## Box 2.1. Assessing Imbalances: The Role of Policies—An Example ## Source details **Canonical URL:** [Box 2.1. Assessing Imbalances: The Role of Policies—An Example](https://www.imf.org/-/media/files/publications/esr/2026/english/ch2.pdf) ## Other formats - [Markdown version](/-/media/files/publications/esr/2026/english/ch2.pdf.md) - [Structured JSON version](/-/media/files/publications/esr/2026/english/ch2.pdf.json) --- ### Overall Assessment - The external position in 2025 was weaker than the level implied by medium-term fundamentals and desirable policies. - Assessment reflects very precarious reserve coverage and the absence of sustainable market access against the backdrop of large FX debt obligations. - Since end-2025, record agricultural exports and renewed portfolio inflows have led to an incipient reserve recovery as well as some real appreciation of the currency. - The external assessment continues to be subject to high uncertainty; reducing associated elevated risks requires policy continuity and competitiveness-enhancing reforms. ### Potential Policy Responses - Implement a more balanced stabilization program with greater emphasis on external stability to: - proactively rebuild reserves, - sustain a gradual disinflation process, - durably access international capital markets. - Complement the strong fiscal anchor with sustained structural reforms to boost exports and attract investment. - Specific measures recommended: - greater exchange rate flexibility; - channel commodity export windfalls toward reserve accumulation; - transition to a more open and competitive economy with reduced barriers in product, labor, and external markets to improve productivity and competitiveness; - ease remaining FX restrictions as conditions permit, while maintaining macroprudential regulations to contain FX mismatches; - develop capital markets and formalize USD holdings by residents; - continue reduction in export duties; - promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Foreign Asset and Liability Position and Trajectory — Background findings - Argentina’s NIIP rose from −20 percent of GDP in 1999 to an average of 24 percent between 2020 and 2023, reflecting resident savings abroad and lack of private sector external borrowing. - External dynamics changed since early 2024: - Household sector continued to accumulate assets abroad in 2025: US$30 billion, 2.3 percent of GDP (net). - Corporates increased external liabilities in 2025: around US$55 billion, 4.2 percent of GDP (including valuation gains), mainly direct investment and other portfolio/investment flows. - NIIP declined from US$105.4 billion (16.2 percent of GDP) in 2023 to US$48 billion (7.1 percent of GDP) at end-2025. - Public sector external exposure remained generally unchanged since end-2023. - 2025 (% GDP) key statistics: - NIIP: 7.1 - Gross Assets: 72.4 - Debt Assets: 40.8 - Gross Liab.: 65.3 - Debt Liab.: 40.1 - Assessment: - External vulnerabilities remain despite a positive NIIP driven by private sector holdings of external low-yielding assets. - Government’s foreign position remains firmly negative and high-yielding; central bank’s net reserve asset position remains deeply negative, generally unchanged since end-2023. ### Current Account — Background findings and projections - CA averaged about negative 0.2 percent of GDP over 2020–2024, reached a surplus of 1 percent in 2024 largely due to investment compression. - In 2025, CA moved to a deficit of 1.1 percent of GDP, consistent with economic recovery and demand. - Goods export growth in 2025: about 10 percent (volume). - Imports rise in 2025: 30.5 percent. - Projected 2026: CA projected at about −0.8 percent, supported by tight fiscal policy, a more robust monetary and FX regime, and continued improvements in Argentina’s energy balance via Vaca Muerta. - Projected medium-term CA path is consistent with rebuilding reserves to 100 percent of the ARA metric. - Assessment and model estimates: - 2025 EBA cyclically adjusted CA balance: around −1.9 percent of GDP. - Estimated EBA CA norm: 0.7 percent of GDP. - Implied EBA CA gap: in the range of (−1.5 to −3.5) percent of GDP, with a midpoint estimate of −2.5 percent. - Half of the gap accounted for by an unexplained residual reflecting transitional factors not captured by the EBA framework. - Staff-assessed CA norm subject to significant uncertainty linked to pace of structural reforms. - 2025 (% GDP) key statistics: - CA: −1.1 - Cycl. Adj. CA: −1.9 - EBA Norm: 0.7 - EBA Gap: −2.5 - Staff Adj.: 0.0 - Staff Gap: −2.5 ### Real Exchange Rate — Background findings and assessment - Average REER modestly appreciated by 3 percent between 2024 and 2025, but REER weakened by 16 percent between December 2024 and December 2025. - Real depreciation supported by greater exchange rate flexibility amid increased political uncertainties. - REER appreciated in 2026:Q1 due to record agricultural/energy exports and stronger capital inflows, despite FX purchases by the BCRA. - Price-based and wage-based REER measures followed similar patterns; wage-based indices adjusted with a lag, likely reflecting narrowing profit margins. - Assessment: - Staff-assessed CA gap for 2025 implies an average REER gap of 9.6–22.2 percent, with a mid-point 15.9 percent, based on a semi-elasticity of 0.16. - Estimates broadly consistent with EBA REER models and longer-term REER trends. - Considering REER dynamics since April 2025, the REER gap narrowed as of end-2025 compared to the annual average, although recent appreciation amid strong FX inflows has eroded these gains. - Over the medium term, a stronger REER could be justified if structural reforms deliver sustained productivity and competitiveness gains. ### Capital and Financial Accounts: Flows and Policy Measures — Background findings and assessment - Net capital inflow in 2025: about US$11.4 billion (1.7 percent of GDP), reversing 2024's small net outflow. - Gross liabilities reached 5.5 percent of GDP in 2025, reflecting IMF and multilateral disbursements and corporate borrowing, with smaller contributions from portfolio debt issuance. - Net asset acquisition by residents: 3.8 percent of GDP; reserve assets up by US$7.2 billion. - Trade and capital account restrictions gradually eased since early 2024, with temporary tightening before the October midterm elections. - From January 2026, corporates can freely repatriate dividends from 2025 investments onward. - Assessment: - Careful easing of remaining exchange rate restrictions and capital flow management measures, together with tight macroeconomic policies and competitiveness-enhancing reforms, are expected to: - support exchange rate flexibility, - boost reserve accumulation, - attract foreign investment, - facilitate sustained access to international capital markets. - Complementary tight macroprudential policies are needed to ensure sustainability of capital inflows. - Risks to capital inflows remain tilted to the downside amid rising global geopolitical tensions and a more challenging external financing environment. ### FX Intervention and Reserves Level — Background findings and assessment - NIR fell to −$11.7 billion (at current rates) by end-2025, well