## ch3 ## Source details **Canonical URL:** [ch3](https://www.imf.org/-/media/files/publications/esr/2025/english/ch3.pdf) ## Other formats - [Markdown version](/-/media/files/publications/esr/2025/english/ch3.pdf.md) - [Structured JSON version](/-/media/files/publications/esr/2025/english/ch3.pdf.json) --- ### Methodology and Process - Individual economy assessments use a wide range of methods to form an integrated and multilaterally consistent view of economies’ external sector positions. - Methods are grounded in the latest vintage of the External Balance Assessment (EBA) developed by the IMF’s Research Department to estimate desired current account balances and real exchange rates. - Model estimates and associated discussions on policy distortions are accompanied by a holistic view of other external indicators, including: - capital and financial account flows and measures, - foreign exchange intervention and reserves adequacy, - foreign asset or liability positions. - EBA models provide numerical inputs for identification of external imbalances but may not capture all relevant economic characteristics and potential policy distortions; in such cases, economy-specific adjustors are applied. - IMF staff estimate an economy’s current account gap by combining the EBA model’s current account gap estimate with adjustors. - The staff estimate the real effective exchange rate (REER) gap consistent with the staff current account gap by applying a country-specific elasticity; in some cases additional information is used, such as the EBA REER regression models and unit-labor-cost-based measures. - A process was developed for multilaterally consistent external assessments for the 30 largest economies, representing about 90 percent of global GDP. - External assessments are presented in ranges and in different categories reflecting deviations of the overall external position from fundamentals and desired policies. - Overall external positions are labeled as either: - “broadly in line,” - “moderately weaker (stronger),” - “weaker (stronger),” - “substantially weaker (stronger).” - External positions labeled as “broadly in line” are consistent with: - current account gaps in the range of ±1 percent of GDP, and - REER gaps in a range that reflects the country-specific exchange rate semi-elasticity (for example, ±5 percent based on an elasticity of –0.2). - Data vintage: individual economy assessments for 2024 are based on external sector data as of May 27, 2025 and IMF staff projections in the April 2025 World Economic Outlook. ### Assessment Categories and Numeric Thresholds - CA Gap > 4% and REER Gap < −20%: ... substantially stronger ... - CA Gap 2%, 4% and REER Gap −20%, −10%: ... stronger ... - CA Gap 1%, 2% and REER Gap −10%, −5%: ... moderately stronger ... - CA Gap −1%, 1% and REER Gap −5%, 5%: The external position is broadly in line with fundamentals and desirable policies. - CA Gap −2%, −1% and REER Gap 5%, 10%: ... moderately weaker ... - CA Gap −4%, −2% and REER Gap 10%, 20%: ... weaker ... - CA Gap <−4% and REER Gap > 20%: ... substantially weaker ... ### Box 3.1 — Two-country example (policy interpretation) - Country A: large current account deficit, large fiscal deficit, high public and external debt; external imbalance reflects fiscal gap and exchange rate appears overvalued. - Country B: current account surplus, large creditor position, no domestic policy distortions; exchange rate appears undervalued. - Key implication: distinguish domestic vs foreign fiscal policy gaps; elimination of fiscal gap in deficit country reduces surpluses elsewhere. Policy actions relate to private and public saving-investment balances; reforms address vulnerabilities in external stock positions and reserves. ### Selected Country Findings, Projections, and Policy Recommendations - Belgium - NIIP: 60.1 percent of GDP in 2024; Gross Assets: 412.0; Debt Assets: 130.1; Gross Liab.: 351.9; Debt Liab.: 152.0. - 2024 CA: −0.9 percent of GDP; Cycl. Adj. CA: −0.5; EBA Norm: 3.5; EBA Gap: −4.0; Staff Adj.: 0; Staff Gap: −4.0. - REER: ULC-based appreciated 7.9 percent and CPI-based appreciated 4.6 percent between Feb 2020 and Dec 2024; staff-assessed REER overvaluation range 5.3 to 6.5 percent, midpoint 5.9 percent (elasticity 0.68). - Assessment: NIIP large and positive; vulnerabilities limited despite exposure to high external public debt. - Brazil (selected) - Net FDI in 2024: 2.2 percent of GDP; portfolio investment net inflows: 0.1 percent of GDP. - Reserves declined by $25 billion to $330 billion at end-2024; reserves adequacy: 126 percent at end-2024. - Assessment: flexible exchange rate is an important shock absorber; interventions two-sided; interventions should not substitute for warranted macroeconomic policy adjustment. - Canada - Overall assessment: external position in 2024 moderately weaker than implied by fundamentals. - NIIP: 61.93 percent of GDP; Gross Assets: 322.47; Debt Assets: 98.6; Gross Liab.: 260.54; Debt Liab.: 145.32. - 2024 CA: −0.5 percent of GDP; Cycl. Adj. CA: −0.9; EBA Norm: 2.5; EBA Gap: −3.4; Staff Adj.: 1.6; Staff Gap: −1.8 (staff range −2.2 to −1.3). - REER: 2024 average REER 0.9 percent below 2023 average; staff assesses REER overvalued between 5.0 and 8.3 percent, midpoint 6.6 percent (elasticity 0.27). - Policy responses: invest in R&D and physical capital, remove internal trade barriers, focus on high-multiplier public spending, pursue fiscal consolidation. - China - 2024 CA: 2.3 percent of GDP; Cycl. Adj. CA: 2.0; EBA Norm: 0.8; EBA Gap: 1.2; Staff Adj.: 0.0; Staff Gap: 1.2 (range 0.5 to 1.8). - NIIP: 17.6 percent of GDP in 2024; Gross Assets: 54.5; Debt Assets: 16.0; Gross Liab.: 36.9; Debt Liab.: 12.9. - REER: 2024 REER depreciated 2.6 percent; staff REER gap midpoint −8.5 percent (range −3.8 to −13.1; elasticity 0.14). - Policy recommendations: boost domestic demand via more expansionary fiscal policy, consider further monetary easing and exchange rate flexibility, structural reforms to reduce household savings and boost services investment, continue trade tension resolution. - Euro Area (aggregate) - 2024 CA: 2.8 percent of GDP; Cycl. Adj. CA: 2.9; EBA Norm: 1.4; EBA Gap: 1.4; Staff Adj.: −0.4; Staff Gap: 1.0 (range 0.2 to 1.8; standard error 0.8). - NIIP: 10.9 percent of GDP in 2024; Gross Assets: 260.4; Debt Assets: 94.1; Gross Liab.: 249.4; Debt Liab.: 88.2. - REER: CPI-based REER appreciated 0.5 percent from 2023; staff assesses REER gap −3.1 percent (range −0.7 to −5.5; elasticity 0.33). - Policy priorities: recalibrate domestic demand composition, deepen EU single market, complete banking and capital markets unions, targeted fiscal and structural reforms. - France - Overall: external position in 2024 broadly in line. - 2024 CA: 0.4 percent of GDP; Cycl. Adj. CA: 0.3; EBA Norm: 0.1; EBA Gap: 0.3; Staff Gap midpoint 0.3 (range −0.1 to 0.7). - NIIP: −20.3 percent of GDP in 2024; Gross Assets: 372.5; Debt Assets: 191.7; Gross Liab.: 392.9; Debt Liab.: 231.7. - REER: staff-implied REER gap −1.0 percent; EBA models diverge (index model −7.8 percent; level model no gap). - Policies: sustained fiscal consolidation, structural reforms to support productivity and private investment; cautious, EU-coordinated industrial policies. - Germany - 2024 CA: 5.7 percent of GDP; Cycl. Adj. CA: 5.5; EBA Norm: 3.5; EBA Gap: 2.1; Staff Gap: 2.1. - NIIP: 79 percent of GDP in 2024; Gross Assets: 312; Debt Assets: 153; Gross Liab.: 233; Debt Liab.: 143. - REER: staff assesses REER undervalued midpoint 6.6 percent (elasticity 0.32); EBA models diverge. - Policy recommendations: promote investment and diminish excess saving, accelerate licensing and permitting reforms, expand equity financing for young firms. - Hong Kong SAR - 2024 CA: 12.9 percent of GDP; Cycl. Adj. CA: 12.8; Staff Gap midpoint −0.5 (staff-assessed CA norm midpoint 13.3); staff-assessed CA gap range −1 to +0.1, midpoint −0.5. - NIIP: 500 percent of GDP in 2024; Gross Assets: 1,654; Debt Assets: 1 409; Gross Liab.: 1,154; Debt Liab.: 1,216. - REER: appreciated 2.4 percent in 2024; staff REER gap midpoint 1.5 percent (range −0.2 to 3.1; elasticity −0.32). - FX/reserves: total reserve assets $422 billion end-2024; reserves 104 percent of GDP at end-2024. - Policy guidance: gradual fiscal consolidation, maintain currency board automatic adjustment, reforms to deepen financial ecosystem, maintain wage and price flexibility. - India - Overall: external position for FY2024/25 assessed moderately stronger than level implied by fundamentals. - FY2024/25 CA: −0.8 percent of GDP; Cycl. Adj. CA: −0.6; EBA Norm: −2.0; EBA Gap: 1.4; Staff Adj.: 0.0; Staff Gap: 1.4 (range 0.7 to 2.1). - NIIP: −9.6 percent of GDP end-2024; Gross Assets: 27.9; Debt Assets: 4.4; Gross Liab.: 37.5; Debt Liab.: 19.2. - REER: as of March 2025 REER about 2.7 percent below 2024 average; staff REER gap midpoint −7.9 percent (range −11.6 to −3.9; semi-elasticity 0.18). - Reserves: $665.4 billion end-FY2024/25 (up from $646.4 billion); reserves represent about 209 percent of short-term debt, about 107 percent of IMF composite metric, and over eight months of import coverage. - Policy priorities: reduce import restrictions (especially intermediate goods), improve business environment, liberalize FDI regime, exchange rate flexibility as main absorber; limit interventions to destabilizing risk premium episodes. - Indonesia - 2024 NIIP: −17.6 percent of GDP; Gross Assets: 37.4; Res. Assets: 11.2; Gross Liab.: 55.0; Debt Liab.: 30.4. - 2024 CA: −0.6 percent of GDP; Cycl. Adj. CA: −0.9; EBA Norm: −0.7; EBA Gap: −0.2; Staff Adj.: 0.5; Staff Gap: 0.3 (range −0.2 to 0.8). - REER: average REER depreciated 2.2 percent in 2024 vs 2023; as of March 2025 REER 4.2 percent below 2024 average; staff REER gap midpoint −1.6 percent (range −4.7 to 1.5; elasticity 0.16). - Reserves: $156 billion in 2024; end-2024 reserves equal 11.2 percent of GDP, 125 percent of IMF reserve adequacy metric, 6.4 months of prospective imports. - Policy guidance: preserve flexible exchange rate, safeguard fiscal position, advance financial deepening, structural reforms to sustain capital inflows. - The Netherlands - 2024 CA: 9.9 percent of GDP; Cycl. Adj. CA: 10.1; EBA Norm: 3.8; EBA Gap: 6.2; Staff Adj.: −2.2; Staff Gap: 4.0 (range 3.5 to 4.5). - NIIP and flows dominated by special-purpose entities and multinational profit channeling. - REER: CPI-based REER appreciated 1.2 percent in 2024; staff CA gap implies REER undervaluation range 5.4 to 7.0 percent, midpoint 6.2 percent (elasticity 0.65). - Policy note: measurement biases (portfolio retained earnings) materially affect CA gap; strong external position limits vulnerabilities. - Poland - 2024 NIIP: −28.2 percent of GDP; Gross Assets: 59.5; Reserve Assets: 24.4; Gross Liab.: 87.6; Gross External Debt: 50.2. - 2024 CA: 0.2 percent of GDP; Cycl. Adj. CA: 0.2; EBA Norm: −1.7; EBA Gap: 1.9; Staff Adj.: 0.0; Staff Gap: 1.9. - REER: NEER and CPI-based REER appreciated 7.5 percent in 2024; staff REER gap midpoint −4.8 percent (range −5.9 to −3.7; elasticity 0.4). - Reserves: $223 billion in 2024; net reserves $197 billion; reserves about 156 percent of IMF reserve adequacy metric. - South Africa (selected) - 2024 net FDI inflows: 0.9 percent of GDP; net portfolio outflows: 0.3 percent of GDP. - Gross external financing needs: 13 percent of GDP in 2024. - International reserves: 16.7 percent of GDP end-2024; reserves coverage about 6.1 months of imports; reserves relative to short-term debt: 128.6 percent. - Recommendation: maintain adequate international reserves within recommended range to support resilience. - Spain - 2024 CA: 3.0 percent of GDP; Cycl. Adj. CA: 3.5; EBA Norm: 1.5; EBA Gap: 2.0; Staff Adj.: 0.0; Staff Gap: 2.0. - NIIP: −44.0 percent of GDP end-2024; Gross Assets: 201.2; Debt Assets: 94.4; Gross Liab.: 245.2; Debt Liab.: 144.5. - REER: CPI-based REER +0.6 percent vs 2023; staff REER implied undervaluation midpoint 7.3 percent (range ±3.1; elasticity 0.28). - Policy recommendations: pursue fiscal consolidation, structural reforms to boost productivity and diversify exports, avoid policies that weaken competitiveness. - Sweden - 2024 CA: 7.4 percent of GDP; Cycl. Adj. CA: 7.1; EBA Norm: 1.6; EBA Gap: 5.5; Staff Gap: 5.5. - NIIP: 66 percent of GDP in 2024; Gross Assets: 345.5; Debt Assets: 170.5; Gross Liab.: 279.5; Debt Liab.: 140.4. - REER: staff CA gap implies REER gap −14.1 percent (elasticity −0.39); staff assesses krona undervalued midpoint 14.7 percent (range −21.6 to −7.9 percent). - Capital flows: financial account net lending 13.8 percent of GDP in 2024; policy: maintain adequate reserves despite free float due to banks’ wholesale funding dependence. - Switzerland - 2024 CA: 5.1 percent of GDP; Cycl. Adj. CA: 5.1; EBA Norm: 6.7; EBA Gap: −1.6; Staff Adj.: −4.6; Staff Gap: −6.2 (±0.8). - NIIP: 126 percent of GDP end-2024; Gross Assets: 638; Gross Liab.: 512; Reserve Assets: 99 percent of GDP. - REER: staff CA gap implies REER overvaluation 11.5 percent in 2024 (elasticity 0.54); staff REER gap range 10.2 to 13 percent, midpoint 11.5 percent. - Reserves: official reserve assets CHF822 billion (US$934 billion) end-2024 (99.8 percent of GDP). - Policy guidance: use fiscal space if downside risks materialize; continue monetary focus on price stability; consider FX intervention in disorderly conditions. - Thailand - 2024 CA: 2.1 percent of GDP; Cycl. Adj. CA: 2.0; EBA Norm: 1.1; EBA Gap: 0.9; Staff Adj.: 0; Staff Gap: 0.9 (range 0.2 to 1.6). - NIIP: 8.2 percent of GDP in 2024; Gross Assets: 123.2; Debt Assets: 39.8; Gross Liab.: 115.0; Debt Liab.: 36.4. - REER: 2024 REER moderately depreciated 0.1 percent vs 2023; as of March 2025 REER 2.8 percent above 2024 average; staff REER undervaluation midpoint 1.8 percent (range 0.5 to 3.2; elasticity 0.5). - Reserves: gross international reserves 45 percent of GDP in 2024; reserves about 11 months of imports; reserves 208.3 percent of IMF’s ARA metric. - Recommendations: promote investment, liberalize services, preserve buffers, prudently liberalize capital account, phase out CFMs on non-resident baht accounts. - Türkiye - 2024 CA: −0.8 percent of GDP; Cycl. Adj. CA: −0.3; EBA Norm: 1.0; EBA Gap: −1.3; Staff Adj.: 0.0; Staff Gap: −1.3 (range −1.9 to −0.7). - NIIP: −22.3 percent of GDP end-2024; Gross Assets: 27.7; Debt Assets: 10.6; Gross Liab.: 50.0; Ext. Debt: 39.0. - REER: 2024 CPI-based REER appreciated 12.0 percent vs 2023 average; staff assesses REER overvalued by 5.2 percent. - Reserves: gross international reserves $155 billion in 2024 (72 percent of IMF ARA metric); reserves fell substantially in May 2025 amid depreciation pressures. - Policy recommendations: tighten monetary and fiscal stance, remove discretionary credit allocation favoring exports, strengthen credibility, phase out CFMs on outflows as conditions improve, opportunistic reserves buildup. - United Kingdom - 2024 CA: −2.7 percent of GDP; Cycl. Adj. CA: −2.7; EBA Norm: −0.3; EBA Gap: −2.4; Staff Adj: 0.7; Staff Gap: −1.7 (range −1.4 to −2.0). - NIIP: −9.8 percent of GDP in 2024; Gross Assets: 509; Debt Assets: 261; Gross Liab.: 519; Debt Liab.: 278. - REER: REER appreciated close to 4.2 percent in 2024; staff assesses REER gap 6.5 percent in 2024 (elasticity 0.26; range 5.5 to 7.6 percent from related context). - Policy guidance: fiscal consolidation and structural reforms to support external rebalancing; pursue nondiscriminatory trade liberalization. - United States - 2024 CA: −3.9 percent of GDP; Cycl. Adj. CA: −3.6; EBA Norm: −2.2; EBA Gap: −1.4; Staff Adj.: 0; Staff Gap: −1.4 (range −2.0 to −0.7). - NIIP: −89.9 percent of GDP end-2024; Gross Assets: 123.0; Debt Assets: 35.9; Gross Liab.: 212.8; Debt Liab.: 79.5. - REER: REER appreciated 2.4 percent in 2024; staff implies REER overvaluation 11.9 