically adjusted 2023 CA −3.3 percent yields CA gap −2.9 percent of GDP.
  - Adjusting for unrecorded valuation effects (0.5 percent of GDP net), IMF staff assesses CA gap at −2.4 percent of GDP, within a range of −1.4 to −3.4 percent of GDP.
- 2023 (% GDP) CA: −3.3; Cycl. Adj. CA: −3.3; EBA Norm: −0.4; EBA Gap: −2.9; Staff Adj.: 0.5; Staff Gap: −2.4.

### United Kingdom — Real Exchange Rate
- Background:
  - Pound appreciated in REER in 2023 by 2.5 percent relative to 2022 average.
  - Pound has depreciated by about 3.7 percent since mid-2016.
  - As of April 2024, REER appreciated by 2.8 percent compared to 2023 average.
- Assessment:
  - EBA REER level and index approaches suggest a gap of 4 and −6 percent, respectively, for 2023.
  - Staff assessed REER gap range of 5.4 to 13 percent with midpoint of 9.2 percent (applying estimated elasticity of 0.26).

### United Kingdom — Capital Flows and FX Intervention
- Background:
  - Portfolio investment and other investment are key components of financial account.
  - In net terms, CA deficit mainly financed in 2023 by net other investment of 11.1 percent of GDP.
  - Net portfolio investment and FDI declined by 6.2 and 2.7 percent of GDP, respectively.
- Assessment:
  - Large fluctuations in capital flows inherent in countries with large financial sectors; volatility is potential source of vulnerability but mitigated by robust financial stability framework.
- FX Intervention and Reserves:
  - Pound has status of global reserve currency; share of global reserves in sterling about 4.6 percent since 2015.
  - Reserves held by the United Kingdom typically low relative to standard metrics; currency is free floating.

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### United States — Overall Assessment (partial)
- Overall assessment: External position in 2023 broadly in line with level implied by medium-term fundamentals and desirable policies.
- 2023 CA deficit: 3.0 percent of GDP (versus 3.8 percent of GDP in 2022).
- Projection: CA deficit projected to decline to about 2¼ percent of GDP over the medium term based on increased net public saving due to fiscal consolidation and slow convergence of private saving to steady state.

### United States — Policy Recommendations (partial)
- Over the medium term:
  - Suggested fiscal consolidation aimed at a medium-term general government primary surplus of about 1 percent of GDP to broadly stabilize debt-to-GDP ratio and maintain an external position consistent with fundamentals and desirable policies.
  - Structural policies to increase competitiveness while maintaining full employment, including upgrading infrastructure; enhancing schooling, training, apprenticeship, and mobility of workers; supporting the working poor; implementing policies to increase growth in the labor force (including skill-based immigration reform).
  - Industrial policies should remain narrowly targeted; tariff barriers and other trade distortions should be rolled back; trade and investment disagreements should be resolved to support an open, stable, and transparent global trading system.

*Source: IMF — chapter content provided in the supplied PDF excerpt.*

### 1.7 percent) raised the value of foreign-currency-denominated US assets in dollar terms, thereby marginally offsetting (

### United States

### Net International Investment Position (NIIP)
- 2023 NIIP: −70.7 (% GDP)
- 2023 Gross Assets: 123.6 (% GDP)
- 2023 Debt Assets: 37.9 (% GDP)
- 2023 Gross Liab.: 194.4 (% GDP)
- 2023 Debt Liab.: 87 (% GDP)
- Under the IMF staff’s baseline scenario, the NIIP is projected to remain broadly unchanged through the medium term on the back of improvements in net portfolio investment position as the CA balance reverts to its prepandemic average and valuation gains persist.
- Assessment findings:
  - Despite a widening negative trend in the NIIP, US external debt declined to around 87 percent of GDP in 2023 (down from its mid-2020 peak of nearly 110 percent of GDP and the 2016–19 average of 94 percent of GDP), driven by a strong postpandemic economic rebound.
  - The investment income balance remained positive as the yield on assets has consistently surpassed that of its liabilities.
  - A substantial share of external assets denominated in foreign currencies increased to around 70 percent by 2020; an even larger share of external liabilities are US-dollar-denominated.
  - Exchange rate movements affect the NIIP through valuation changes, with a depreciation generally improving the NIIP.
  - About 60 percent of US assets are in the form of FDI and portfolio equity claims.
  - Financial stability risk: an unexpected decline in foreign demand for US fixed-income securities could surface (main component of external liabilities). This risk remains moderate given the dominant status of the US dollar as a reserve currency and mitigants including strong institutions, a predictable policy framework, and attractive diverse investment opportunities.