below end-2024 levels (−$2.4 billion), similar to end-2023 levels (−$11.2 billion), reflecting reserve sales ahead of midterm elections due to resident FX hedging and dollarization. - GIR rose by about $10.9 billion in 2025 to $27.5 billion at end-December, reflecting IMF disbursements and post-election normalization, and increased by a further $5.0 billion through May 13, 2026 (US$32.5 billion). - BCRA purchases about $8.0 billion year-to-date under a reserve purchase program, with NIR at program rates increasing by about US$4.5 billion (as of May 13, 2026). - Bank FX deposits have risen about US$16.2 billion, supporting GIR improvements. - Assessment: - Reserve coverage remains very inadequate. - GIR estimated at 34.1 percent of the standard ARA EM metric (and 36.6 percent of the CFM-adjusted metric) as of end-2025. - Sustained efforts to organically rebuild reserves are essential to secure access to international capital markets at more favorable terms and to manage shocks amid elevated global uncertainty and volatile external financing conditions. *Source: Box 2.1. Assessing Imbalances: The Role of Policies—An Example (ch2 - Box 2.1. Assessing Imbalances: The Role of Policies—An Example).* ### Box 2.1. Assessing Imbalances: The Role of Policies—An Example ### Box 2.1. Assessing Imbalances: The Role of Policies—An Example ### Overall Assessment - The external position in 2025 was weaker than the level implied by medium-term fundamentals and desirable policies. - Assessment reflects very precarious reserve coverage and the absence of sustainable market access against the backdrop of large FX debt obligations. - Since end-2025, record agricultural exports and renewed portfolio inflows have led to an incipient reserve recovery as well as some real appreciation of the currency. - The external assessment continues to be subject to high uncertainty; reducing associated elevated risks requires policy continuity and competitiveness-enhancing reforms. ### Potential Policy Responses - Implement a more balanced stabilization program with greater emphasis on external stability to: - proactively rebuild reserves, - sustain a gradual disinflation process, - durably access international capital markets. - Complement the strong fiscal anchor with sustained structural reforms to boost exports and attract investment. - Specific measures recommended: - greater exchange rate flexibility; - channel commodity export windfalls toward reserve accumulation; - transition to a more open and competitive economy with reduced barriers in product, labor, and external markets to improve productivity and competitiveness; - ease remaining FX restrictions as conditions permit, while maintaining macroprudential regulations to contain FX mismatches; - develop capital markets and formalize USD holdings by residents; - continue reduction in export duties; - promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Foreign Asset and Liability Position and Trajectory Background findings: - Argentina’s NIIP rose from −20 percent of GDP in 1999 to an average of 24 percent between 2020 and 2023, reflecting resident savings abroad and lack of private sector external borrowing. - External dynamics changed since early 2024: - Household sector continued to accumulate assets abroad in 2025: US$30 billion, 2.3 percent of GDP (net). - Corporates increased external liabilities in 2025: around US$55 billion, 4.2 percent of GDP (including valuation gains), mainly direct investment and other portfolio/investment flows. - NIIP declined from US$105.4 billion (16.2 percent of GDP) in 2023 to US$48 billion (7.1 percent of GDP) at end-2025. - Public sector external exposure remained generally unchanged since end-2023. - 2025 (% GDP) key statistics: - NIIP: 7.1 - Gross Assets: 72.4 - Debt Assets: 40.8 - Gross Liab.: 65.3 - Debt Liab.: 40.1 Assessment: - External vulnerabilities remain despite a positive NIIP driven by private sector holdings of external low-yielding assets. - Government’s foreign position remains firmly negative and high-yielding; central bank’s net reserve asset position remains deeply negative, generally unchanged since end-2023. ### Current Account Background findings: - CA averaged about negative 0.2 percent of GDP over 2020–2024, reached a surplus of 1 percent in 2024 largely due to investment compression. - In 2025, CA moved to a deficit of 1.1 percent of GDP, consistent with economic recovery and demand. - Goods export growth in 2025: about 10 percent (volume). - Imports rise in 2025: 30.5 percent. - Projected 2026: CA projected at about −0.8 percent, supported by tight fiscal policy, a more robust monetary and FX regime, and continued improvements in Argentina’s energy balance via Vaca Muerta. - Projected medium-term CA path is consistent with rebuilding reserves to 100 percent of the ARA metric. Assessment and model estimates: - 2025 EBA cyclically adjusted CA balance: around −1.9 percent of GDP. - Estimated EBA CA norm: 0.7 percent of GDP. - Implied EBA CA gap: in the range of (−1.5 to −3.5) percent of GDP, with a midpoint estimate of −2.5 percent. - Half of the gap accounted for by an unexplained residual reflecting transitional factors not captured by the EBA framework. - Staff-assessed CA norm subject to significant uncertainty linked to pace of structural reforms. 2025 (% GDP) key statistics: - CA: −1.1 - Cycl. Adj. CA: −1.9 - EBA Norm: 0.7 - EBA Gap: −2.5 - Staff Adj.: 0.0 - Staff Gap: −2.5 ### Real Exchange Rate Background findings: - Average REER modestly appreciated by 3 percent between 2024 and 2025, but REER weakened by 16 percent between December 2024 and December 2025. - Real depreciation supported by greater exchange rate flexibility amid increased political uncertainties. - REER appreciated in 2026:Q1 due to record agricultural/energy exports and stronger capital inflows, despite FX purchases by the BCRA. - Price-based and wage-based REER measures followed similar patterns; wage-based indices adjusted with a lag, likely reflecting narrowing profit margins. Assessment: - Staff-assessed CA gap for 2025 implies an average REER gap of 9.6–22.2 percent, with a mid-point 15.9 percent, based on a semi-elasticity of 0.16. - Estimates broadly consistent with EBA REER models and longer-term REER trends. - Considering REER dynamics since April 2025, the REER gap narrowed as of end-2025 compared to the annual average, although recent appreciation amid strong FX inflows has eroded these gains. - Over the medium term, a stronger REER could be justified if structural reforms deliver sustained productivity and competitiveness gains. ### Capital and Financial Accounts: Flows and Policy Measures Background findings: - Net capital inflow in 2025: about US$11.4 billion (1.7 percent of GDP), reversing 2024's small net outflow. - Gross liabilities reached 5.5 percent of GDP in 2025, reflecting IMF and multilateral disbursements and corporate borrowing, with smaller contributions from portfolio debt issuance. - Net asset acquisition by residents: 3.8 percent of GDP; reserve assets up by US$7.2 billion. - Trade and capital account restrictions gradually eased since early 2024, with temporary tightening before the October midterm