percent (elasticity 0.11), staff range 6.1 to 17.8 percent. - Policy recommendation: medium-term fiscal consolidation to achieve general government primary surplus about 1 percent of GDP to adjust external position; avoid industrial policies that favor domestic producers. ### Country-specific Adjustors and Measurement Issues (selected) - Hong Kong SAR: downward adjustment of 4.4 percentage points of GDP to account for gold futures physical settlement; adjusted CA norm midpoint 13.3 percent of GDP (range 12.7 to 13.8). - Singapore: multiple downward adjustments (public health −1.0, NFA composition −3.4, measurement biases −2.1) result in staff-estimated CA gap about 5.1 percent of GDP. - Switzerland: adjustments for retained earnings on portfolio equity investment and valuation effects lead to Staff Adj. of −4.6 and Staff Gap of −6.2 percent of GDP. - Sweden: bounds on EBA norm derived by adding/subtracting standard deviation (6.7 percent) from midpoint to reflect uncertainty. - Türkiye: IMF reclassified de facto exchange rate regime to “crawl-like arrangement”; ARA metric calculation depends on de facto classification. _Italicized source: 2025 External Sector Report Chapter 3 (2024 Individual Economy Assessments), IMF | July 2025_ ### References ............................................................................................................. ### ch3 - References ............................................................................................................. ### Methodology and Process - Individual economy assessments use a wide range of methods to form an integrated and multilaterally consistent view of economies’ external sector positions. - Methods are grounded in the latest vintage of the External Balance Assessment (EBA) developed by the IMF’s Research Department to estimate desired current account balances and real exchange rates. - Model estimates and associated discussions on policy distortions are accompanied by a holistic view of other external indicators, including: - capital and financial account flows and measures, - foreign exchange intervention and reserves adequacy, - foreign asset or liability positions. - Policy discussion highlights policies and reforms that contribute to supporting convergence toward (or maintenance of) external balance, in the context of a summary of the overall policy advice. - EBA models provide numerical inputs for identification of external imbalances but may not capture all relevant economic characteristics and potential policy distortions; in such cases, economy-specific adjustors are applied. - IMF staff estimate an economy’s current account gap by combining the EBA model’s current account gap estimate with adjustors. - The staff estimate the real effective exchange rate (REER) gap consistent with the staff current account gap by applying a country-specific elasticity; in some cases additional information is used, such as the EBA REER regression models and unit-labor-cost-based measures. - A process was developed for multilaterally consistent external assessments for the 30 largest economies, representing about 90 percent of global GDP. - External assessments are presented in ranges and in different categories reflecting deviations of the overall external position from fundamentals and desired policies. - Ranges of uncertainty for IMF staff–assessed current account gaps are based on country-specific estimated measures; for the REER, ranges of uncertainty vary by country, reflecting country-specific factors, including different exchange rate semi-elasticities applied to the staff-assessed current account gaps. - Overall external positions are labeled as either: - “broadly in line,” - “moderately weaker (stronger),” - “weaker (stronger),” - “substantially weaker (stronger).” - Wording conventions: - When comparing the cyclically adjusted current account with the current account norm, the wording “higher” or “lower” is used, corresponding to positive or negative current account gaps, respectively. - A quantitative estimate of the IMF staff’s view of the REER gap is generally reported as ( ) percent “over” or “under” valued. - External positions labeled as “broadly in line” are consistent with: - current account gaps in the range of ±1 percent of GDP, and - REER gaps in a range that reflects the country-specific exchange rate semi-elasticity (for example, ±5 percent based on an elasticity of –0.2). - Example and further detail are provided in Box 3.1: “Assessing Imbalances: The Role of Policies—An Example.” ### Assessment Categories and Numeric Thresholds (Table 3.A mapping) - CA Gap > 4% and REER Gap < −20%: ... substantially stronger ... - CA Gap 2%, 4% and REER Gap −20%, −10%: ... stronger ... - CA Gap 1%, 2% and REER Gap −10%, −5%: ... moderately stronger ... - CA Gap −1%, 1% and REER Gap −5%, 5%: The external position is broadly in line with fundamentals and desirable policies. - CA Gap −2%, −1% and REER Gap 5%, 10%: ... moderately weaker ... - CA Gap −4%, −2% and REER Gap 10%, 20%: ... weaker ... - CA Gap <−4% and REER Gap > 20%: ... substantially weaker ... ### Selection of Economies (coverage and criteria) - The 30 systemic economies analyzed in detail were generally chosen on the basis of criteria including: - each economy’s global rank in terms of purchasing power GDP, as reported in the IMF’s World Economic Outlook, - the level of nominal gross trade, - degree of financial integration. - The assessments cover the 30 largest economies, representing about 90 percent of global GDP. ### Data Vintage and Projections - The individual economy assessments for 2024 are based on external sector data as of May 27, 2025 and IMF staff projections in the April 2025 World Economic Outlook. *2025 External Sector Report Chapter 3 2024 Individual Economy Assessments — IMF | July 2025* ### Box 3.1. Assessing Imbalances: The Role of Policies—An Example ### Box 3.1. Assessing Imbalances: The Role of Policies—An Example ### Two-country example - Stylized two-country world used to clarify analysis of policy distortions in a multilateral setting and to distinguish between domestic policy distortions (requiring home-country action) and foreign policy distortions (requiring action by the other country). - Country A: - Has a large current account deficit and a large fiscal deficit, as well as high public and external debt. - Country B: - Has a current account surplus (matching the deficit in Country A) and a large creditor position but has no policy distortions. ### Overall external assessment - Country A has an external imbalance reflecting its large fiscal deficit. - Country B has an equal and opposite surplus imbalance. - Country A’s exchange rate would look overvalued and Country B’s undervalued. ### Policy gaps - Analysis of policy gaps shows: - Country A has a domestic policy distortion that needs adjustment. - Country B has no domestic policy gaps; adjustment by Country A would automatically eliminate the imbalance in Country B. ### Individual economy write-ups - Estimates of needed current account adjustment and associated real exchange rate change are equal and opposite in both economies (given only two economies). - Individual assessments identify different issues and risks: - Country A: - Capital flows and foreign asset and liability position sections would note vulnerabilities arising from international liabilities. - Potential policy response section would focus on the need to rein in the fiscal deficit and limit financial excesses. - Country B: - With no domestic policy distortions, the write-up would find no fault with policies. - Would note that adjustment among other economies would help reduce the imbalance. ### Implications - It is critical to distinguish between domestic and foreign fiscal policy gaps. - Elimination of the fiscal policy gap in a systemic deficit economy would help reduce excessive surpluses in other systemic economies. - Policy actions that address external imbalances relate to determinants of current account balances, namely private and public saving-investment balances. - Structural or policy distortions can contribute to excessive or inadequate saving and investment; individual economy assessments highlight reforms and policy changes to address these gaps. - Policy advice also seeks to address vulnerabilities associated with external stock positions, including reserves, as well as foreign exchange intervention policies. *IMF 2025 External Sector Report — Chapter 3, Box 3.1* ### 37.7 percent of GDP at the end of 2024, with both price effects and exchange rate effects contributing to the improvemen ### ch3 - 37.7 percent of GDP at the end of 2024, with both price effects and exchange rate effects contributing to the improvemen ### Foreign asset and liability position and trajectory - 37.7 percent of GDP at the end of 2024, with both price effects and exchange rate effects contributing to the improvement despite negative net transactions. - Net foreign direct investment increased by a robust 5.3 percentage points of GDP to 21.7 percent of GDP. - Net other investment liabilities fell to 6.2 percent of GDP at the end of 2024, from a high of 11.7 percent of GDP at the end of 2022. - The high level of interbank debt on the liabilities side since 2022 is due to economic sanctions on Russia. - Assessment: The NIIP-to-GDP ratio may decline slightly due to projected CA deficits over the medium term and growth trajectories. However, this would not raise concerns, as the NIIP remains significantly large and positive. Belgium's substantial gross international asset and liability positions are largely influenced by the presence of corporate treasury units, which do not appear to generate macro-relevant mismatches. - 2024 (% GDP) NIIP: 60.1 Gross Assets: 412.0 Debt Assets: 130.1 Gross Liab.: 351.9 Debt Liab.: 152.0 ### Current Account - Background: Over 2014–23, the CA balance averaged 0.3 percent of GDP, with both surpluses and deficits. - The CA deficit widened slightly to 0.9 percent of GDP in 2024, from 0.7 percent of GDP in 2023. - Deterioration drivers: widening in the goods and services deficit to 0.8 percent of GDP in 2024, from 0.6 percent of GDP in 2023, with exports declining more than imports. - Primary income: increased by 0.4 percentage point of GDP to 1.7 percent of GDP in 2024. - Current transfers: outflow increased by 0.3 percentage point of GDP to –1.7 percent of GDP. - Volatility in trade and primary income balances reflects substantial activities of multinationals and significant trade data revisions. - Assessment: The EBA model estimates a CA norm of 3.5 percent of GDP, against a cyclically adjusted CA balance of –0.5 percent of GDP, implying a gap of –4.0 percent of GDP. This is within a range estimated by IMF staff for the CA gap of between –4.4 and –3.6 percent of GDP, applying the standard error of the CA norm estimated at ±0.4 percent of GDP. - 2024 (% GDP) CA: –0.9 Cycl. Adj. CA: –0.5 EBA Norm: 3.5 EBA Gap: –4.0 Staff Adj.: 0 Staff Gap: –4.0 ### Real Exchange Rate - Background: The ULC-based and CPI-based REERs appreciated by 7.9 percent and 4.6 percent between February 2020 and December 2024. - Stronger appreciation of the ULC-based REER driven by faster and higher wage increases from automatic wage indexation. - The CPI-based REER appreciated by 1.0 percent in 2024 compared to the 2023 average. - As of March 2025, the CPI-based REER was 0.9 percent above the 2024 average. - Assessment: The IMF staff-assessed CA gap implies a REER overvaluation in the range of 5.3 to 6.5 percent, with a midpoint of 5.9 percent (applying an estimated elasticity of the CA balance to the REER of 0.68). - EBA REER index model points to an overvaluation of 8.3 percent, whereas the REER level model points to an overvaluation of 17.5 percent. ### Capital and financial accounts: flows and policy measures - Background: The financial account balance was negative at 0.3 percent of GDP in 2024. - Direct investment balance was strongly positive at 4.4 percent of GDP (after turning negative at 1.7 percent of GDP in 2023 for the first time since 2019), due to a combination of negative transactions on the assets side (–1.0 percent of GDP) and strongly negative transactions on the liabilities side (–5.4 percent of GDP). - The portfolio investment balance was negative at –4.9 percent of GDP, primarily driven by purchases of Belgian government bonds by nonresidents. - The balance of other investment (including financial derivatives) was slightly positive at 0.2 percent of GDP. - Assessment: Belgium remains exposed to financial market risks and vulnerabilities associated with high external public debt. However, these vulnerabilities are limited by the large, positive NIIP. ### 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. *IMF | July 2025 — 2025 External Sector Report Chapter 3 2024 Individual Economy Assessments* ### 7.6 percent. The sizable REER depreciation since the start of 2024, yet to be fully reflected in the CA because of its l ### ch3 - 7.6 percent. The sizable REER depreciation since the start of 2024, yet to be fully reflected in the CA because of its l ### Capital and Financial Accounts: Flows and Policy Measures (Brazil excerpt) - Background: - Net FDI flows averaged 2.8 percent of GDP during 2015–22 and remained 2.2 percent of GDP in 2024. - Portfolio investment registered net inflows of 0.1 percent of GDP in 2024. - Assessment: - Composition of capital flows expected to have a favorable risk profile over the medium term, with positive net FDI inflows outweighing negative portfolio outflows. - Debt liabilities increasingly denominated by FDI liabilities. - Downside risks: tighter global financial conditions and insufficient progress on reforms could weaken capital flows. ### FX Intervention and Reserves Level (Brazil excerpt) - Background: - Brazil has a floating exchange rate. - Authorities intervened in FX markets during 2020–22 and 2024 (including spot, repo, and FX swap markets). - International reserves declined by $25 billion to $330 billion at the end of 2024. - Assessment: - Flexible exchange rate is an important shock absorber. - Reserves adequacy: 126 percent at the end of 2024 based on the IMF’s reserve adequacy metric. - FX interventions were two-sided in recent years. - FX intervention could be used to address episodes of higher risk premia when FX liquidity becomes shallow, but should not substitute for warranted macroeconomic policy adjustment. ### Canada: Key External Sector Findings (Table 3.5 excerpts) - Overall assessment: - External position in 2024 was moderately weaker than level implied by medium-term fundamentals and desirable policies. - CA deficit narrowed slightly to 0.5 percent of GDP in 2024 (from –0.6 percent of GDP in 2023). - Potential policy responses (selected): - Invest in R&D and physical capital, remove internal trade barriers, focus on high-multiplier public spending, promote FDI (including FDI outflows). - Pursue trade policy clarity/transparency and deepen economic integration; balance government support to minimize long-term distortions and ensure medium-term fiscal consolidation. - Foreign asset and liability position: - NIIP rose to 61.9 percent of GDP from 49.4 percent of GDP in 2023 and 35.4 percent of GDP in 2022. - Gross external debt: 145.3 percent of GDP (up from 136.5 percent in 2023); about 37 percent of gross external debt is short term. - Assessment: foreign assets have a higher foreign-currency component than liabilities; NIIP level and trajectory are sustainable. - 2024 (% GDP) key figures: - NIIP: 61.93 - Gross Assets: 322.47 - Debt Assets: 98.6 - Gross Liab.: 260.54 - Debt Liab.: 145.32 - Current account: - 2024 CA: –0.5 percent of GDP; Cycl. Adj. CA: –0.9 percent of GDP; EBA Norm: 2.5 percent of GDP; EBA Gap: –3.4 