### Current Account (CA)
- 2023 CA: −3.0 (% GDP)
- 2023 Cycl. Adj. CA: −2.6 (% GDP)
- 2023 EBA Norm: −1.9 (% GDP)
- 2023 EBA Gap: −0.7 (% GDP)
- 2023 Staff Adj.: 0 (% GDP)
- 2023 Staff Gap: −0.7 (% GDP)
- Background and projections:
  - The CA deficit was 3.0 percent of GDP in 2023, down from 3.8 percent in 2022 (moving from 3½ to 2.6 percent of GDP in cyclically adjusted terms) and compared with the 2016–19 prepandemic deficit of around 2 percent of GDP.
  - In 2023, the trade deficit contracted relative to 2022 (−2.8 percent versus −3.7 percent of GDP), driven primarily by a reduced deficit in goods; the service surplus increased slightly; income accounts remained broadly stable.
  - From a savings-investment perspective, the CA deficit reflected the public sector’s savings-investment deficit, partly offset by the private sector’s savings-investment surplus.
  - The CA deficit is expected to gradually decline to about 2¼ percent of GDP over the medium term.
- Assessment findings:
  - The EBA model estimates a cyclically adjusted CA balance of −2.6 percent of GDP against a CA norm of −1.9 percent of GDP, with a standard error of 0.7 percent of GDP, implying a model-based CA gap of −0.7 percent of GDP for 2023.
  - The identified policy gaps primarily reflect more expansionary US fiscal policy relative to the rest of the world (resulting in −0.8 percent of GDP contribution from the fiscal policy gap).
  - The IMF staff assesses a CA gap in a range of −1.4 and 0 percent of GDP with a midpoint of −0.7 percent of GDP.

### Real Exchange Rate (REER)
- 2022 REER appreciation: 8.3 percent
- 2023 REER depreciation: 0.5 percent (yearly averages compared)
- As of April 2024, the REER was about 2.0 percent above the 2023 average.
- Assessment findings:
  - The IMF staff CA gap implies a REER that is overvalued by 5.8 percent in 2022 (with an estimated elasticity of 0.12 applied).
  - The EBA REER index model suggests an overvaluation of 8.3 percent.
  - The EBA REER level model suggests an overvaluation of 16.7 percent.
  - Considering all estimates and uncertainties, the IMF staff assesses the 2023 midpoint REER overvaluation to be 5.8 percent, with a range of 11.6 to 0 percent (range obtained from the CA standard error and corresponding CA elasticity).

### Capital and Financial Accounts: Flows and Policy Measures
- 2023 financial account balance: approximately −3.0 percent of GDP (slight improvement from −3.1 percent of GDP in 2022).
- The 2023 shift primarily stemmed from an increase in net other investment and, to a lesser degree, an increase in net financial derivatives; partly offset by declines in net portfolio investment and net direct investment.
- Assessment findings:
  - The United States has an open capital account.
  - Vulnerabilities are limited by the US dollar’s status as a reserve currency, with foreign demand for US Treasury securities supported by that status and possibly safe haven flows.

### FX Intervention and Reserves Level
- Assessment findings:
  - The US 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.

*International Monetary Fund | 2024 EXTERNAL SECTOR REPORT*

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_Source: https://www.imf.org/-/media/files/publications/esr/2024/english/ch3.pdf_