elections. - From January 2026, corporates can freely repatriate dividends from 2025 investments onward. Assessment: - Careful easing of remaining exchange rate restrictions and capital flow management measures, together with tight macroeconomic policies and competitiveness-enhancing reforms, are expected to: - support exchange rate flexibility, - boost reserve accumulation, - attract foreign investment, - facilitate sustained access to international capital markets. - Complementary tight macroprudential policies are needed to ensure sustainability of capital inflows. - Risks to capital inflows remain tilted to the downside amid rising global geopolitical tensions and a more challenging external financing environment. ### FX Intervention and Reserves Level Background findings: - NIR fell to −$11.7 billion (at current rates) by end-2025, well below end-2024 levels (−$2.4 billion), similar to end-2023 levels (−$11.2 billion), reflecting reserve sales ahead of midterm elections due to resident FX hedging and dollarization. - GIR rose by about $10.9 billion in 2025 to $27.5 billion at end-December, reflecting IMF disbursements and post-election normalization, and increased by a further $5.0 billion through May 13, 2026 (US$32.5 billion). - BCRA purchases about $8.0 billion year-to-date under a reserve purchase program, with NIR at program rates increasing by about US$4.5 billion (as of May 13, 2026). - Bank FX deposits have risen about US$16.2 billion, supporting GIR improvements. Assessment: - Reserve coverage remains very inadequate. - GIR estimated at 34.1 percent of the standard ARA EM metric (and 36.6 percent of the CFM-adjusted metric) as of end-2025. - Sustained efforts to organically rebuild reserves are essential to secure access to international capital markets at more favorable terms and to manage shocks amid elevated global uncertainty and volatile external financing conditions. *Source: Box 2.1. Assessing Imbalances: The Role of Policies—An Example (ch2 - Box 2.1. Assessing Imbalances: The Role of Policies—An Example).* ### 1.3 percent of GDP, reflecting larger negative transactions on the liabilities than on the asset side. Portfolio investm ### CHAPTER 2 2025 INDIVIDUAL ECONOMY ASSESSMENTS ### Brazil: Economy Assessment - Overall Assessment - The external position in 2025 was moderately weaker than the level implied by medium-term fundamentals and desirable policies. - CA deficit narrowed slightly to 2.9 percent of GDP and is projected to decline to 1.7 percent of GDP over the medium term, supported by rising oil exports and public saving. - Risks to Brazil’s external position: geopolitical tensions and trade disruptions; volatility in global commodity markets; insufficient progress on fiscal adjustment and structural reforms to boost competitiveness. - Potential Policy Responses - Raise national saving to increase scope for priority investments. - Sustain a more ambitious fiscal consolidation to increase net public saving. - Target industrial policies where externalities or market failures prevent effective market solutions, while minimizing trade and investment distortions. - Promote transparent, predictable, and mutually beneficial trade policy frameworks; deepening integration through trade agreements is welcome. - Foreign Asset and Liability Position and Trajectory - Background: NIIP fell to −49.4 percent of GDP in 2025 (from −38.2 percent of GDP in 2024 and an average of −41.5 percent of GDP during 2020–23). - NIIP decrease in 2025 reflected a 1.9 percentage points of GDP rise in gross foreign assets and a 13 percentage points of GDP increase in gross foreign liabilities. - Drivers: continued strong FDI inflows, pickup in portfolio inflows, and valuation effects from currency appreciation. FDI accounts for about 70 percent of total liabilities. - External debt: rose to 35.9 percent of GDP and 202.4 percent of exports (from about 32.8 percent of GDP and 184.6 percent of exports in 2024). - Assessment: NIIP negative since 2001. Gross external financing needs expected to remain moderate, at about 10 percent of GDP annually. NIIP projected to stabilize around −44 percent of GDP. - Key 2025 Statistics (% GDP) - NIIP: −49.4 - Gross Assets: 47.1 - Reserve Assets: 15.7 - Gross Liab.: 96.5 - Debt Liab.: 35.9 - Current Account - Background: During 2020–23, CA deficit averaged 1.8 percent of GDP. Widened to 3 percent in 2024 and lowered to 2.9 percent in 2025. - Components: Goods trade balance narrowed (from 3.0 to 2.6 percent of GDP); service deficit improved to −2.2 percent of GDP (from −2.5 percent); primary income deficit reduced to −3.6 percent of GDP (from −3.7 percent). - Saving-investment: national saving declined slightly—private saving increased but public saving deteriorated. Investment edged down, driven by private sector. - Projection: CA deficit expected to narrow to 1.7 percent of GDP over the medium term. - Assessment and Gaps - 2025 cyclically adjusted CA balance: −2.9 percent of GDP. - EBA estimates CA norm: −1.4 percent of GDP. - Staff estimate CA gap range: −1.9 to −1.0 percent of GDP, midpoint −1.5 percent. - EBA-identified policy gaps: −1.2 percent of GDP (mainly due to larger overall fiscal deficit vs. trading partners and a small positive credit gap). - Key 2025 Metrics (% GDP) - CA: −2.9 - Cycl. Adj. CA: −2.9 - EBA Norm: −1.4 - EBA Gap: −1.5 - Staff Adj.: 0 - Staff Gap: −1.5 - Real Exchange Rate - Background: REER appreciated by 10 percent in 2025 at a 12-month rate as of end-2025 after a 17 percent depreciation in 2024. Average REER in 2025 depreciated by 2.5 percent compared to 2024. - Nominal exchange rate vs. US dollar strengthened by 11 percent on a 12-month basis by December 2025. - As of March 2026, REER was 5.5 percent above the 2025 average. - Assessment: staff CA gap implies REER gap of 11.2 percent in 2025 (elasticity 0.13). REER index model suggests gap −30.4 percent; REER level model suggests gap −21.3 percent. Staff assess REER gap in range 7.8–14.7 percent, midpoint 11.2 percent. - Capital and Financial Accounts: Flows and Policy Measures - Background: Brazil continues to attract sizable capital flows. Net FDI flows averaged 2.8 percent of GDP during 2015–24 and were 2.1 percent of GDP in 2025. Portfolio investment rebounded in H2 2025, net annual flows were a modest outflow of 0.4 percent of GDP. - Assessment: Composition of capital flows expected to maintain favorable risk profile; sustained net FDI inflows outweigh relatively small and volatile net portfolio flows; foreign liabilities increasingly dominated by FDI. - Recommendation: IOF-FX tax applicable to capital transactions, assessed as a capital flow management measure under the Institutional View, should be phased out. - FX Intervention and Reserves Level - Background: Floating exchange rate. Authorities intervened in 2020–22 and 2024; largely refrained from spot intervention in 2025 while unwinding FX swap stock. - International reserves increased by US$28.5 billion to US$359 billion at end-2025, largely due to valuation effects. - Assessment: Flexible exchange rate serves as important shock absorber. Reserves adequate per IMF’s reserve adequacy metric at 121 percent at end-2025. FX intervention