percent of GDP. - Staff adjustments: Staff Adj.: 1.6; Staff Gap: –1.8 percent of GDP (staff assesses CA gap in range –2.2 to –1.3 percent of GDP, midpoint –1.8 percent of GDP). - Real exchange rate: - 2024 average REER was 0.9 percent below the 2023 average and about 2.5 percent weaker than the 2019–23 average. - As of March 2025, REER had depreciated by 3.8 percent relative to the 2024 average. - REER valuation assessments: EBA REER index model overvaluation 3.2 percent in 2024; REER level model suggests undervaluation 13 percent. - Consistent with staff CA gap (elasticity 0.27), staff assesses REER overvalued between 5.0 and 8.3 percent, midpoint 6.6 percent. - Capital and financial accounts: - Net inflows in 2024 came mostly from portfolio investments; net FDI outflow was 1 percent of GDP in 2024. - Other investments recorded net outflows of 0.7 percent of GDP (from inflows of 3.7 percent of GDP in 2023). - Portfolio investments recorded net inflows of 2.6 percent of GDP in 2024 (reversal from 2023 outflow of 0.7 percent of GDP). - Errors and omissions: –0.1 percent of GDP. - Assessment: open capital account; vulnerabilities limited by credible floating exchange rate. - FX intervention and reserves: - Canada has a free floating exchange rate and has not intervened in FX market since September 1998 (except joint interventions). - Limited reserves, but Bank of Canada has standing swap arrangements with the US Federal Reserve and four other major central banks (not drawn on). - Assessment: policies appropriate to circumstances. ### China: Key External Sector Findings (Table 3.6 excerpts) - Overall assessment: - External position in 2024 assessed moderately stronger than level implied by fundamentals and desirable policies. - CA surplus strengthened to 2.3 percent of GDP in 2024 (from 1.4 percent in 2023). - Sustained net capital outflows have resulted in persistent RMB depreciation pressures despite large CA surplus. - Potential policy responses (selected): - Boost domestic demand via more expansionary fiscal policy (support consumption, scale up social spending, finance completion of unfinished housing). - Consider further monetary easing and exchange rate flexibility alongside fiscal and structural package. - Structural reforms: reduce household savings (e.g., Hukou reforms), boost services investment, scale back industrial policies; target industrial policies narrowly. - Continue efforts to resolve trade tensions; promote clarity/transparency and pursue nondiscriminatory reductions in trade barriers or free trade agreements. - Foreign asset and liability position: - NIIP: 17.6 percent of GDP in 2024 (up from 12.0 percent in 2021; below 2008 peak 29.9 percent). - 2024 (% GDP) key figures: NIIP: 17.6; Gross Assets: 54.5; Debt Assets: 16.0; Gross Liab.: 36.9; Debt Liab.: 12.9. - Assessment: NIIP-to-GDP ratio expected to remain positive and increase modestly; NIIP not a major source of risk given sizable foreign reserves (18.4 percent of GDP) and liabilities mostly FDI. - Current account: - 2024 CA: 2.3 percent of GDP; Cycl. Adj. CA: 2.0 percent of GDP; EBA Norm: 0.8 percent of GDP; EBA Gap: 1.2 percent of GDP. - Staff Adj.: 0.0; Staff Gap: 1.2 percent of GDP (staff CA gap ranges from 0.5 to 1.8 percent of GDP, midpoint 1.2 percent). - Drivers: goods balance 4.1 percent of GDP (up from 3.3 percent in 2023); goods exports rose 7.2 percent in 2024. - Services deficit widened marginally to 1.2 percent of GDP (from 1.1 percent in 2023); income deficit stable at 0.7 percent of GDP. - Real exchange rate: - 2024 NEER appreciated 0.6 percent; REER depreciated 2.6 percent in 2024; cumulative REER decline 11 percent since 2022. - As of March 2025, REER had depreciated by 1.9 percent relative to 2024 average. - IMF staff CA gap implies REER gap –8.5 percent. - EBA REER index regression: REER gap –1.1 percent; EBA REER level regression: REER gap –0.7 percent. - Staff REER assessment range: –3.8 to –13.1 percent, midpoint –8.5 percent (elasticity 0.14 applied). - Capital and financial accounts: - Financial account (excluding net errors and omissions) deteriorated to –2.5 percent of GDP in 2024 (from –1.3 percent of GDP in 2023) due to large portfolio outflows and inward FDI declined to 0.1 percent of GDP. - Authorities raised cross-border financing macroprudential adjustment parameter from 1.5 to 1.75 in January 2025 to encourage external borrowing (relaxation of an inflow CFM). - Assessment: net outflows accelerated in 2024; in medium term, further capital account opening likely to create larger two-way gross flows; CFMs should not actively manage capital flow cycle or substitute for warranted macroeconomic adjustment and exchange rate flexibility; gradually phase out CFMs consistent with greater exchange rate flexibility and reforms. - FX intervention and reserves: - Official reserve assets rose by about $6 billion through 2024, reaching $3.5 trillion by end-2024. - End-of-2024 reserve assets: 103 percent of IMF composite metric adjusted for capital controls (109 percent in 2023). - Assessment: reserves assessed adequate; temporary FX intervention could be considered in event of large capital outflows posing significant macroeconomic and financial stability risks. ### Euro Area: Key External Sector Findings (Table 3.7 excerpt) - Overall assessment: - External position in 2024 was moderately stronger than level implied by fundamentals and desirable policies. - CA balance increased to 2.8 percent of GDP in 2024 (from 1.7 percent in 2023), driven mostly by lower energy imports and higher non-energy goods exports. - CA surplus projected to decline in the medium term but remain about 2 percent of GDP with sizable country-level imbalances. - Potential policy responses (selected): - Recalibrate composition of domestic demand and reduce country-level imbalances where needed. - Deepen EU single market: lower firms’ regulatory burdens, reduce administrative barriers, streamline trade procedures, enhance labor mobility, better integrate financial services. - Complete banking and capital markets unions to strengthen risk sharing and lift investment. - Reforms to boost energy security, enhance EU budget for public goods investment, and structural reforms to improve business environment. - Countries with excess CA surpluses should strengthen domestic demand and increase investment; countries with external positions weaker than the norm should increase public sector saving and implement productivity-enhancing reforms. - Foreign asset and liability trajectory: - Historical context: NIIP fell to –20.5 percent of GDP in 2009, turned positive in 2022 and rose thereafter (detail continues beyond excerpt). *IMF 2025 External Sector Report — Chapter 3 (2024 Individual Economy Assessments)* ### 10.9 percent of GDP by the end of 2024. These increases mostly reflect accumulated CA surpluses. However, the robust inc ### ch3 - 10.9 percent of GDP by the end of 2024. These increases mostly reflect accumulated CA surpluses. However, the robust inc ### Euro area — Foreign Asset and Liability Position and Trajectory - Gross foreign assets: 250.3 percent of GDP (higher than last year but lower than in 2021). - Gross foreign liabilities: 249.4 percent of GDP (higher than last year but lower than in 2021). - Net external assets: elevated in external creditor countries (for example, Germany); net external liabilities remain high in debtor countries (such as Portugal and Spain). - Gross external debt: declined by 1.1 percent of GDP (increase from general governments was more than offset by declines from the Eurosystem, other MFIs, and other sectors). - 2024 (% GDP) NIIP: 10.9; Gross Assets: 260.4; Debt Assets: 94.1; Gross Liab.: 249.4; Debt Liab.: 88.2 - Assessment: Projections of continued CA surpluses over the medium term suggest the NIIP-to-GDP ratio will rise further, at a moderate pace. While the region’s overall NIIP financing vulnerabilities appear low, large net external debtor countries bear an elevated risk of a sudden stop of gross inflows. ### Euro area — Current Account - 2024 CA balance: 2.8 percent of GDP (up from 1.7 percent in 2023). - Drivers: significant improvement in the goods balance (mainly lower energy import prices); small increase in the services surplus (partly unusually high exports of intellectual property from Ireland). - Investment rate: declined from 10.1 percent in 2022 to 9.8 percent in 2023 and 9.2 percent in 2024—widening the saving-investment gap. - Primary income surplus: 0.4 percent of GDP. - Secondary income deficit: –1.3 percent of GDP. - Medium-term projection: current account surplus projected to decline to about 2 percent of GDP. - EBA and staff metrics: - 2024 (% GDP) CA: 2.8; Cycl. Adj. CA: 2.9; EBA Norm: 1.4; EBA Gap: 1.4; Staff Adj.: –0.4; Staff Gap: 1.0 - Assessment: EBA model CA norm of 1.4 percent versus cyclically adjusted CA of 2.9 percent implies gap of 1.4 percent. After adjustments and uncertainty, IMF staff assesses CA gap as 1.0 percent of GDP in 2024, with a range of 0.2 to 1.8 percent of GDP (standard error 0.8). ### Euro area — Real Exchange Rate - CPI-based REER: appreciated by 0.5 percent from 2023; appreciated by 5.3 percent between 2015 and 2024 following a near 20 percent depreciation post-global financial crisis. - March 2025: CPI-based REER was 0.1 percent below its 2024 average. - Assessment: IMF staff assesses REER gap to be –3.1 percent in 2024, with a range of –0.7 to –5.5 percent (based on estimated CA-REER elasticity of 0.33). EBA REER index model suggests an overvaluation of 4.1 percent; level model suggests a 1.7 percent overvaluation. Aggregate REER gap masks large heterogeneity across member states. ### Euro area — Capital and Financial Accounts; FX Intervention and Reserves - Financial account surplus: 3.2 percent of GDP in 2024 (up from 1.9 percent in 2023), driven mostly by rebound of net direct investment offsetting decline in net other investment; net portfolio investment and financial derivatives contributed to a small degree. - Assessment: Aggregate risks limited given strong external position and euro’s reserve status. However, large external financing needs of sovereigns and banking sector cause vulnerability to tighter global financial conditions and sustained market volatility. - FX Intervention / Reserves: euro has status of global reserve currency. Reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating. --- ### France — Overall Assessment and Potential Policy Responses - Overall Assessment: External position in 2024 broadly in line with level implied by medium-term fundamentals and desirable policies. - 2024 CA balance: surplus of 0.4 percent of GDP (driven by stronger services exports due to the Paris Summer Olympics). - Medium-term projection: CA balance projected at –0.1 percent of GDP by 2030 as private consumption and investment improve. - Potential Policy Responses: - Sustained fiscal consolidation over the medium term to maintain external position in line with fundamentals. - Structural reforms to support productivity and attract higher private investment to facilitate green and digital transitions. - Industrial policies: deploy cautiously, remain targeted to specific objectives where externalities or market failures prevent effective market solutions, be coordinated at the EU level, and avoid favoring domestic producers over imports to minimize trade and investment distortions. ### France — Foreign Asset and Liability Position and Trajectory - NIIP: −20.3 percent of GDP in 2024 (within 2014–19 range between −19 percent and −28 percent). - NIIP improved by 7.8 percent of GDP since 2023, largely driven by increase in portfolio investment. - Gross assets: 373 percent of GDP in 2024; non-FDI and nonportfolio-related assets ≈ 50 percent. - Gross liabilities: 393 percent of GDP in 2024; external debt ≈ 259 percent of GDP (52 percent by banks, 22 percent by public sector) in Q3 2024. - About three-quarters of France’s external debt liabilities denominated in domestic currency. - Average TARGET2 balance in 2024: about € -147.9 billion. - Assessment: NIIP negative but size and projected stable trajectory do not raise sustainability concerns. Vulnerabilities from large public external debt (57.7 percent of GDP in Q3 2024), banks’ gross financing needs (stock of banks’ external short-term debt securities 4 percent of GDP in Q3 2024), and financial derivatives (liabilities) ≈ 63.9 percent of GDP. - 2024 (% GDP) NIIP: −20.3; Gross Assets: 372.5; Debt Assets: 191.7; Gross Liab.: 392.9; Debt Liab.: 231.7 ### France — Current Account - 2024 CA balance: surplus of 0.4 percent of GDP (from deficit of 1 percent in 2023), driven by unwinding of large terms-of-trade shock and stronger services exports (partly Olympics). - Gross national savings increased in 2024, driven by higher private savings. - Private investment contracting since 2023. - CA surplus expected to decrease to about 0.2 percent of GDP in 2025 due to dissipation of one-off factors; projected about –0.1 percent of GDP by 2030 as domestic demand strengthens. - Assessment and metrics: - 2024 (% GDP) CA: 0.4; Cycl. Adj. CA: 0.3; EBA Norm: 0.1; EBA Gap: 0.3; Staff Adj.: 0.0; Staff Gap: 0.3 - IMF staff assesses CA gap in 2024 between –0.1 and 0.7 percent of GDP, midpoint 0.3 percent. Main contributor to positive policy gap: positive credit gap of 0.6 percent; fiscal policy gap: –0.3 percent. ### France — Real Exchange Rate - 2024 ULC-based REER: appreciated by 0.7 percent; CPI-based REER: depreciated by 0.1 percent. - March 2025: ULC-based REER 2.4 percent above 2024 average; CPI-based REER 1.3 below 2024 average. - Assessment: Staff-implied REER gap of –1.0 percent in 2024 (semi-elasticity 0.28). EBA REER level model: no REER gap; EBA REER index model: REER gap of −7.8 percent. Staff assesses REER broadly in line with fundamentals with midpoint –1.0 percent and uncertainty ± 1.4 percent. ### France — Capital and Financial Accounts; FX Intervention and Reserves - FDI: inward and outward FDI recovered in 2024 after 2023 dip. - Assessment: France exposed to financial market risks owing to large refinancing needs of sovereign and banking sectors. - FX Intervention / Reserves: euro status noted; reserves held by euro area typically low relative to standard metrics, but currency free floating. --- ### Germany — Overall Assessment and Policy Recommendations - Overall Assessment: External position in 2024 stronger than level implied by medium-term fundamentals and desirable policies. - 2024 CA surplus: 5.7 percent of GDP (slightly up from 5.6 percent in 2023). - 2025 projection: CA expected to decline mainly because trade balance projected to weaken in response to fiscal easing and euro appreciation in early 2025; medium-term CA projected to decline toward norm due to fiscal expansion. - Policy Recommendations: - Policies to promote investment and diminish excess saving to support external rebalancing. - Planned higher fiscal deficits (infrastructure, defense, public investment) expected. - Structural reforms: accelerate licensing and permitting, increase availability of equity financing for young innovative firms, training to enhance employability of older workers. - Industrial policies: deploy cautiously, targeted, EU-coordinated, avoid favoring domestic producers over imports. ### Germany — Foreign Asset and Liability Position and Trajectory - NIIP: 79 percent of GDP in 2024 (up from 70 percent in 2023). - Drivers: CA surplus and valuation gains on external assets (mainly portfolio investments); sovereign securities price rises from policy rate easing in Europe and US. - TARGET2 claims: rose to €1.2 trillion at end-2024 from €1.1 trillion at end-2023. - Between 2017 and 2024, NIIP increased by 37 percent of GDP, lifting primary income balance. - Assessment: Germany’s