can be used to address episodes of higher risk premiums when FX liquidity is shallow without substituting for warranted macroeconomic adjustment. --- ### Canada: Economy Assessment - Overall Assessment - The external position in 2025 was weaker than the level implied by medium-term fundamentals and desirable policies. - CA deficit increased to 0.9 percent of GDP in 2025 (from 0.5 percent in 2024) as goods exports to the United States fell in 2025:Q2–Q3 before recovering. - Risk mitigants: strong international investment position, access to stable financing, and flexible exchange rate. - Potential Policy Responses - Remove inter-provincial trade barriers to support structural adjustment and reduce resource misallocation. - Enhance labor productivity via targeted skills development and stronger links between training and labor market needs. - Scale up investment in research and development, innovation, infrastructure, and foster technology adoption and firm-level dynamism in nonfuel tradable sectors. - Promote transparent, predictable, and mutually beneficial trade policy frameworks and encourage diversification and continental economic integration (including via USMCA). - Use targeted and temporary fiscal support where necessary; ensure industrial policy is tightly targeted with strong guardrails. - Foreign Asset and Liability Position and Trajectory - Background: NIIP remained positive at 55.5 percent of GDP, after a rise to 64.8 percent of GDP in 2024 (from 52 percent in 2023) due to valuation gains. Position expected to remain broadly stable. - Gross external debt reached 147.8 percent of GDP in 2025 (up from 145 percent in 2024), with around 38 percent of total debt maturing in the short term. - Assessment: Foreign assets have a higher foreign-currency component than liabilities, providing a hedge. NIIP level and trajectory assessed sustainable. - Key 2025 Statistics (% GDP) - NIIP: 55.5 - Gross Assets: 351.6 - Debt Assets: 96.2 - Gross Liab.: 296.0 - Debt Liab.: 146.0 - Current Account - Background: CA deficit 0.9 percent of GDP in 2025, slightly larger than 0.5 percent in 2024. Tariffs and trade policy uncertainty weighed on exports and worsened trade deficit. Domestic investment broadly constant; national savings declined to a five-year low. - Outlook: CA expected to improve in 2026, supported by favorable terms of trade, higher oil and gas prices, and firm US demand. Over medium term CA expected to improve slightly but remain in a small deficit. - Assessment: Cyclically adjusted CA was −1.1 percent of GDP in 2025; EBA CA norm 2.4 percent of GDP. After accounting for retained earnings measurement bias, staff assess CA gap between −3.2 and −2.4 percent of GDP, midpoint −2.8 percent. - EBA-identified policy gaps estimated at 1.3 percent of GDP (mostly driven by expansionary fiscal stance in rest of world). Large unexplained residual may reflect internal trade barriers and stringent regulation hampering productivity and business dynamism. - Key 2025 Metrics (% GDP) - CA: −0.9 - Cycl. Adj. CA: −1.1 - EBA Norm: 2.4 - EBA Gap: −3.4 - Staff Adj.: 0.6 - Staff Gap: −2.8 - Real Exchange Rate - Background: Average REER for 2025 was 2.7 percent below the 2024 average and about 4.8 percent below its 2020–24 average. As of March 2026, REER rose by 0.7 percent relative to its 2025 average. - Assessment: EBA REER index model points to slight overvaluation of 1.6 percent in 2025; REER level model suggests undervaluation of 21.0 percent. Staff assess REER overvalued by between 9.3 and 12.5 percent, midpoint 10.9 percent (elasticity 0.26). - Capital and Financial Accounts: Flows and Policy Measures - Background: Financial account balance broadly unchanged at −0.7 percent of GDP. Net inflows from FDI and other investments; net outflows in portfolio investments. - Net FDI inflows: 0.5 percent of GDP in 2025 (compared to outflows of 1.2 percent of GDP in 2024). - Other investments: net inflows of 0.7 percent of GDP (compared with outflows of 0.5 percent of GDP in 2024). - Portfolio investments: net outflows of 0.5 percent of GDP (reversal from 2024 inflow of 2.6 percent of GDP). - Errors and omissions: 0.3 percent of GDP. - Assessment: Open capital account; external vulnerabilities limited by positive NIIP, floating exchange rate, and well-developed financial markets. - FX Intervention and Reserves Level - Background: Free-floating exchange rate; no FX market intervention since September 1998 except participating in joint interventions. Limited reserves; Bank of Canada has standing swap arrangements with US Federal Reserve and four other major central banks (not drawn on). - Assessment: Policies appropriate; commitment to floating regime and swap arrangements reduce need for reserve holdings. Private sector’s positive external balance sheet shields economy from exchange rate shocks. --- ### China: Economy Assessment - Overall Assessment - External position in 2025 was stronger than level implied by medium-term fundamentals and desirable policies. - CA surplus strengthened to 3.8 percent of GDP in 2025, largely due to higher trade balance. Exports surged driven by improved competitiveness and strong external demand; imports stagnated amid weak domestic demand. - Net capital outflows remained sizable in 2025, despite some moderation after the May trade deal with the United States. - RMB real dynamics: RMB depreciated by 3.5 percent in real effective terms in 2025 (initial depreciation through July followed by 2.9 percent appreciation from August through year-end). Over medium term CA surplus expected to narrow modestly with recovery in domestic demand; uncertainty remains high. - Potential Policy Responses - Strong and coordinated policy action needed to boost domestic demand, reflate the economy, and bring external position in line with fundamentals. - Fiscal stimulus focused on durably boosting consumption by investing in people and facilitating efficient property sector adjustment; scale back inefficient investment and unwarranted industrial policy support. - Further monetary easing to facilitate reflation; exchange rate flexibility to absorb external shocks should be accompanied by strong fiscal and structural package. - Structural reforms to durably reduce household savings (for example, Hukou reforms) and boost investment in services (for example, lighten regulatory requirements). - Industrial policies should be targeted to address market failures while minimizing trade and investment distortions. Policies should promote transparent, predictable, and mutually beneficial trade frameworks. - Foreign Asset and Liability Position and Trajectory - Background: NIIP reached 20.7 percent of GDP in 2025, rising from 12.0 percent in 2021 and below the 2008 peak of 29.9 percent. - Increase largely reflects CA surpluses. - Assessment: NIIP-to-GDP expected to remain positive and increase modestly over medium term. NIIP not major source of risk owing to high assets (foreign reserves 19.1 percent of GDP) and liabilities mostly related to FDI. - Key 2025 Statistics (% GDP) - NIIP: 20.7 - Gross Assets: 60.1 - Debt Assets: 17.2 - Gross Liab.: 39.3 - Debt Liab.: 12.0 - Current Account - Background: 2025 CA surplus 3.8 percent