exposure to the Eurosystem remains large. - 2024 (% GDP) NIIP: 79; Gross Assets: 312; Debt Assets: 153; Gross Liab.: 233; Debt Liab.: 143 ### Germany — Current Account - 2024 CA: 5.7 percent of GDP (5.6 percent in 2023; 8.0 percent average over 2017–19). - Drivers: increase in primary income account and lower secondary income deficit more than offset increase in services deficit; goods balance virtually unchanged. - Savings-investment perspective: moderately lower government and non-financial corporate savings-investment balances offset by higher household surplus. - Assessment and metrics: - EBA cyclically adjusted CA: 5.5 percent of GDP in 2024. - IMF staff CA norm: between 3 and 4 percent of GDP, midpoint 3.5 percent (in line with EBA). - CA gap for 2024: range 1.6–2.6 percent of GDP, midpoint 2.1 percent. - 2024 (% GDP) CA: 5.7; Cycl. Adj. CA: 5.5; EBA Norm: 3.5; EBA Gap: 2.1; Staff Adj.: 0.0; Staff Gap: 2.1 ### Germany — Real Exchange Rate - REER based on consumer prices: appreciated by 0.3 percent during 2024; largely unchanged in March 2025 versus 2024 average. - Assessment: IMF staff CA gap implies REER gap of –6.6 percent in 2024 (elasticity 0.32). EBA REER level model suggests undervaluation of 11.4 percent; EBA REER index model suggests overvaluation of 5.8 percent. Staff assesses REER to be undervalued with midpoint 6.6 percent and uncertainty ±1.6 percent. ### Germany — Capital and Financial Accounts; FX Intervention and Reserves - 2024 capital flows: significant capital exports corresponding to CA surplus remained largely in “other investments”; bulk change occurred in portfolio investments abroad with capital flows into foreign equity assets increasing sharply; net outward FDI increased slightly as inward FDI declined. - Assessment: Risks limited given safe-haven status and strong external position. - FX Intervention / Reserves: euro status noted; reserves held by euro area economies typically low relative to standard metrics; currency floats freely. --- ### Hong Kong SAR — Overall Assessment and Potential Policy Responses - Overall Assessment: External position in 2024 broadly in line with level implied by medium-term fundamentals and desirable policies. - 2024 CA surplus: widened to 12.9 percent of GDP (from 8.5 percent in 2023). - Under Linked Exchange Rate System (LERS): short-term REER movements largely reflect US dollar developments. - Potential Policy Responses: - Gradual fiscal consolidation to secure a balanced recovery and raise public savings to offset stronger private investment. - Reforms to create a vibrant and well-regulated financial ecosystem. - Maintain policies supporting wage and price flexibility to ensure flexible REER adjustment and smooth functioning of currency board arrangement. - Trade policies: resolve trade tensions, promote clarity and transparency, deepen economic integration and pursue free trade agreements. ### Hong Kong SAR — Foreign Asset and Liability Position and Trajectory - NIIP: 500 percent of GDP in 2024 (from 460 percent in 2023). - Gross assets: increased by 35 percentage points of GDP in 2024. - Gross liabilities: declined slightly by –3 percentage points of GDP. - Change in NIIP in 2024: 39.4 percentage points of GDP (valuation effects), exceeding financial account balance of 15.3 percent of GDP. - FX reserves: 104 percent of GDP at end-2024. - Direct investments share: gross assets 36 percent; gross liabilities 55 percent. - Portfolio investments: only 11 percent of gross liabilities. - 2024 (% GDP) NIIP: 500; Gross Assets: 1,654; Debt Assets: 1 409; Gross Liab.: 1,154; Debt Liab.: 1 216 - Assessment: Vulnerabilities low given positive sizable NIIP and favorable composition; large FX reserves; direct investment orientation supports resilience. ### Hong Kong SAR — Current Account - 2024 CA: 12.9 percent of GDP (from 8.5 percent in 2023). - Drivers: significant increase in domestic savings (+4 percentage points of GDP) as household consumption declined due to externally driven headwinds, tight monetary conditions, subdued house and asset prices; goods deficit narrowed from –4.2 to –0.5 percent driven by exports to Chinese mainland and other Asian markets. - Services: inflows strong though tourism recovery faces headwinds; services outflows increased, leaving services surplus stable but below prepandemic level. - Income balance: rose strongly, driven by higher investment income flows (partly reflecting higher global interest rates in first half of year). - Medium term: CA projected to gradually decline with recovery in private domestic demand; gross domestic savings projected about 29 percent of GDP; investment projected to rise by 3.8 percentage points of GDP by 2030 driven by higher private investment. - Assessment and metrics: - 2024 (% GDP) CA: 12.9; Cycl. Adj. CA: 12.8; EBA Norm: --; EBA Gap: --; Staff Adj.: --; Staff Gap: –0.5 - After cyclical adjustment, CA surplus 12.8 percent of GDP, within IMF staff-assessed CA norm range 12.7 to 13.8 percent (midpoint 13.3). Staff-assessed CA gap range –1 to +0.1 percent, midpoint –0.5 percent. - CA norm estimated by applying EBA-estimated coefficients and adjusted for NIIP composition and measurement issues (physical settlement of gold futures contracts). ### Hong Kong SAR — Real Exchange Rate - REER appreciated by 2.4 percent in 2024 (NEER +2.1 percent; domestic inflation 1.7 percent). - March 2025: REER appreciated further by 1.3 percent relative to 2024 average (NEER +1.1 percent; domestic inflation 1.2 percent). - Assessment: IMF staff assesses REER gap range –0.2 to 3.1 percent, midpoint 1.5 percent (based on average CA-REER elasticity of –0.32). ### Hong Kong SAR — Capital and Financial Accounts; FX Intervention and Reserves - Capital account: open; as international financial center, net outflow in non-reserve financial flows increased to 18.2 percent of GDP in 2024 (from 10.8 percent in 2023), driven by net portfolio outflows. - Financial account: typically very volatile reflecting Hong Kong SAR and Chinese mainland financial conditions, US monetary policy expectations, and FX/rates arbitrage. - Assessment: Large financial resources, proactive supervision, deep liquid markets limit risks from volatile capital flows. Greater financial exposure to Chinese mainland could pose real-sector linkages risks. Banking system assessed broadly resilient given high capital buffers and profitability. - FX Intervention / Reserves: Hong Kong dollar continued to trade in a smooth and orderly manner within the Convertibility Zone under the LERS. *Source: 2025 External Sector Report Chapter 3 (2024 Individual Economy Assessments), IMF | July 2025* ### 2024. The HKMA conducts FX operations as part of the currency board operations. However, the Convertibility Underta ### ch3 - 2024 ### Hong Kong SAR: FX operations and reserves - The HKMA conducts FX operations as part of the currency board operations. However, the Convertibility Undertaking was not triggered in 2024 following $6.6 billion sold in 2023. - Total reserve assets amounted to $422 billion at the end of 2024 (or 1.7 times the monetary base). - Reserves decreased modestly to 104 percent of GDP from 111 percent of GDP at the end of 2023. - 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 2024, Hong Kong SAR still holds significant fiscal reserves (about 21 percent of GDP at the end of 2024) built up through strong fiscal discipline in previous years. ### India: Overall assessment and policy guidance - Overall Assessment: - The external position during fiscal year 2024/25 (ending in March 2025) is assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies. - External vulnerabilities stemmed from weakening external demand, geoeconomic fragmentation, and potentially volatile global financial conditions and commodity prices. - Reflecting buoyant services exports and declining oil prices, the CA deficit is projected to remain smaller than its estimated norm but to converge to it over the medium term given India’s development needs. - Despite recent steps toward opening, India’s trade and capital account regimes remain relatively restricted, weighing on both exports and imports. - Potential Policy Responses: - In the near term, the expected strengthening of private consumption will contribute to decreasing the CA balance. - Priority should be given to further reducing import restrictions, especially on intermediate goods. - Continue to improve the business environment to boost private investment and liberalize the FDI regime. - Complement reforms with development of trade infrastructure and expansion of trade networks. - Pursue industrial policies cautiously, narrowly targeted to specific objectives where externalities or market failures prevent effective market solutions, and aim to minimize trade and investment distortions. - Exchange rate flexibility should act as the main shock absorber, with intervention limited to periods marked by destabilizing risk premiums. ### India: Foreign asset and liability position and trajectory - Background: - By the end of 2024, India’s NIIP is estimated to have improved to −9.6 percent of GDP, from −10.5 percent of GDP at the end of 2023, reflecting valuation changes and nominal GDP growth partly offsetting the impact of the CA deficit. - Gross foreign assets declined to about 27.9 percent of GDP (from 28.1 percent of GDP at the end of 2023). - Gross foreign liabilities declined to about 37.5 percent of GDP (from 38.6 percent of GDP at the end of 2023). - 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 norm in FY2024/25 and gradually widen toward it, the NIIP-to-GDP ratio is expected to decline modestly over the medium term as robust nominal GDP expansion mitigates the nominal NIIP decline resulting from the projected CA deficits. - India’s external debt liabilities are relatively low compared with its peers, and short-term rollover risks are limited. - The moderate level of foreign liabilities reflects India’s incremental approach to capital account liberalization. - Key 2024 (% GDP) figures: - NIIP: −9.6 - Gross Assets: 27.9 - Debt Assets: 4.4 - Gross Liab.: 37.5 - Debt Liab.: 19.2 ### India: Current account - Background: - The CA deficit is projected to have widened to about −0.8 percent of GDP in FY2024/25, from −0.7 percent of GDP in the previous year, driven by rising domestic demand for imports amid buoyant services exports. - Gross domestic investment, at 33.4 percent of GDP, and gross domestic savings, at 32.6 percent, have remained broadly stable. - Trade restrictions, while declining, still weigh on exports and imports. - The CA deficit is projected to increase to about −0.9 percent of GDP in FY2025/26, largely reflecting resilient domestic demand and a slowdown in external demand. - Over the medium term, the CA deficit is projected to widen to around its norm of −2 percent of GDP. - Assessment: - The EBA cyclically adjusted CA balance is projected at −0.6 percent of GDP in FY2024/25. - The EBA CA model estimates a norm of −2.0 percent of GDP, with a standard error of 0.7 percent. - IMF staff assesses the CA gap to be 1.4 percent of GDP, within a range of 0.7 to 2.1 percent of GDP. - Positive policy contributions to the CA gap stem mostly from the fiscal balance, while negative contributions come mostly from domestic private credit. - Key 2024/25 (% GDP) figures: - CA: −0.8 - Cycl. Adj. CA: −0.6 - EBA Norm: −2.0 - EBA Gap: 1.4 - Staff Adj.: 0.0 - Staff Gap: 1.4 ### India: Real exchange rate - Background: - In the first half of 2024, the contained CA deficit and portfolio investment inflows—in part driven by India’s inclusion in the global bond indices—resulted in appreciation pressures on the rupee. - This reversed in the second half of 2024 when a strategic shift by international equity investors, a reassessment of the US monetary policy outlook, and elevated global uncertainty triggered portfolio investment outflows. - As of March 2025, the REER was about 2.7 percent below its 2024 average. - Assessment: - The IMF staff CA gap implies a REER gap of −7.9 percent (applying an estimated semi-elasticity of 0.18). - EBA REER index and level models suggest an overvaluation of 5.4 percent and 4.1 percent. - Consistent with the staff CA gap, staff project a REER gap in the range of −11.6 to −3.9 percent, with a midpoint of −7.9 percent, for FY2024/25. ### India: Capital and financial accounts—flows and policy measures - Background: - In FY2024/25, net FDI inflows are expected to have decreased to an almost zero balance, as steady gross inflows are offset by rising disinvestment and outward FDI. - Net portfolio investment inflows and outflows are also expected to be almost evenly balanced, reflecting large equity outflows in late 2024, despite India’s inclusion in global bond indices. - Other investments, reflecting mostly debt-creating inflows, are projected to remain steady at about 1.5 percent of GDP. - During the year, the Indian authorities widened the scope of government bonds available for foreign investors and relaxed FDI restrictions, which should help moderate the interest costs associated with financing the CA deficit. - Assessment: - The expected rebound in net FDI inflows is projected to cover more than half of the CA deficit over the medium term, but the compression of net FDI inflows in FY2024/25 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 premiums. - The 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 financed the CA deficit. ### India: FX intervention and reserves level - Background: - Official FX reserves increased overall in FY2024/25. - Reserves increased from $646.4 billion at the end of FY2023/24 to $665.4 billion at the end of FY2024/25, reflecting increases through September followed by a decline in the following months on equity outflows. - The Reserve Bank of India’s FX interventions aimed to smooth market volatility that the authorities considered to be excessive and contributed to the rupee’s exchange rate stability. - Assessment: - Various criteria confirm that official FX reserves are adequate for precautionary purposes. - At the end of FY2024/25, reserves represented about 209 percent of short-term debt (on residual maturity), about 107 percent of the IMF’s composite metric, and over 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, Integrated Policy Framework analysis indicates that FX interventions should be limited to periods marked by destabilizing risk premiums. ### Indonesia: Foreign asset and liability position and trajectory - Overall Assessment (excerpt): - The external position in 2024 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - In the medium term, external balance is expected to be sustained despite external policy shocks and higher uncertainty, while exchange rate flexibility and structural policies would help contain the CA deficit. - While external financing needs appear sustainable, Indonesia’s reliance on foreign portfolio investment exposes the economy to sharp swings in market sentiment and risk premia, and to fluctuations in global financial conditions. - Potential Policy Responses (excerpt): - Maintain external balance through structural reforms to enhance productivity and promote trade. - Reforms should include: (i) higher infrastructure investment, higher social spending to foster human capital development and strengthen the social safety net, (ii) reducing or eliminating restrictions on inward FDI and external trade, including by moving away from non-tariff barriers, and (iii) promoting greater labor market flexibility. - Exchange rate flexibility should continue to support external stability. - Foreign asset and liability background: - Indonesia’s NIIP rose from −18.8 percent of GDP at the end of 2023 to −17.6 percent of GDP at the end of 2024. - The improvement reflects a 2.1 