of GDP (up from 2.5 percent in 2024). Goods balance 5.4 percent of GDP (up from 4.3 percent in 2024). Exports rose by 6.5 percent despite lower export prices. - Services deficit: 1.2 percent of GDP; income deficit: 0.6 percent of GDP (large FDI income deficit partially offset by non-FDI income surplus). - From saving-investment perspective: higher CA largely reflected lower private investment (1.5 percentage points of GDP) and higher private savings (0.4 pp of GDP), partially offset by lower public savings (0.9 pp of GDP). - Near-term: CA expected to remain elevated due to high private savings and subdued private investment (weak real estate investment and anti-involution campaign). Medium-term modest decline in CA driven by recovery in domestic demand and reduction in private savings, partially offset by fiscal consolidation. - Assessment and Gaps - Based on EBA CA model, CA gap ranges from 2.4 to 3.6 percent of GDP with midpoint 3.0 percent of GDP. - EBA-identified policy gaps: −0.1 percent of GDP (currently accommodative fiscal stance offset by insufficient health spending). - Large residuals likely reflect elevated precautionary savings linked to social safety net weaknesses and prolonged housing downturn. - Key 2025 Metrics (% GDP) - CA: 3.8 - Cycl. Adj. CA: 3.6 - EBA Norm: 0.6 - EBA Gap: 3.0 - Staff Adj: 0.0 - Staff Gap: 3.0 - Real Exchange Rate - Background: First seven months of 2025 REER depreciated by 3.2 percent relative to 2024 average (due to low inflation in China vs. trading partners). Between July 2025 and March 2026, REER appreciated by 4.8 percent (point-to-point). As of March 2026, REER appreciated by 2.8 percent relative to 2025 average. *International Monetary Fund | CHAPTER 2 2025 INDIVIDUAL ECONOMY ASSESSMENTS* ### 11.8 percent weaker than its 2021 level. ### ch2 - 11.8 percent weaker than its 2021 level. ### China — Capital and Financial Accounts: Flows and Policy Measures - Background: - In 2025, the financial account deficit (excluding net errors and omissions) increased to 4.0 percent of GDP (from 2.7 percent of GDP in 2024). - Drivers: continued weak inward FDI (0.4 percent of GDP) and large equity purchases by the Chinese private non-financial sector (1.0 percent of GDP). - In the first four months of 2026, authorities modestly relaxed several CFMs, including: - easing restrictions on overseas lending for corporates and selected banks, - lowering the reserve requirement on banks’ FX forward purchases to zero, - increasing the QDII quota. - Assessment: - Net outflows remained sizable (despite some moderation in 2025:Q2), mirroring the large CA surplus. - Contributing factors: concerns about China’s growth outlook, the interest rate differential between China and advanced economies, and trade tensions with the United States. - Policy guidance: - CFMs should not be used to actively manage the capital flow cycle or substitute for warranted macroeconomic adjustment and exchange rate flexibility. - In the medium term, China should gradually phase out CFMs in a sequence consistent with greater exchange rate flexibility and accompanying reforms. ### China — FX Intervention and Reserves Level - Background: - Despite a small overall deficit in the BOP in 2025, PBOC reserves recovered from the end-2024 trough, increasing by about US$290 billion to $3.7 trillion by end-2025, mostly reflecting valuation effects. - As of end-March, reserves were at about $3.8 trillion. - Assessment: - As of end-2025, the reserves coverage remained stable at about 100 percent of the IMF ARA metric adjusted for capital controls and is assessed to be adequate. - Temporary FX intervention can provide short-term benefits when large non-fundamental shocks coincide with shallow FX markets and pose significant risks to macroeconomic and financial stability. ### China — Real Exchange Rate - Findings: - "11.8 percent weaker than its 2021 level." - EBA REER index model estimates the REER gap at 0.5 percent and the EBA REER level model estimates it at −2.7 percent. - Consistent with the staff CA gap, staff assess the REER gap to be in the range of −17.3 to −25.3 percent with a midpoint of −21.3 percent (with an estimated elasticity of 0.14 applied). --- ### Euro Area — Overall Assessment and Policy Responses - Overall Assessment: - The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - The CA balance declined to 1.7 percent of GDP in 2025—down from 2.7 percent of GDP in 2024—driven mainly by weaker net investment income and services, while the goods balance held up. - The euro area’s CA surplus is projected to gradually increase over the medium term, and is projected to remain below 2 percent of GDP, with imbalances in some countries. - Potential Policy Responses: - Support stronger domestic demand and a smooth handoff from public to private investment while reducing country-level imbalances where needed. - Deepen the EU Single Market and complete the Banking Union to raise productivity and enhance resilience through scale and internal diversification. - Improve coordination on public goods investment and enact structural reforms to boost investment and private demand. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. - Keep industrial policies targeted to where externalities or market failures prevent effective market solutions, coordinated at the EU level, and minimizing distortions. ### Euro Area — Foreign Asset and Liability Position and Trajectory - Background: - NIIP turned positive in 2022 and remained positive in 2025, reaching 11.0 percent of GDP (roughly unchanged from end-2024). - Movements in 2025 were largely valuation-driven. - Gross external debt declined modestly by end-2025:Q4; gross cross-border balance sheet remained large. - SPEs account for a sizable share of direct investment positions. - Assessment: - Projections of continued CA surpluses suggest the NIIP-to-GDP ratio will rise further at a moderate pace. - Year-to-year movements may remain volatile given prominent role of valuation effects in 2025. - While overall NIIP financing vulnerabilities appear low, large net external debtor countries bear elevated risk of a sudden stop of gross inflows. - Key statistics (2025, % GDP): - NIIP: 11.0 - Gross Assets: 256.8 - Debt Assets: 93.8 - Gross Liab.: 245.7 - Debt Liab.: 87.2 ### Euro Area — Current Account - Background: - CA surplus narrowed to 1.7 percent of GDP in 2025, from 2.7 percent of GDP in 2024. - Drivers: deterioration in income and services balances; primary income shifted from surplus to deficit; services surplus fell due to larger deficits in charges for the use of intellectual property more than offsetting strength in ICT-related services. - Goods surplus edged up, supported by decline in the energy deficit and strength in chemicals. - Household saving rate eased from 14.8 in 2024:Q4 to 14.4 percent in 2025:Q4; household investment rate edged up from 8.5 percent to 8.8 percent; corporate investment rate fell to 21.4 percent in 2025:Q4. - Assessment: - EBA model estimates CA norm of 0.7 percent of GDP versus cyclically adjusted CA of 1.8 percent of GDP, implying an EBA gap of 1.0 percent of GDP. - Adjustments of −0.1 percent of GDP for portfolio retained earnings bias in the Netherlands; unexplained residual of 0.5 percent partly reflects multinationals in Ireland. - Staff assesses CA gap to be 0.9 percent of GDP in 2025, with a range of 0.1–1.7 percent of GDP (standard error 0.8). - Key statistics (2025, % GDP): - CA: 1.7 - Cycl. Adj. CA: 1.8 - EBA Norm: 0.7 - EBA Gap: 1.0 - Staff Adj.: −0.1 - Staff Gap: 0.9 ### Euro Area — Real Exchange Rate - Background: - In 2025, CPI-based REER appreciated by 2.2 percent; euro appreciated by 4.4 percent against the US dollar. - CPI-based REER appreciated by 7.3 percent between 2015 and 2025 following a depreciation of nearly 20 percent in the post-global financial crisis period. - As of March 2026, the CPI-based REER was 0.8 percent above its 2025 average. - Assessment: - IMF staff assesses the REER gap to be −2.6 percent in 2025, with a range of −0.4 to −4.8 percent, based on estimated CA-REER elasticity of 0.35. - EBA REER index and level models suggest an overvaluation of 5.1 percent and 2.7 percent, respectively. ### Euro Area — Capital and Financial Accounts: Flows and Policy Measures - Background: - Broadly balanced capital account in 2025 and sizable financial account flows. - Net direct investment outflows persisted (residents increased net direct investment abroad while non-residents were slight net disinvestors). - Other investment expanded sharply on both asset and liability sides, indicating stronger cross-border intermediation (e.g., deposits/loans). - Portfolio investment flows broadly offsetting in aggregate. - Assessment: - Aggregate risks appear contained, supported by net external creditor position and the euro’s role as the second most important international currency. - Sizable gross financing needs and large cross-border balance sheets leave parts of the euro area vulnerable to tighter global financial conditions and market volatility, including via sovereign risk repricing and bank–non-bank linkages. ### Euro Area — FX Intervention and Reserves Level - Background: - The euro has the status of a global reserve currency. - Assessment: - Reserves held by euro area economies are typically low relative to standard metrics, but the currency is free floating. --- ### France — Overall Assessment and Policy Responses - Overall Assessment: - The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - CA balance declined to −0.3 percent of GDP in 2025 from a surplus of 0.1 percent in 2024, driven by a fall in the income balance; trade balance declined only slightly to −0.2 percent of GDP. - Over the medium term, CA balance projected at 0.4 percent of GDP by 2031. - Potential Policy Responses: - Structural reforms to raise productivity, boost innovation, and incentivize private investment would help maintain external position in line with fundamentals. - Deepening the EU single market would further strengthen productivity and resilience. - Industrial policies should remain targeted, coordinated at EU level, and minimize distortions. ### France — Foreign Asset and Liability Position and Trajectory - Background: - NIIP stood at −28.4 percent of GDP in 2025, slightly below the range observed during 2014–19 (between −19 percent and −28 percent of GDP). - Gross assets: 384 percent of GDP in 2025; non-FDI- and non-portfolio-related assets accounted for about 49 percent. - Gross liabilities: 412 percent of GDP in 2025; external debt about 241 percent of GDP (56 percent accounted for by banks and 30 percent by the public sector). - Most external debt liabilities denominated in domestic currency. - Average TARGET2 balance in 2025 was about −€198.0 billion. - Assessment: - NIIP is negative but size and projected stable trajectory do not raise sustainability concerns. - Composition-related vulnerabilities: large public external debt (55 percent of GDP in 2025) and banks’ short-term gross financing needs. - Key statistics (2025, % GDP): - NIIP: −28.4 - Gross Assets: 384 - Debt Assets: 213 - Gross Liab.: 412 - Debt Liab.: 241 ### France — Current Account - Background: - CA balance weakened to −0.3 percent of GDP in 2025, down from a surplus of 0.1 percent of GDP in 2024. - Drivers: slightly weakening goods and services balances; net factor income softened; transfers contribution combined −0.1 percent of GDP in 2025. - Growth of national savings accelerated in 2025 (driven by higher household savings) but was more than offset by expansion in private investment. - 2026 projection: CA balance at −0.3 percent of GDP. - Medium-term projection: CA balance about 0.4 percent of GDP by 2031. - Assessment: - 2025 cyclically adjusted CA balance estimated at −0.3 percent of GDP compared with an EBA-estimated norm of 0.3 percent. - Staff assess that the CA gap in 2025 is between −0.9 and −0.1 percent of GDP, with a midpoint of −0.5 percent of GDP. - Policy gap is zero as the positive contribution from the credit gap is broadly offset by negative contributions from fiscal and health expenditure. - Key statistics (2025, % GDP): - CA: −0.3 - Cycl. Adj. CA: −0.3 - EBA Norm: 0.3 - EBA Gap: −0.5 - Staff Adj.: 0.0 - Staff Gap: −0.5 ### France — Real Exchange Rate - Background: - Limited wage and price increases compared to trading partners resulted in weak real appreciation since 2022. - In 2025, CPI-based REER remained flat; ULC-based REER appreciated by 3 percent. - As of March 2026, CPI-based REER was 0.3 below the 2025 average; as of February the ULC-based REER was 2 percent above the 2025 average. - Assessment: - Consistent with the staff CA gap, staff assess the REER gap to be 2.0 percent with a range of ±1.4 percent, using an elasticity of 0.27. ### France — Capital and Financial Accounts: Flows and Policy Measures - Background: - Financial account recorded a net outflow of 0.9 percent of GDP in 2025, up from a net outflow of 0.2 in 2024. - Both inward and outward investment increased significantly, by 12.1 and 12.8 percentage points of GDP, respectively. - Financial account is open. - Assessment: - France remains exposed to financial market risks owing to large refinancing needs of the sovereign and banking sectors. ### France — FX Intervention and Reserves Level - Background: - The euro has the status of a global reserve currency. - Assessment: - Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating. --- ### Germany — Overall Assessment and Policy Responses - Overall Assessment: - The external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies. - CA decreased in 2025 versus 2024 due mainly to a drop in goods exports as a percent of GDP, while goods imports rose slightly. - In 2026, CA is expected to decline further as the trade balance is projected to weaken in response to fiscal easing and higher energy import prices. - Potential Policy Responses: - Policies promoting investment and diminishing excess saving would support external rebalancing and reduction of the CA balance toward its norm. - Expected higher fiscal deficits in 2026 and 2027 due to higher defense spending and higher public investment in transportation, energy, and digitalization. - Structural reforms to ease regulatory constraints on domestic investment (e.g., accelerating licensing and permitting) could further stimulate investment. - Training to enhance employability