percentage point improvement in gross external assets more than offsetting a 0.8 percentage point increase in gross external liabilities. - The increase in gross external assets was supported by direct investments, other investments, and reserve assets. - The increase in gross external liabilities reflected increases in direct investment and portfolio debt securities more than offsetting declines in portfolio equities. *2025 External Sector Report Chapter 3, IMF | July 2025* ### 30.4 percent of GDP at the end of 2024, increasing marginally from 29.8 percent of GDP in 2023. External rollover risks ### Indonesia: External Sector Assessment (2024) ### Foreign asset and liability position and trajectory - 2024 (% GDP): NIIP: –17.6; Gross Assets: 37.4; Res. Assets: 11.2; Gross Liab.: 55.0; Debt Liab.: 30.4. - External debt stock was 30.4 percent of GDP at the end of 2024, increasing marginally from 29.8 percent of GDP in 2023. - Large share of long-term debt implies short-term external rollover risks are contained. - Assessment findings: - The level and composition of the NIIP and gross external debt indicate that Indonesia’s external position is sustainable and subject to limited rollover risk. - However, relatively high dependence on foreign portfolio investment (20.0 percent of GDP in 2024) increases vulnerability to swings in global financial market sentiment. - The NIIP as a share of GDP is projected to stabilize at current levels in the medium term, as robust nominal GDP growth would offset projected small CA deficits. ### Current account - 2024 (% GDP): CA: –0.6; Cycl. Adj. CA: –0.9; EBA Norm: –0.7; EBA Gap: –0.2; Staff Adj.: 0.5; Staff Gap: 0.3. - Background and drivers: - The CA deficit widened slightly to 0.6 percent of GDP in 2024 from a 0.1 percent of GDP deficit in 2023. - Widening driven primarily by the non-oil and gas trade balance due to weaker growth in major export markets and a broad-based decline in commodity prices. - Domestic demand resilience translated into faster import growth compared to exports. - On the saving-investment side, savings increased by 0.6 percent of GDP but were more than offset by an increase in investment of 1.1 percent of GDP, with contributions from ongoing infrastructure investments (for example, new national capital). - Outlook: - The CA deficit is projected to widen moderately in 2025, reflecting lower trading partner growth and commodity prices. - The CA deficit is expected to remain close to the norm throughout the projection horizon. - Assessment: - IMF staff estimates a CA gap of 0.3 percent of GDP for 2024, consistent with an estimated cyclically adjusted CA deficit of −0.9 percent of GDP, a staff-assessed norm of −0.7 percent of GDP, and an adjustor of 0.5 percentage points for demographics. - Considering uncertainty in the estimation of the norm, the CA gap for 2024 is in the range of –0.2 to 0.8 percent of GDP. - EBA-identified policy gaps are estimated at 1.0 percent of GDP, with a tighter fiscal stance than in other countries (1.0) and underspending on health care (0.4) contributing to the positive gap, partly offset by the credit gap (–0.6). ### Real exchange rate - Background: - The average REER depreciated by 2.2 percent in 2024 compared to the average level in 2023 (or 2.3 percent relative to the pre-COVID 2016–19 average). - Depreciation occurred amid US dollar strength, global monetary policy uncertainty, and geopolitical shocks. - The rupiah recovered in Q3 2024 as US monetary policy commenced an easing cycle, but reversed thereafter amid higher policy uncertainty. - As of March 2025, the REER was 4.2 percent below its 2024 average. - Assessment: - The IMF staff CA gap estimate of 0.3 percent of GDP implies a REER gap of –1.6 percent (applying an estimated elasticity of 0.16). - The REER index and level models point to REER gaps of 0.3 percent and –16.8 percent, respectively. - Consistent with the staff CA gap, staff assesses the REER gap in the range of –4.7 to 1.5 percent, with a midpoint of –1.6 percent. ### Capital and financial accounts: flows and policy measures - Background and 2024 flows: - Net capital and financial flows strengthened slightly to 0.9 percent of GDP in 2024 from 0.7 percent in 2023. - Improvement driven by portfolio investment, reflecting government pre-funding in end-2024 and a significant increase in Bank Indonesia’s local currency instrument (SRBI): nonresident-held SRBI rose from 0.3 percent of GDP at end-2023 to 1.0 percent at end-2024. - Net FDI inflows declined to 1.0 percent of GDP in 2024 (1.1 percent in 2023 and 1.4 percent in 2022). - Share of nonresident holdings of rupiah-denominated government bonds was 14.5 percent at end-2024 (14.9 percent at end-2023; 39 percent in 2019). - Amid external shocks, financial flows are expected to be somewhat subdued into the medium term. - Assessment and policy guidance: - The pickup in portfolio investment flows in 2024 helped support the negative CA deficit in 2024. - Continued strong policies—safeguarding the fiscal position and long-standing policy frameworks, advancing financial deepening, and implementing structural reforms that provide credibility and certainty and enable the business, trade and investment environment—should help sustain capital inflows in the medium term, particularly during prolonged global policy uncertainty and headwinds to external growth. ### FX intervention and reserves level - Background and reserves: - Since mid-2013, Indonesia has had a more flexible exchange rate policy framework. - Official foreign reserves increased to $156 billion in 2024, from $146 billion in 2023, reflecting issuance of global bonds and government sukuk, and the withdrawal of government’s foreign loans during the year, which more than offset declines due to FX intervention. - Assessment: - End-2024 reserves equal 11.2 percent of GDP, 125 percent of the IMF’s reserve adequacy metric, and 6.4 months of prospective imports. - These reserves should provide a sufficient buffer against external shocks. - Predetermined short-term foreign currency drains have risen but appear manageable. - In line with the Integrated Policy Framework, the use of FX intervention (FXI) is appropriate under certain shocks and circumstances, particularly when shocks trigger spikes in market premia given shallow FX markets; usage should be judicious to preserve buffers in a shock-prone environment. *Source: IMF staff assessment, 2025 External Sector Report, Chapter 3 (2024 Individual Economy Assessments).* ### 2023. The REER depreciation in 2024 was mainly driven by won depreciation against currencies of some major trading partn ### ch3 - 2023. The REER depreciation in 2024 was mainly driven by won depreciation against currencies of some major trading partn ### Real Exchange Rate (Korea) - Background: The REER depreciation in 2024 was mainly driven by won depreciation against currencies of some major trading partners, notably the US dollar and Chinese Yuan. As of March 2025, the REER had depreciated by about 5.4 percent relative to the 2024 average. - Assessment: - The EBA CA gap implies a REER undervaluation of 2.4 percent (applying an estimated elasticity of 0.33). - The EBA REER index model estimates an undervaluation of 6.5 percent. - The EBA level model estimates a 7.2 percent undervaluation. - Consistent with the IMF staff CA gap, staff assesses the REER gap to be in the range of –5.1 to 0.3 percent, with a midpoint of about –2.4 percent. ### Capital and Financial Accounts: Flows and Policy Measures (Korea) - Background: - Net capital outflows, while on a declining trend since 2016, are estimated to rebound to 5 percent of GDP in 2024 from 2 percent of GDP in 2023. - Net FDI and portfolio outflows picked up by 1.8 percent and 2.7 percent of GDP, reflecting both an increase in residents’ outbound investment and a reduction of inflows. - Assessment: - Amid multiple global shocks in recent years, Korea has demonstrated remarkable resilience in weathering short-term capital flow volatility. - The recent inclusion of Korea’s government bonds in the World Government Bond Index should lead to higher capital inflows from a diversified investor base. - The present configuration of capital flows appears sustainable over the medium term, mirroring the projected increase in the CA surplus and NIIP. ### FX Intervention and Reserves Level (Korea) - Background: - Korea has a floating exchange rate. - Based on IMF staff estimates and published data, FX intervention since 2015 has been two-sided. - In 2024, FX intervention slightly increased from net sales $9.6 billion (0.5 percent of GDP) in 2023 to $11.2 billion (0.6 percent of GDP), mostly conducted during periods of heightened exchange rate volatility, induced by changing expectations of monetary policies in major economies in the second quarter and domestic political uncertainty in the fourth quarter. - As of end-2024, reserves stood at $416 billion, lower than the year-earlier $420 billion. - Assessment: - Exchange rate volatility generally does not pose significant economic challenges for Korea, given limited currency mismatches and manageable pass-through to consumer prices. - FX market depth while ranking higher than in most emerging markets, still lags advanced economy peers. - In periods of high global financial market uncertainty, there could be herding behavior amid temporarily shallow markets, leading to sharp FX movements and impaired market functioning. - Intervention should thus remain limited to preventing disorderly market conditions. - The recently introduced FX market reforms are expected to deepen FX markets, thus improving the efficiency and resilience of the currency market. - As of end-2024, FX reserves were about 22 percent of GDP, 2.1 times short-term debt, 6.4 months of imports, or 13 percent of M2. - Systemwide stress tests also show that reserves provide sufficient FX liquidity buffers under a wide range of plausible shocks. *IMF | July 2025* ### 0.6 and 0.3 percentage points of GDP, respectively. Public net saving rebounded, with the phasing out of most support m ### The Netherlands — Public and Private Saving, Current Account, REER, and Capital Flows (excerpt) ### Public and Private Saving; Current Account (CA) Position - Public net saving rebounded with the phasing out of most support measures to cushion the impact of the energy price shock on households and corporations and under execution of investment. - Private net saving remained robust, supported by a strong labor market and high wage growth, despite significantly lower financial sector corporate saving. - The Netherlands’ role as a trading hub and financial center contributes to a structurally strong headline external position. - Multinational corporations based in The Netherlands record profits at their Dutch HQs while channeling a large part of their investment abroad in the form of FDI, keeping nonfinancial corporate saving high. - Measurement biases of portfolio equity retained earnings in official statistics may contribute to an overstatement of the net accumulation of wealth attributed to Dutch residents, an issue of relevance for a country where the foreign ownership of publicly listed firms has been above 80 percent in recent years. - The CA surplus is projected to remain large at 10.2 percent of GDP in 2025. ### Assessment — CA Norms, Gaps, and Adjustments - EBA CA model estimates: - EBA CA norm: 3.8 percent of GDP. - Cyclically adjusted CA: 10.1 percent of GDP in 2024. - EBA CA gap: 6.2 percent of GDP. - Policy gaps account for 4.1 percentage points of the CA gap, primarily reflecting a relatively tighter fiscal stance and a negative credit gap that remains wider than those abroad. - The portfolio retained earnings bias is assessed at –2.2 percent of GDP, based on central bank granular data that allow attribution of aggregate net saving by firms to different segments of the corporate sector. - Overall IMF staff assessment: - Staff-adjusted CA gap: 4.0 percent of GDP (range: 3.5 to 4.5 percent of GDP). - This gap partly reflects strong saving from the second-pillar retirement program with large coverage, robust replacement ratios, and strict pre-funding requirements. - Key 2024 indicators (percent of GDP): - CA: 9.9 - Cycl. Adj. CA: 10.1 - EBA Norm: 3.8 - EBA Gap: 6.2 - Staff Adj.: –2.2 - Staff Gap: 4.0 ### Real Exchange Rate (REER) - Background: - Annual average CPI-based REER appreciated by 1.2 percent in 2024, as inflation in The Netherlands moderated, in line with its key trading partners’. - ULC-based REER depreciated by 0.4 percent in 2024, reflecting slightly lower labor cost increases compared to competitors. - As of March 2025, the CPI-based REER (ULC-based REER) was 1.2 percent (0.4 percent) above its 2024 average. - Assessment: - Assuming a semi-elasticity of the CA balance to the REER of 0.65, the IMF staff CA gap of 4.0 percent of GDP implies a REER undervaluation in the range of 5.4 to 7.0 percent, with a midpoint of 6.2 percent. - EBA REER model estimates for 2024 range from an overvaluation of 6.2 percent (level model) to 19.1 percent (index model), largely reflecting unexplained residuals. - IMF staff assesses the REER to be undervalued by about 5.4 to 7.0 percent, with a midpoint of 6.2 percent (consistent with the staff CA gap). ### Capital and Financial Accounts: Flows and Policy Measures - Background: - About 20 percent of gross foreign assets and liabilities are attributable to special-purpose entities; financial vehicles with marginal operational footprints in The Netherlands that contribute to substantial yet hard-to-interpret capital flows. - A notable part of capital outflows represents the channeling of corporate profits by multinationals abroad as FDI. - Assessment: - The strong external position limits vulnerabilities to capital outflows. - The financial account deficit is likely to remain as it is primarily the flip side of a CA recording sustained—and structural—surpluses. ### 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 floats freely. *Source: IMF 2025 External Sector Report — Chapter excerpt* ### 28.2 percent of GDP in 2024 from –33. 