of older workers could extend working lives and reduce the need for savings. - Industrial policies should remain targeted, coordinated at EU level, and minimize distortions. ### Germany — Foreign Asset and Liability Position and Trajectory - Background: - NIIP increased to 85 percent of GDP in 2025 versus 78 percent of GDP in 2024. - Increase due to CA surplus and valuation gains on external assets (mainly portfolio investments). - Germany’s TARGET claims on the Eurosystem were €1.0 trillion at end-2025, roughly unchanged from end-2024. - In the past five years, NIIP has increased by 17 percent of GDP. - Assessment: - Germany’s exposure to the Eurosystem remains large. - Key statistics (2025, % GDP): - NIIP: 85 - Gross Assets: 335 - Debt Assets: 168 - Gross Liab.: 250 - Debt Liab.: 156 ### Germany — Current Account - Background: - CA surplus was 4.5 percent of GDP in 2025, compared with 5.9 percent in 2024 and 8.1 percent on average in the pre-pandemic period over 2017–19. - Decrease in CA in 2025 was due mainly to a decline in the goods balance. - Primary income balance in 2025 largely unchanged. - Change in CA balance driven mainly by lower savings-investment balances for the private sector; household consumption picked up and savings rate fell; corporate saving also fell. - Going forward, household saving rate projected to remain broadly stable; higher public investment and gradually recovering sentiment expected to crowd in somewhat higher private investment. - Assessment: - EBA model cyclically adjusted CA balance estimated 4.3 percent of GDP in 2025. - Staff assess CA norm between 1.7 and 2.7 percent of GDP, midpoint 2.2 percent of GDP. - CA gap for 2025 in range of 1.6–2.6 percent of GDP, midpoint 2.1 percent of GDP. - Total policy gaps in EBA model negligible (−0.1 percent of GDP); CA gap attributed to residual (2.2 percent of GDP) reflecting factors not captured by EBA model (e.g., regulatory constraints, measurement issues). - Key statistics (2025, % GDP): - CA: 4.5 - Cycl. Adj. CA: 4.3 - EBA Norm: 2.2 - EBA Gap: 2.1 - Staff Adj.: 0.0 - Staff Gap: 2.1 ### Germany — Real Exchange Rate - Background: - REER depreciated by about 6 percent (based on consumer prices) during the energy crisis (early 2021−mid-2022), recovered by mid-2023, then stabilized through end-2024. - In 2025, REER appreciated by 1.4 percent based on both CPI and ULC measures. - As of March 2026, REER was 0.5 percent above the 2025 average. - Assessment: - Staff CA gap implies a REER gap of −6.6 percent in 2025 (with an estimated elasticity of 0.32 applied). - EBA REER level and index models suggest an undervaluation of 9.1 percent and an overvaluation of 8.2 percent, respectively. - Consistent with the staff CA gap, staff assess the REER to be undervalued, with a midpoint of 6.6 percent and a range of uncertainty of ±1.6 percent. ### Germany — Capital and Financial Accounts: Flows and Policy Measures - Background: - In 2025, capital and financial accounts widened slightly versus 2024, mainly due to an increase in net portfolio investment (German capital flows into foreign equity assets increased sharply). - Net FDI declined as FDI into Germany increased more than outward FDI. - Errors and omissions increased. - Assessment: - Risks are limited given Germany’s safe-haven status and the strength of its external position. ### Germany — FX Intervention and Reserves Level - Background: - The euro has the status of a global reserve currency. - Assessment: - Reserves held by euro area economies are typically low relative to standard metrics. The currency floats freely. *International Monetary Fund | 2026 — Chapter 2 (excerpts as provided)* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### Hong Kong Special Administrative Region — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - 2025 CA outcome and outlook: - Current account surplus declined to 12.3 percent of GDP (from 13.1 percent in 2024). - Surplus expected to rise somewhat in 2026 as the import surge unwinds, before moderating over the medium term with a recovery in investment, particularly private investment. - Exchange rate arrangement and credibility: - Under the Linked Exchange Rate System (LERS), short-term REER movements largely reflect US dollar developments. - Credibility of the currency board arrangement is underpinned by transparent rules, ample fiscal and FX reserves, strong financial regulation and supervision, economic flexibility, and a prudent fiscal framework. - Potential Policy Responses: - Gradual fiscal consolidation over the medium term to raise public savings and offset stronger private demand and aging-related spending pressures, while addressing gaps in the social safety net. - Maintain wage and price flexibility to support real exchange rate adjustment and preserve competitiveness under the currency board arrangement. - Continue strong financial supervision, prudent fiscal management, and flexible markets to sustain LERS credibility. ### Hong Kong SAR — Foreign Asset and Liability Position and Trajectory - Background: - NIIP stood at 586 percent of GDP at end-2025, up from 490 percent at end-2024, driven largely by a large increase in gross assets (+172 percentage points of GDP). - Valuation effects in 2025 were sizable as the change in the NIIP (+96 percentage points of annual GDP) exceeded the financial account balance (17 percent of GDP). - Assessment: - Vulnerabilities are low given the positive and sizable NIIP and its favorable composition. - FX reserves remain large (100 percent of GDP at the end of 2025). - Direct investments account for a large share of gross assets and liabilities (35 and 54 percent, respectively, at end-2025). - Only 13 percent of gross liabilities are portfolio investments. - Key 2025 indicators (% GDP): - NIIP: 586 - Gross Assets: 1,806 - Debt Assets: 1 436 - Gross Liab.: 1,220 - Debt Liab.: 1 224 ### Hong Kong SAR — Current Account, REER, Capital Flows, and Reserves - Current Account background and outlook: - CA surplus 12.3 percent of GDP in 2025 (2024: 13.1 percent); gross national savings (+1.3 pp) and investment (+2.2 pp) rose. - Goods deficit wider at 2.2 percent of GDP due to merchandise imports growth (17.4 percent y/y) vs exports (16.3 percent y/y). - Services surplus widened to 5.1 percent of GDP in 2025 (2024: 4.3 percent); visitor numbers rose by 12.1 percent y/y. - Income balance significant at 9.3 percent of GDP, similar to 2024. - CA projected to gradually decline over the medium term due to higher investment (+2.8 pp of GDP by 2031 compared to 2025); GNS rate expected to converge to around 32.5 percent of GDP (2025: 30.6 percent of GDP). - Private investment recovery expected to contribute +4.9 pp by 2031. - Assessment (cyclically adjusted and norm): - After adjusting for cyclical factors, the CA surplus is estimated to be 11.8 percent of GDP in 2025. - Staff-assessed CA norm range: 11.1–12.7 percent of GDP (midpoint 11.9 percent). - Staff-assessed CA gap range: −0.9 to 0.7 percent of GDP, midpoint −0.1 percent. - Note: Hong Kong SAR not in the EBA sample; CA norm estimated by applying EBA-estimated coefficients and adjusted for NIIP composition and measurement issues. - 2025 (% GDP) CA