8 in 2023. Gross external debt declined to 50.2 percent of GDP in 2024 ### Poland: Economy Assessment ### Foreign Asset and Liability Position and Trajectory - 2024 (% GDP): NIIP: –28.2; Gross Assets: 59.5; Reserve Assets: 24.4; Gross Liab.: 87.6; Gross External Debt: 50.2 - Gross external debt declined to 50.2 percent of GDP in 2024 from 52.7 percent in 2023. - Assessment: - The level of external debt has declined substantially. - Rollover risk is mitigated by the large share of long-term debt (about 70 percent of total debt) and intercompany lending (about 30 percent of total debt). - The level of gross reserves (at 162 percent of short-term debt) is adequate and further reduces residual rollover risk. ### Current Account - 2024 (% GDP): CA: 0.2; Cycl. Adj. CA: 0.2; EBA Norm: –1.7; EBA Gap: 1.9; Staff Adj.: 0.0; Staff Gap: 1.9 - Background: - In recent years the CA was characterized by volatile domestic and external demand and terms of trade changes amid multiple shocks associated with the pandemic and war in Ukraine. - Increased government spending to cushion cost-of-living increases and support refugees, robust service exports, and strong reinvested earnings of foreign firms influenced the CA. - In 2024, the CA recorded a small surplus of 0.2 percent of GDP, from 1.8 percent in 2023. - The decline was driven by the domestic economic recovery, the normalization of the inventory cycle, and weaker demand from major trading partners. - The CA balance is expected to go into deficit territory in 2025 as growth picks up on the back of strong consumption and EU fund-supported investment, and with the lagged impact of sizable real appreciation. - Over the medium term, the CA balance is projected to converge toward a deficit of 1.6 percent, due to robust consumption growth, sustained EU fund inflows, and increased military spending. - Assessment: - The EBA CA model estimates a CA norm of –1.7 percent of GDP compared with a cyclically adjusted CA surplus of 0.2 percent of GDP in 2024. - This implies an EBA model CA gap between 1.5 and 2.4 percent of GDP, with a midpoint of 1.9 percent of GDP, comprising identified policy gaps of 1.2 percent of GDP and an unexplained residual of 0.8 percent of GDP. - Among the policy variables, change in reserves interacted with capital controls and the credit gap were the main contributors to the policy gap. - Staff estimates that overall desirable policies will help narrow the policy gap over the medium term. ### Real Exchange Rate - Background: - The annual averages of the NEER and the CPI-based REER both appreciated by 7.5 percent in 2024 relative to 2023, as the zloty remained strong against both the US dollar and the euro, and the positive inflation differential relative to Poland’s trading partners diminished. - As of March 2025, the CPI-based REER was 3.8 percent above its 2024 average. - Assessment: - The IMF staff CA gap implies a REER gap of –4.8 percent in 2024 with an estimated elasticity of 0.4. - The EBA REER index model estimates a REER gap of 16.3 percent, while the REER level model estimates put it at –15.6 percent. - Consistent with the IMF staff CA gap, the staff’s overall assessment is a REER gap in the range of –5.9 to –3.7 percent, with a midpoint of –4.8 percent. ### Capital and Financial Accounts: Flows and Policy Measures - Background: - The capital account balance remained broadly stable at 0.3 percent of GDP in 2024, from 0.2 percent in 2023. - The capital account surplus is projected to increase to 1.1 percent of GDP in 2025 and 2026, supported by inflows of EU funds. - The financial account experienced a net inflow of 0.8 percent of GDP in 2024. - Both inward and outward FDIs declined in 2024, resulting in a net inflow of 1.2 percent of GDP, down from 2.4 percent in 2023. - Assessment: - The capital account is projected to remain a strong source of support for investment, reflecting EU cooperation frameworks. - Vulnerability to capital outflows is contained as foreign holdings of domestic government securities have declined continuously and significantly since 2016, and the foreign investor base remains diversified. - The central bank has adequate tools to manage bouts of volatility. ### FX Intervention and Reserves Level - Background: - FX reserves increased to $223 billion in 2024 from $194 billion in 2023. - Net reserves, which net out the central bank’s repo operations and government FX deposits, stood at about $197 billion in 2024 from $167 billion in 2023. - While the central bank briefly intervened in foreign exchange markets in March 2022 amid disorderly market conditions at the beginning of the war in Ukraine, no FX intervention was conducted in 2023 and 2024. - The zloty is considered free floating. - Assessment: - At about 156 percent of the IMF’s reserve adequacy metric, Poland’s level of gross reserves is adequate to guard against external shocks and disorderly market conditions. *2025 External Sector Report Chapter 3 2024 Individual Economy Assessments, IMF | July 2025* ### 1.1 to 6.2 percent (midpoint of 2.5 percent, applying an estimated elasticity of 0.24). However, the REER-based regressi ### ch3 - 1.1 to 6.2 percent (midpoint of 2.5 percent, applying an estimated elasticity of 0.24). However, the REER-based regressi ### South Africa — Capital and Financial Accounts; FX Intervention and Reserves Level - Background: - Net FDI inflows: 0.9 percent of GDP in 2024 (down from 1.7 percent in 2023). - Net portfolio outflows: 0.3 percent of GDP in 2024 (decelerated from 1.7 percent). - Derivative net inflows: 0.1 percent of GDP in 2024 (down from 0.6 percent). - Other net investment: 0.2 percent of GDP in 2024 (up from 0 percent in 2023). - Gross external financing needs: 13 percent of GDP in 2024 (down from 14.8 percent in 2023). - Assessment: - Risks from reliance on non-FDI inflows are mitigated by relatively small currency mismatches, large equity liability composition of the NIIP, and a large and liquid domestic investor base that reduces asset price volatility during stress. - FX Intervention and Reserves Level — Background: - Exchange rate regime: classified as floating. - Central bank intervention: rare. - International reserves: 16.7 percent of GDP at end-2024. - Reserves coverage: about 6.1 months of imports. - Reserves relative to short-term debt: 128.6 percent. - Reserves comprise about 96 percent of the IMF’s composite ARA metric (107.4 percent when capital controls are taken into account). - Recommended ARA range: 100 to 150 percent. - FX Intervention and Reserves Level — Assessment: - Maintaining an adequate level of international reserves well within the recommended range can further support resilience to shocks. *Italicized source: 2025 External Sector Report Chapter 3 2024 Individual Economy Assessments (IMF | July 2025)* ### Spain — Overall Assessment and Policy Responses - Overall Assessment: - External position in 2024 assessed to be stronger than level implied by medium-term fundamentals and desirable policies. - NIIP: –44.0 percent of GDP by end-2024. - CA surplus: projected to shrink in medium term as tourism normalizes and non-energy imports regain strength. - Potential Policy Responses: - Avoid policies that would weaken competitiveness and the CA. - Pursue sustained fiscal consolidation to rebuild fiscal space and raise aggregate savings. - Accelerate domestic structural reforms to boost productivity and diversify exports and destinations: complete the single Spanish market, invest in innovation, enhance education outcomes, reduce energy dependence. - Facilitate worker reallocation across sectors while providing an adequate social safety net. - Ensure fiscal support to affected firms/sectors is temporary and narrowly targeted. - Coordinate industrial policies at the EU level; avoid favoring domestic producers over imports. ### Spain — Foreign Asset and Liability Position and Trajectory - Background: - NIIP: –44.0 percent of GDP by end-2024. - Gross assets: 201.2 percent of GDP (2024). - Debt assets: 94.4 percent of GDP (2024). - Gross liabilities: 245.2 percent of GDP (2024). - Debt liabilities: 144.5 percent of GDP (2024). - TARGET2 liabilities: 27.3 percent of GDP by December 2024. - Gross liabilities: 67 percent corresponded to external debt. - Assessment: - Still-large negative NIIP poses vulnerabilities from large gross financing needs and potential adverse valuation effects. - Mitigating factors: sovereign debt maturity averaging almost eight years; limited share of debt denominated in foreign currency (11.4 percent of total external debt). ### Spain — Current Account - Background: - CA: 3.0 percent of GDP in 2024. - Cyclically-adjusted CA: 3.5 percent of GDP in 2024. - 2025 forecast: CA surplus forecast to shrink by 0.5 percentage points of GDP. - Drivers: strength of services exports (tourism and non-tourism); modest increase in imports; higher public saving; subdued private investment. - Assessment and Metrics: - IMF staff CA norm (EBA): midpoint 1.5 percent of GDP (range between 0.6 and 2.4 percent of GDP). - CA gap: range 1.2 to 2.9 percent of GDP, midpoint 2.0 percent of GDP. - Overall estimated contribution of identified policy gaps: –0.4 percent of GDP (health spending: –0.3 percent of GDP; credit growth relative to rest of world: –0.1 percent of GDP). - 2024 (% GDP) figures: - CA: 3.0 - Cycl. Adj. CA: 3.5 - EBA Norm: 1.5 - EBA Gap: 2.0 - Staff Adj.: 0.0 - Staff Gap: 2.0 ### Spain — Real Exchange Rate - Background: - 2024 CPI-based REER change vs 2023 average: 0.6 percent. - 2024 ULC-based REER change vs 2023 average: –0.5 percent. - As of March 2025: CPI REER 0.3 percent above 2024 average; ULC REER 0.2 percent below 2024 average. - Assessment: - IMF staff CA gap implies REER gap of –7.3 percent in 2024 (elasticity of 0.28 applied). - EBA REER index and level models suggest overvaluation for 2024 of 4.9 and 20.4 percent, respectively. - Staff assesses REER to be moderately undervalued, with midpoint of 7.3 percent and range of uncertainty ±3.1 percent. ### Spain — Capital and Financial Accounts; FX Intervention and Reserves - Capital and Financial Accounts — Background: - Capital account surplus high due to NextGenerationEU funds. - Financial account balance: 4.4 percent of GDP in 2024 (increase of 0.4 percentage points from 2023). - Improvements driven by “Other Investment” flows; Bank of Spain’s net liability position continued to shrink but less so than in 2023. - Assessment: - Still large external financing needs leave Spain vulnerable to sustained market volatility and tighter global financial conditions. - FX Intervention and Reserves — Background & Assessment: - Euro has status of a global reserve currency. - Euro area economies typically hold low reserves relative to standard metrics; currency is free floating. *Italicized source: 2025 External Sector Report Chapter 3 2024 Individual Economy Assessments (IMF | July 2025)* ### Sweden — Overall Assessment and Policy Responses - Overall Assessment: - External position in 2024 substantially stronger than level implied by medium-term fundamentals and desirable policies. - CA: 7.4 percent of GDP in 2024 (up from 7 percent in 2023). - CA expected to decrease to 4.5 percent of GDP by 2030 (longer-term average). - Potential Policy Responses: - With inflation around target, monetary and moderately expansionary fiscal policies to support recovery and CA adjustment. - Enhance private and public investment in productivity, green transition, and health sector. - Structural measures to boost domestic absorption and imports, reducing external imbalances. - If industrial policies are implemented, deploy cautiously, targeted, and coordinated at EU level to avoid favoring domestic producers. ### Sweden — Foreign Asset and Liability Position and Trajectory - Background: - NIIP: 66 percent of GDP in 2024 (increase of 27.4 percentage points from 2023). - Gross assets: 345.5 percent of GDP (2024). - Debt assets: 170.5 percent of GDP (2024). - Gross liabilities: 279.5 percent of GDP (2024). - Debt liabilities: 140.4 percent of GDP (2024). - Composition of net foreign assets by sector (2024): - Other financial institutions: 94.7 percent of GDP - Social Security Funds: 23.5 percent of GDP - Households: 20.5 percent of GDP - Riksbank: 7.1 percent of GDP - Net external debtors: nonfinancial corporations 36.2 percent of GDP; monetary financial institutions 37.9 percent of GDP; general government 4.1 percent of GDP - Half of the NIIP is in foreign currency. - NIIP data uncertainty: errors and omissions average about 1.5 percent of GDP in past decade. - Assessment: - NIIP expected to firm up further with continued CA surpluses. - Foreign currency assets almost three times foreign currency liabilities, providing hedge. - Rollovers of external debt pose vulnerability but mitigated by banks’ ample liquidity and large capital buffers. - NIIP level and trajectory do not raise sustainability concerns. - 2024 (% GDP) figures: - NIIP: 66 - Gross Assets: 345.5 - Debt Assets: 170.5 - Gross Liab.: 279.5 - Debt Liab.: 140.4 ### Sweden — Current Account - Background: - CA: 7.4 percent of GDP in 2024. - Gross saving: 32.1 percent of GDP (increase of 0.2 percentage points). - Gross investment: 24.6 percent of GDP (decrease of 0.2 percentage points). - Sweden is a net oil importer; oil deficit estimated at 1 percent of GDP. - Medium-term expectation: CA surplus anticipated to decline to 4.5 percent of GDP. - Assessment and Metrics: - Cyclically adjusted CA: 7.1 percent of GDP in 2024. - EBA norm: 1.6 percent of GDP. - CA gap: 5.5 percent of GDP in 2024 (model range 5.1 to 5.9 percent of GDP; model standard error ± 0.4 percent of GDP). - Policy contributions to gap: fiscal policy 0.5 percent; health policy –0.8 percent; credit gap 1.2 percent. - Complementary EBA tools: Sweden’s pension system could explain about 1 percentage point of the gap. - 2024 (% GDP) figures: - CA: 7.4 - Cycl. Adj. CA: 7.1 - EBA Norm: 1.6 - EBA Gap: 5.5 - Staff Adj.: - - Staff Gap: 5.5 ### Sweden — Real Exchange Rate - Background: - 2024 krona depreciation: 0.6 percentage points in real effective terms (OECD-ULC based) relative to 2023. - As of March 2025: CPI-based REER 3 percent above 2024 average. - Assessment: - IMF staff CA gap implies REER gap of –14.1 percent (elasticity of –0.39 applied). - Range using model standard error ± 0.4 percent of GDP: –15.1 to –13.1 percent. - REER index and level models suggest gaps of −15.3 percent and −19.1 percent for 2024. - ULC-based REER index depreciated by 18.7 percent since krona floated in 1993. - Staff assesses krona undervalued by 14.7 percent (midpoint), within range of –21.6 to –7.9 percent. ### Sweden — Capital and Financial Accounts; FX Intervention and Reserves - Capital and Financial Accounts — Background: - Financial account net lending: 13.8 percent of GDP in 2024 (more than doubling vs 2023). - Direct investment net lending: 1.5 percent of GDP in 2024. - Net portfolio investment increased by 9.2 percent of GDP (constituting two-thirds of financial account). - Other net investment: 2.6 percent of GDP (driven by near 3 percent of GDP increase in investments in Sweden). - Assessment: - Large capital flow movements common given large financial sector (banking assets nearly three times GDP). - Risks mitigated via strong financial regulation, supervision, and sound financial sector; FSAP indicates banking system resilient to large liquidity shocks despite substantial wholesale funding. - FX Intervention and Reserves — Background: - Exchange rate: de facto free floating. - Foreign currency reserves: $63.8 billion in 2024 (increase of $3.1 billion). - Reserves equivalent to 23.7 percent of short-term external debt of monetary and financial institutions. - Reserves sufficient to cover about three months’ worth of imports. - Riksbank standing swap line with ECB: €10 billion. - FX Intervention and Reserves — Assessment: - Despite free float, Sweden should maintain adequate foreign reserves due to high dependence of commercial banks on wholesale funding in foreign currency and potential disruption risk. *Italicized source: 2025 External Sector Report Chapter 3 2024 Individual Economy Assessments (IMF | July 2025)* ### Switzerland — Overall Assessment and Policy Responses - Overall Assessment: - External position in 2024 broadly in line with level implied by medium-term fundamentals and desirable policies. - Ongoing BOP methodological improvements significantly affect CA balance; caution urged against basing assessment solely on EBA CA model. - Swiss National Bank (SNB) indicates significant upward revision for 2024 CA based on information as of June 2025. - Assessment based on holistic view: strength of external buffers (positive NIIP surplus, increasing foreign reserves), large fiscal buffers, and overall economic developments. - High uncertainty remains due to measurement issues related to large multinational enterprises and data lags. - Potential Policy Responses: - Support economic recovery and address low inflation. - Use substantial fiscal policy space to support growth if downside risks materialize. - Develop comprehensive medium-term plan for structural fiscal needs (aging, climate, defense). - Monetary policy to pursue price stability and avoid extremely low or negative inflation. - Continue commitment to free trade and cooperation. ### Switzerland — Foreign Asset and Liability Position and Trajectory - Background: - NIIP: 126 percent of GDP at end-2024. - Gross assets: 638 percent of GDP at end-2024. - Gross liabilities: 512 percent of GDP at end-2024. - Reserve assets: 99 percent of GDP (2024). - Debt liabilities: 26 percent of GDP (2024). - NIIP fluctuated by about 100 percent of GDP over past five years due to valuation effects and CA surpluses. - NIIP increased in 2024 by almost 30 percentage points of GDP vs 2023. - Assessment: - Large gross liability position and volatility of financial flows/returns present some risk, mitigated by large gross asset position and about two-thirds of external liabilities denominated in Swiss francs. ### Switzerland — Current Account - Background: - Preliminary CA surplus in 2024 estimated at 5.1 percent of GDP (roughly unchanged from 2023, which was revised down by 2.4 percentage points from last year’s ESR). - Switzerland’s CA surpluses averaged 6.2 percent of GDP during 2013–23. - 2024 CA components: trade in goods roughly unchanged; increased exports of chemical and pharmaceutical products offset by lower merchanting surplus; services deficit increased; primary income deficit decreased. - From saving–investment perspective: savings increased by 0.8 percent of GDP (driven by decline in public consumption); investment increased by 0.9 percent of GDP. - CA surplus expected to remain broadly stable over medium term. - Assessment and Metrics: - EBA CA norm: 6.7 percent of GDP. - Cyclically adjusted CA: 5.1 percent of GDP (2024). - EBA-estimated CA gap: –1.6 percent of GDP in 2024. - Domestic policy gaps account for 1.3 percentage points (domestic credit 0.5 percentage points; fiscal underspending +0.5 percentage points); rest-of-world policy gaps +0.2 percentage points. - Adjustments for Switzerland-specific factors (valuation losses on fixed-income securities due to inflation –3.4 percentage points; retained earnings on portfolio equity investment –1.2 percentage points) lead to Staff Adj. of –4.6 and Staff Gap of –6.2 percent of GDP (±0.8 percentage points). - 2024 (% GDP) figures: - CA: 5.1 - Cycl. Adj. CA: 5.1 - EBA Norm: 6.7 - EBA Gap: –1.6 - Staff Adj.: –4.6 - Staff Gap: –6.2 ### Switzerland — Real Exchange Rate (partial) - Background (partial): - NEER appreciated by 3.1 percent in 2024 vs 2023. - CPI-based REER appreciated by 1.4 percent in 2024 vs 2023. - NEER appreciation since 2013: 33.2 percent. - CPI-based REER appreciation since 2013: 5.2 percent. - As of March 2025: NEER appreciated by 0.1 percent over 2024 average; CPI-based REER depreciated by [text truncated in source]. *Italicized source: 2025 External Sector Report Chapter 3 2024 Individual Economy Assessments (IMF | July 2025)* ### 1.5 percent. ### ch3 - 1.5 percent. ### Switzerland — Assessment of External Position and REER - IMF staff CA gap implies REER overvaluation of 11.5 percent in 2024 (applying an elasticity of 0.54). - The EBA REER index and level models suggest that the REER in 2024 was overvalued by 16.9 and 22.5 percent, respectively. - Model fit does not capture Switzerland-specific trends, notably a secular improvement in productivity in knowledge-based sectors. - Consistent with the CA gap, the REER gap in 2024 is in the range of 10.2 to 13 percent, with a midpoint of 11.5 percent (overvalued). ### Switzerland — Capital and Financial Accounts: Flows and Policy Measures - Background: - Net financial outflows totaled 6.1 percent of GDP in 2024, including private outflows of 3.3 percent of GDP and an increase in SNB reserve assets of 2.8 percent of GDP. - During 2011–23, net private inflows averaged 0.9 percent of GDP, while the average annual increase in SNB reserves was 6.5 percent of GDP. - Assessment: - Financial flows are large and volatile, reflecting Switzerland’s financial center and safe-haven status. - Sizable net private financial flows during periods of uncertainty add to appreciation pressures. ### Switzerland — FX Intervention and Reserves Level - Background: - Official reserve assets (including gold) amounted to CHF822 billion (US$934 billion, 99.8 percent of GDP) at the end of 2024, up CHF99 billion (US$128 billion) from the end of 2022. - The SNB purchased CHF1.2 billion (0.1 percent of GDP) of FX (net) through FX interventions in 2024, compared to large FX interventions selling that occurred in 2022–23 and to return inflation within the price stability range. - Assessment: - Reserves are large relative to GDP, but more moderate in comparison with short-term foreign liabilities. - Considering the reserve currency status of the franc, the adequacy of FX reserves is not a pressing concern for Switzerland. - The SNB made a large profit in 2024 (CHF80.7 billion, US$89.50 billion); financial losses in 2022 and 2023 indicate the volatility of its income and the risks associated with its large balance sheet. - Foreign exchange interventions can be considered in cases of disorderly market conditions or to prevent inflation expectations de-anchoring that could result from large and persistent exchange rate movements. *Italic line: Source: 2025 External Sector Report Chapter 3, 2024 Individual Economy Assessments (excerpts provided).* ### Thailand — Overall Assessment and Policy Guidance - Overall Assessment: - The external position in 2024 is broadly in line with the level implied by fundamentals and desirable policies. - The CA balance increased to 2.1 percent of GDP in 2024 from 1.4 percent of GDP in 2023, as tourism receipts recovered further, and is projected to decline to a surplus of around 1.8 percent of GDP in the medium term. - Potential Policy Responses: - Promote investment, diminish precautionary saving, liberalize the service sector, and minimize tax incentives and subsidies that distort competition. - Preserve buffers and smooth adjustment amid difficult external environment and increased trade restrictions. - Fiscal policy should be prudent and parsimonious given elevated public debt; focus public expenditures on targeted social transfers and infrastructure investment to support a green recovery and reorientation of affected sectors. - Continue reforms to expand social safety nets (notably fragmented pension plans) and address widespread informality to reduce precautionary saving and support consumption. - Consider revenue-driven fiscal consolidation to restore fiscal buffers if private consumption reduces the CA balance. ### Thailand — Foreign Asset and Liability Position and Trajectory - Background: - NIIP improved to 8.2 percent of GDP in 2024, from 2.5 percent in 2023. - Gross assets increased to 123.2 percent of GDP (from 118.4 percent) and gross liabilities declined slightly to 115 percent of GDP (from 115.9 percent). - Gross assets primarily consist of gross reserve assets (45.0 percent of GDP) and direct investment (38.8 percent). - Gross liabilities mainly comprise direct investment (67 percent of GDP), portfolio investment (25 percent), and other investments (22 percent of GDP). - Assessment: - NIIP projected to remain in a small creditor position over the medium term, given CA surpluses. - External debt declined to 36.4 percent of GDP in 2024 (from 38.1 percent in 2023), of which short-term debt amounted to about 16 percent of GDP. - Risks to external debt stability and liquidity are well-contained. - 2024 (% GDP) snapshot: - NIIP: 8.2 - Gross Assets: 123.2 - Debt Assets: 39.8 - Gross Liab.: 115.0 - Debt Liab.: 36.4 ### Thailand — Current Account - Background: - CA balance increased to a surplus of 2.1 percent of GDP in 2024, from 1.4 percent of GDP in 2023, as continued recovery in tourist arrivals offset the weaker primary income balance. - Postpandemic tourism recovery improved the services account by 1.4 percentage points of GDP. - Trade balance slightly declined to 3.7 percent of GDP (from 3.8 percent) as imports grew faster than exports. - From a saving-investment viewpoint, lackluster private investment and increased public saving offset reduced private savings. - CA balance expected to stabilize at about 1 .8 percent of GDP. - Assessment: - EBA CA model estimates a cyclically-adjusted CA balance of 2 percent of GDP and a CA norm of 1.1 percent of GDP for 2024. - CA gap of 0.9 percent of GDP consists of a 1.2 percent policy gap and an unexplained residual of –0.3 percent. - Positive policy gap primarily reflects positive fiscal balance (1.5 percentage points) and change in reserves (0.5 percentage points) outweighing negative credit policy gap (–0.9 percentage points). - Domestic policy gap of 0.2 percent of GDP in health expenditure suggests room to increase spending on social safety nets. - IMF staff assesses the CA gap to be in the range of 0.2 to 1.6 percent of GDP, with a midpoint of 0.9 percent of GDP for 2024. - 2024 (% GDP) snapshot: - CA: 2.1 - Cycl. Adj. CA: 2.0 - EBA Norm: 1.1 - EBA Gap: 0.9 - Staff Adj.: 0 - Staff Gap: 0.9 ### Thailand — Real Exchange Rate - Background: - Baht has been on a gradual real appreciation trend since the mid-2000s, with occasional volatility. - In 2024, the REER moderately depreciated by 0.1 percent relative to 2023, partly reflecting portfolio outflows largely driven by changing expectations of US interest rates. - As of March 2025, the REER was 2.8 percent above its 2024 average following the strengthening of the current account balance, including from exports expanding faster than imports. - Assessment: - Using an elasticity of 0.5 and based on the IMF staff CA gap, IMF staff assesses the 2024 REER to be undervalued in the range of 0.5 to 3.2 percent, with a midpoint of 1.8 percent. - The EBA index REER gap in 2024 is estimated at 6.7 percent, and the EBA level REER gap is estimated at –2.7 percent. ### Thailand — Capital and Financial Accounts: Flows and Policy Measures - Background: - Capital and financial account balance (excluding reserves) declined to –2.9 percent of GDP in 2024, from –1.9 percent in 2023. - Decline reflects reduction in other investment inflows (by 1.7 percentage points of GDP), increase in portfolio investment outflows (by 1.1 percentage points), and increase in net FDI inflows (by 1.8 percentage points). - Assessment and Recommendations: - Thailand maintains strong external buffers and fundamentals that have helped weather volatility from external financial conditions, political uncertainty, and shocks. - IMF staff welcomes financial account liberalization steps, including expansion of the Non-Resident Qualified Company program. - Staff recommends reversing the 2021 reduction in the limit on Thai baht lending from domestic financial institutions to nonresidents without underlying document submission. - In line with past advice, staff recommends phasing out CFM measures on non-resident baht accounts. - A comprehensive package of macroeconomic, financial, and structural policies should 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. - Gross international reserves increased to 45 percent of GDP in 2024 from 43.5 percent of GDP in 2023. - Reserves are about 2.5 times short-term debt, 11 months of imports, and 208.3 percent of the IMF’s standard ARA metric. - Exchange rate allowed to adjust, with some two-sided FX interventions in periods of large volatility. - Assessment: - Reserves are higher than the range of the IMF’s reserve adequacy metrics; no need to build up reserves for precautionary purposes. - Exchange rate should move flexibly to function as a shock absorber. - FX intervention could be used to address disorderly market conditions and mitigate policy trade-offs when FX market becomes dysfunctional and deviations in hedging and financing premiums become excessive due to large non-fundamental shocks. ### Türkiye — Overall Assessment and Policy Guidance - Overall Assessment: - The external position in 2024 was moderately weaker than the level implied by medium-term fundamentals and desirable policies, driven mainly by a negative CA gap and low reserves despite recent recovery. - CA deficit narrowed substantially to below 1 percent of GDP, reflecting lower energy prices, declining gold imports, and robust tourism receipts. - External financing needs have come down and the NIIP became less negative. - Macro policies remain insufficiently tight to bring down inflation sustainably to the central bank’s inflation target, even in the medium term. - External vulnerabilities remain as the March 2025 reserve loss episode showed, and core reserves are still at risk of falling into negative territory. - Potential Policy Responses: - Tighten monetary and fiscal policy stance to contain demand, bring down inflation, make medium-term growth more sustainable, and pave the way for lower CA deficits. - Remove discretionary credit allocation that favors exports to enhance competition and improve external sustainability. - These policies would improve confidence, sustain capital inflows, and allow accumulation of international reserves. ### Türkiye — Foreign Asset and Liability Position and Trajectory - Background: - NIIP averaged –34.5 percent of GDP over 2020–24. - NIIP improved from –27.5 percent at end-2023 to –22.3 percent at end-2024, mainly driven by valuation effects (especially gold price increase on reserves), including a 7 percent reduction in direct investment (equity) liabilities in dollar terms and a 25 percent reduction in short-term central bank liabilities. - External debt declined from 43.4 percent of GDP in 2023 to 39.0 percent in 2024. - Private and public sector each hold about half of Türkiye’s external debt. - 43.8 percent of external debt is short term (on a remaining-maturity basis). - Assessment: - Given size and composition of gross external liabilities, Türkiye is vulnerable to liquidity shocks, sudden shifts in investor sentiment, and global upswings in interest rates, despite reserve position improving substantially during 2024 (+10 percent in US dollar terms). - FX exposure of nonfinancial corporations deteriorated substantially after prior improvements; short-term net FX position also deteriorated but remains in positive territory. - NIIP expected to remain stable over the medium term at about –23 percent of GDP due to projected CA improvements, but unwinding of valuation effects could negatively affect NIIP trajectory. - External debt is sustainable over the medium term but subject to risks, particularly from a large REER depreciation. - 2024 (% GDP) snapshot: - NIIP: –22.3 - Gross Assets: 27.7 - Debt Assets: 10.6 - Gross Liab.: 50.0 - Ext. Debt.: 39.0 ### Türkiye — Current Account - Background: - CA deficit averaged 2.9 percent of GDP over 2020–24. - CA deficit in 2024 decreased to 0.8 percent of GDP (from 3.5 percent in 2023) helped by increased tourism receipts, favorable energy prices, and reduced gold imports. - Improvement mainly reflects private sector developments, with a decrease in private investments outweighing reduction in private savings. - Assessment: - EBA CA model estimates a cyclically adjusted CA balance of –0.3 percent of GDP and a CA norm of 1.0 percent of GDP in 2024. - CA gap assessed in the range of –1.9 to –0.7 percent of GDP, with a midpoint of –1.3 percent. - 2024 (% GDP) snapshot: - CA: –0.8 - Cycl. Adj. CA: –0.3 - EBA Norm: 1.0 - EBA Gap: –1.3 - Staff Adj.: 0.0 - Staff Gap: –1.3 ### Türkiye — Real Exchange Rate - Background: - CPI-based REER depreciated by an annual average of 5.7 percent over 2020–23. - In 2024, CPI-based REER appreciated by 12.0 percent compared to the 2023 average as domestic inflation slowed and capital inflows were not fully sterilized. - As of March 2025, CPI-based REER appreciated by 10.2 percent relative to the 2024 average (but only by 1.6 percent relative to December 2024). - Reflecting lower PPI inflation, average PPI-based REER appreciated by 3.7 percent in 2024. - Assessment: - Consistent with the staff CA gap, staff assesses the REER to be overvalued by 5.2 percent. *Italic line: Source: 2025 External Sector Report Chapter 3, 2024 Individual Economy Assessments (excerpts provided).* ### 2.8 percent to 7.6 percent overvaluation (applying an estimated REER elasticity of 0.25). The EBA REER index and level m ### ch3 - 2.8 percent to 7.6 percent overvaluation (applying an estimated REER elasticity of 0.25). The EBA REER index and level m ### Real Exchange Rate (REER) - EBA REER index and level models suggest the REER was undervalued in 2024 by 29.0 and 42.6 percent, respectively, although the models’ residuals are very large for Türkiye. - For the United Kingdom: - The REER appreciated by close to 4.2 percent in 2024 compared to 2023. - The REER stands 10 percent stronger than before the pandemic. - As of March 2025, the CPI-based REER was 2.6 percent above its 2024 average. - The EBA REER level and index models suggest an overvaluation of 8.7 and 1.5 percent, respectively, for 2024. - IMF staff assesses the REER gap to be 6.5 percent in 2024 (applying an estimated 0.26 elasticity), with a range of 5.5 to 7.6 percent. - For the United States: - The REER appreciated by 2.4 percent in 2024, resulting in a cumulative appreciation of 12 percent relative to the prepandemic level in 2019. - As of March 2025, the REER was 2.8 percent above its 2024 average. - The IMF staff CA gap implies a REER that is overvalued by 11.9 percent in 2024 (with an estimated elasticity of 0.11 applied). - The EBA REER index model suggests an overvaluation of 10.9 percent, and the level model suggests an overvaluation of 20.9 percent. - IMF staff assesses the 2024 midpoint REER overvaluation to be 11.9 percent, with a range of 6.1 to 17.8 percent (the range is obtained from the CA standard error using the estimated CA elasticity of 0.11). ### Capital and Financial Accounts: Flows and Policy Measures - Türkiye: - Net capital inflows were 1.7 percent of GDP in 2024, slightly lower than the 4.5 percent in 2023. - Portfolio investments recorded a net inflow of 0.9 percent of GDP in 2024. - Direct investment recorded a moderate net inflow of 0.4 percent of GDP in 2024. - Projections of annual gross external financing needs average about 18.5 percent of GDP over 2025–30. - Authorities’ policy normalization efforts since May 2023 contributed to a rebound in capital flows up to early 2025; sustaining capital inflows ran into problems in March 2025. - Recommendation: further strengthen policy credibility, carefully reduce market distortions, and phase out CFMs on capital outflows as conditions improve. - United Kingdom: - The UK has maintained a very open financial account, with limited capital flow measures. - Portfolio investment flows and other investment make up a large share of UK financial flows, often driven by intragroup bank transactions. - Portfolio investment debt inflows were an important source of financing for the CA deficit in 2024, counterbalanced to an extent by increased direct investment asset outflows. - Assessment: Large fluctuations in capital flows are inherent given the large financial sector; volatility is mitigated by a robust financial stability framework overseen by the Financial Policy Committee (FPC) of the Bank of England. - United States: - In 2024, the financial account balance stood at –4.3 percent of GDP, a moderate deterioration from the –3.3 percent of GDP recorded in 2023. - This reflected increased inflows of net direct investment, net portfolio investment, and net other investment. - Assessment: The United States has an open capital account; vulnerabilities are limited by the US dollar’s status as a reserve currency. ### FX Intervention and Reserves Level - Türkiye: - De jure exchange rate: free floating; de facto classification: crawl-like arrangement. - Gross international reserves increased to $155 billion in 2024 from $141 billion in 2023, supported by capital inflows, increasing gold prices, and a lower CA deficit. - As of May 2025, reserves have fallen substantially since depreciation pressures increased in March 2025. - Gross international reserves were at 72 percent of the IMF’s ARA metric at the end of December 2024 (for a de facto crawl-like exchange rate arrangement), below the floor of the recommended range of 100 to 150 percent. - International reserves net of off-balance-sheet swaps and other short-term liabilities were negatively impacted by the March 2025 outflow episode. - Non–SDR basket currencies account for about 19 percent of FX reserves by the end of 2024. - Given the shallow FX market, interventions may be needed to avoid excessive exchange rate volatility, while not preventing warranted macroeconomic adjustments. - Going forward, significant reserves buildup is needed, but accumulation should be opportunistic given the uncertain market environment. - United Kingdom: - The pound has the status of a global reserve currency. - The share of global reserves in sterling grew from averaging 4.5 percent prepandemic (2016–19) to close to 5.0 percent in 2024. - Reserves held by the UK are typically low relative to standard metrics; the currency is free floating and reserve levels have been stable with a minimal drawdown in 2024. - United States: - 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. ### Current Account and NIIP Highlights - Türkiye: - (See REER and capital flows sections for drivers and vulnerabilities.) - United Kingdom: - NIIP deteriorated slightly from –9.3 percent of GDP in 2020 to –9.8 percent of GDP in 2024. - 2024 (% GDP) NIIP: –9.8; Gross Assets: 509; Debt Assets: 261; Gross Liab.: 519; Debt Liab.: 278. - CA deficit: –2.7 percent of GDP in 2024 (deteriorated from –0.4 percent of GDP in 2021 to –3.5 percent in 2023). - EBA CA model estimates a norm deficit of –0.3 percent of GDP, implying an (unadjusted) CA gap of –2.4 percent of GDP in 2024. - Measurement adjustments of 0.7 percent of GDP are made; adjusting for this, IMF staff assesses the CA gap at –1.7 percent of GDP, within a range of –1.4 to –2.0 percent of GDP. - 2024 (% GDP) CA: –2.7; Cycl. Adj. CA: –2.7; EBA Norm: –0.3; EBA Gap: –2.4; Staff Adj: 0.7; Staff Gap: –1.7. - United States: - NIIP stood at –89.9 percent of GDP at the end of 2024, weakening from –71.6 percent in 2023. - 2024 (% GDP) NIIP: –89.9; Gross Assets: 123.0; Debt Assets: 35.9; Gross Liab.: 212.8; Debt Liab.: 79.5. - CA deficit was 3.9 percent of GDP in 2024, up from 3.3 percent in 2023. - The EBA model estimates a cyclically adjusted CA balance of –3.6 percent of GDP against a CA norm of –2.2 percent, with a standard error of 0.7 percent, implying a model-based CA gap of –1.4 percent of GDP for 2024. - IMF staff assesses a CA gap in a range of –2.0 to –0.7 percent of GDP, with a midpoint of –1.4 percent. - 2024 (% GDP) CA: –3.9; Cycl. Adj. CA: –3.6; EBA Norm: –2.2; EBA Gap: –1.4; Staff Adj.: 0; Staff Gap: –1.4. ### Policy Recommendations and Assessments - Türkiye: - Strengthen policy credibility and carefully reduce market distortions to sustain capital inflows, including to lira-denominated assets. - Phase out CFMs on capital outflows as conditions improve. - Opportunistic, significant reserves buildup is needed while recognizing shallow FX markets and reserve quality issues. - United Kingdom: - Fiscal consolidation path and structural reform agenda (“growth” mission) will support external rebalancing by containing import growth and boosting competitiveness. - Encourage resolving trade tensions and deepen economic integration through nondiscriminatory reductions in trade barriers or by pursuing free trade agreements at regional, plurilateral, or multilateral levels. - Industrial policies should remain targeted and avoid favoring domestic producers over imports. - United States: - Over the medium term, fiscal consolidation aimed at achieving a general government primary surplus of about 1 percent of GDP should put the debt-to-GDP ratio on a downward path and adjust the external position toward levels implied by medium-term fundamentals and desirable policies. - Industrial policies should remain narrowly targeted and avoid favoring domestic producers over imports. - To promote external stability, policies should seek to constructively resolve trade tensions, promote a clear, stable and predictable trade environment, and pursue pragmatic cooperation and deeper integration through regional/cross-regional trade agreements or nondiscriminatory reduction of trade barriers. *2025 External Sector Report Chapter 3 2024 Individual Economy Assessments — IMF | July 2025* ### 4.4 percentage points of GDP is made to account for a decline in the gold trade balance that does not reflect changes in ### ch3 - 4.4 percentage points of GDP is made to account for a decline in the gold trade balance that does not reflect changes in ### Adjustments to Hong Kong SAR external position and adjusted CA norm - A downward adjustment of 4.4 percentage points of GDP is made to account for a decline in the gold trade balance that does not reflect changes in wealth but rather the increased physical settlement of gold futures contracts resulting from the opening of a Precious Metals Depository. - A previously used third adjustor, applied to account for increased onshoring of logistics and trading activity by the Chinese mainland (which led to a decline in logistics and trading activities in Hong Kong SAR), has been discontinued as the adjustment is assumed to be complete. - Cumulatively, these adjustments give an adjusted norm of 13.3 percent of GDP (the midpoint of a range of 12.7 to 13.8 percent of GDP). - Footnote: Based on the average for all countries in the EBA sample. ### Financial linkages with the Chinese mainland and banking claims - The financial linkages with the Chinese mainland are deepening with the increase in cross-border bank lending, capital market financing, and the internationalization of the RMB, though this has reversed somewhat in recent years due to issues in the property sector on the mainland. - As of the end of 2024, banking system claims on bank and nonbank entities on the Chinese mainland amounted to 99 percent of GDP, down from the 102 percent reported at the end of 2023. ### Exchange Fund market activity reporting - Market activities of the Exchange Fund published by the HKMA: a withdrawal represents a sale of FX while an injection represents a purchase of FX. ### Country-specific adjustments and findings (selected highlights) - Indonesia - Life expectancy at prime age is low among a few countries; demographic indicators are adjusted accordingly. The model-estimated CA norm is adjusted by subtracting 0.5 percentage points of GDP. - Japan - Staff recommends allowing the credit-to-GDP gap to decline gradually over the medium term from its currently estimated level of 6.1 percent with a corresponding policy setting (P*) for the credit-to-GDP gap of 4 percent. - Saudi Arabia - EBA models do not include Saudi Arabia. IMF staff considered two approaches of the EBA-Lite methodology: The EBA-Lite CA model and the EBA-Lite commodity module. - Using the EBA-Lite CA model, the cyclically adjusted CA norm is estimated at 0.56 percent of GDP (lower than the CA norm of 5.9 percent of GDP in 2023). - Consumption Allocation Rules produced estimated CA norms of 3.1 percent of GDP and 5.6 percent of GDP for the constant real annuity and constant real per capita annuity allocation rules, respectively. - The Investment Needs Model produced a CA gap of 0.54 percent over the medium term. - The CA gap in 2024 of –0.95 percent of GDP represents IMF staff’s overall assessment, anchored on the EBA-Lite CA model. The range for the gap is calculated using the standard error of Norway (2 percent), a comparable oil-rich economy in the EBA sample. - Singapore - Singapore has a negative income balance despite its large positive NIIP position, reflecting lower rates of return on its foreign assets relative to returns on its foreign liabilities. - Singapore is not included in the EBA sample because it is an outlier; applying EBA estimated coefficients yields a CA norm of about 15.2 percent of GDP in 2024 (including the multilateral consistency adjustor), but this understates the CA gap. - Adjustments applied to account for Singapore specificities: - Downward adjustment of 1 percentage point to EBA’s implied contribution of public health expenditures. - Downward adjustment of –3.4 percentage points to account for the effect of NFA composition and component-specific return differentials on the CA. - Downward adjustment of –2.1 percentage points of GDP to account for measurement biases from inflation (–5.5 percent of GDP) and portfolio equity retained earnings (+3.4 percent of GDP). - Staff-estimated CA gap is about 5.1 percent of GDP, with contributions: fiscal gap about 1.5 percent of GDP, credit gap about 2.1 percent of GDP, public health spending about 0.2 percent of GDP, and reserves about 0.2 percent of GDP. - The maximum range of +/-2.0 percent in the EBA sample is applied for the CA gap to reflect uncertainty. - External assets managed by GIC and Temasek amount to at least 100 percent of GDP. - South Africa - Adult mortality rates are relatively high; demographic indicators are adjusted to account for younger average prime age and exit age from the workforce, resulting in a lower adjusted CA norm. - Sweden - The upper and lower bounds are derived by adding/subtracting the standard deviation (6.7 percent) from the average outcome (midpoint) to reflect uncertainty around the EBA estimated norm. - Switzerland - Valuation changes reflect exchange rates and prices of securities and precious metals interacting with asset-liability currency and instrument differences; an appreciation (depreciation) of the Swiss franc has a negative (positive) effect on the NIIP. - Other stock-flow adjustments include changes in statistical sources (number of entities surveyed and items covered). - Underlying CA is adjusted for Switzerland-specific factors in the income account: - Retained earnings on portfolio equity investment not recorded in the income balance of the CA (the PE RE bias). - Recording of nominal interest on fixed income securities that compensates for expected valuation losses (resulting from inflation or nominal exchange rate movements). - The PE RE bias was estimated using the “stock method” and “flow method” as explained in “The Measurement of External Accounts” (IMF Working Paper 19/132), and is similar in size to estimates based on the SNB’s pilot BPM7 data. - Large revisions to historical BOP and NIIP data mean particular caution is needed when comparing external sector assessment results for different periods. - Türkiye - Observed exchange rate dynamics since July 2022 prompted reclassification of Türkiye’s de facto exchange rate regime by the IMF from “floating” to “crawl-like arrangement” as of the Article IV consultation in October 2024, while the de jure classification remained “free floating.” - The calculation of the IMF’s ARA metric differs depending on the de facto classification of the exchange rate arrangement. - United Kingdom - BoE’s December 2022 Financial Stability Report estimates official statistics may understate the UK’s NIIP position because FDI stocks are measured at “own funds at book value” rather than market value; indicative ONS estimates for 2023 suggest net FDI could be approximately 14 percent GDP higher. - Adjustments to the underlying CA include: - Effect of inflation on real income from debt assets not captured in the income account, contributing 0.6 percent of GDP to the adjustment. - Retained earnings on portfolio equity not recorded in the income account, contributing 0.1 percent of GDP to the adjustment. *Source: 2025 External Sector Report Chapter 3 (2024 Individual Economy Assessments), IMF | July 2025* --- _Source: https://www.imf.org/-/media/files/publications/esr/2025/english/ch3.pdf_