indicators: - CA: 12.3 - Cycl. Adj. CA: 11.8 - EBA Norm: — - EBA Gap: — - Staff Adj.: — - Staff Gap: −0.1 - Real Exchange Rate: - REER depreciated modestly in 2025 (−0.3 percent), reflecting a 0.7 depreciation of the NEER due to the weaker US dollar. - Domestic inflation 1.4 percent partially offset nominal depreciation. - REER in March 2026 was 2.2 percent below the average for 2025 (largely reflecting a 2.3 percent depreciation of the NEER). - Staff assess REER gap range −2.2 to 2.7 percent, midpoint 0.2 percent (based on CA-REER elasticity of −0.321). - Capital and Financial Accounts: - Open capital account; net outflow in non-reserve financial flows (before net errors and omissions) amounted to 18.7 percent of GDP in 2025 (2024: 17.3 percent). - Financial account volatility reflects conditions in Hong Kong SAR and the Chinese mainland, US monetary policy expectations, and arbitraging in FX and rates markets. - Assessment: Large financial resources, proactive supervision, and deep markets limit risks; greater exposure to the Chinese mainland could pose real-sector linkages risks, but banking system is broadly resilient. - FX Intervention and Reserves: - HKMA recorded a net injection amounting to US$1.4 billion in support of the Convertibility Undertaking in 2025; purchased US$16.7 billion in May in response to large inflows, partially unwound over the following 3 months. - Total reserve assets USD 428 billion at end-2025 (1.6 times the monetary base at end-November); reserves decreased modestly to 100 percent of GDP from 103 percent of GDP at end-2024. - Assessment: FX reserves adequate for precautionary purposes and evolve with automatic adjustment of the currency board system. - Fiscal reserves estimated at about 21 percent of GDP at end-2025 despite a large fiscal deficit in 2025. --- ### India — Overall Assessment and Potential Policy Responses - Overall Assessment: The external position in FY2025/26 (ending in March 2026) was moderately stronger than the level implied by medium-term fundamentals and desirable policies. - CA performance and outlook: - CA deficit contained at an estimated 0.9 percent of GDP in FY2025/26 due to buoyant service exports and inward remittances, despite precious metal price increases. - CA deficit expected to increase to 2 percent of GDP in FY2026/27 reflecting higher commodity prices, before narrowing as commodity prices normalize and converging close to its estimated norm over the medium term. - External risks: commodity price pressures, supply chain disruptions, weakening external demand, global financial conditions. - Trade and policy context: - Subject to reduced US tariffs following the interim agreement; US Supreme Court decision in February 2026 has made progress on bilateral FTAs, including with the EU, and incremental steps to lower tariffs and non-tariff trade restrictions. - Trade and capital account regimes remain relatively restricted, weighing on exports and imports. - Potential Policy Responses: - Prioritize reducing import restrictions, especially on intermediate goods, improve business environment to boost private investment and liberalize the FDI regime. - Promote transparent, predictable, and mutually beneficial trade policy frameworks, develop trade infrastructure, and cautiously pursue narrowly targeted industrial policies. - Exchange rate flexibility should act as the main shock absorber; intervention limited to periods marked by destabilizing risk premiums. ### India — Foreign Asset and Liability Position and Trajectory - Background: - NIIP improved to −6.7 percent of GDP as of end-2025, from −9.8 percent of GDP in 2024, reflecting valuation changes and nominal GDP growth more than offsetting the impact of the CA deficit. - Gross foreign assets increased to 30.9 percent of GDP (from 28.9 percent in 2024). - Gross foreign liabilities declined to 37.6 percent of GDP (from 38.7 percent in 2024), reflecting FDI disinvestment and reductions in portfolio equity liabilities amid high US tariffs (50 percent additional tariffs in effect between August 2025 and February 2026) and elevated US trade policy uncertainty. - Bulk of foreign assets: official reserves and outward FDI; liabilities: mostly debt liabilities and inward FDI. - Assessment: - NIIP-to-GDP ratio projected to widen modestly over the medium term; CA deficits mitigated by robust nominal GDP growth. - External debt liabilities relatively low compared with peers; short-term rollover risks limited. - Moderate level of foreign liabilities reflects incremental approach to capital account liberalization. - 2025 (% GDP) indicators: - NIIP: −6.7 - Gross Assets: 30.9 - Debt Assets: 4.1 - Gross Liab.: 37.6 - Debt Liab.: 18.2 ### India — Current Account, REER, Capital Flows, and Reserves - Current Account background: - CA deficit edged up to an estimated 0.9 percent of GDP in FY2025/26 from 0.6 percent in the previous year, driven by precious metal imports. - Merchandise exports broadly stable at around 11 percent of GDP; gross domestic savings declined by 0.8 percentage points to 32.9 percent of GDP driven by a rise in private consumption. - Gross domestic investment declined by an estimated 0.5 percentage points to 33.9 percent of GDP, reflecting US tariff hikes and trade policy uncertainty. - CA deficit projected to widen to 2 percent of GDP in FY2026/27 reflecting commodity price increases. - Assessment and EBA results: - EBA cyclically adjusted CA balance estimated at −0.7 percent of GDP in FY2025/26. - EBA CA norm estimated at −2.3 percent of GDP, with a standard error of 0.6 percentage points. - Staff assess the CA gap to be 1.6 percent of GDP, within a range of 1.0–2.2 percent of GDP. - Contribution of policy gaps to the CA gap is negligible; competitiveness in tradeable services and relatively restrictive trade/capital account regimes and product market regulations may contribute to a positive CA residual of 1.5 percent of GDP. - 2025 (% GDP) CA indicators: - CA: −0.9 - Cycl. Adj. CA: −0.7 - EBA Norm: −2.3 - EBA Gap: 1.6 - Staff Adj.: 0.0 - Staff Gap: 1.6 - Real Exchange Rate: - INR came under depreciation pressure during the period of 50 percent additional US tariffs (August 2025–February 2026); REER depreciated, aiding external adjustment. - REER as of March 2026 was 6.7 percent below its 2025 annual average. - EBA REER index and level models suggest overvaluation of 0.8 percent and undervaluation of 5.6 percent, respectively. - Staff assess the REER gap range −11.7 to −5.1 percent, midpoint −8.4 percent (based on estimated semi-elasticity of 0.18). - Capital and Financial Accounts: - Net FDI inflow muted at estimated 0.3 percent of GDP in FY2025/26; net portfolio investment outflow estimated at 0.2 percent of GDP amid high US tariffs and higher energy prices. - Authorities relaxed FDI restrictions including on land-bordering countries. - Assessment: Regulatory relaxation and lower US tariffs since February 2026 expected to support FDI rebound over the medium term to cover more than half of the CA deficit; portfolio flows sensitive to global conditions but reliance on portfolio inflows for CA financing is limited. - FX Intervention and Reserves: - Official international reserves increased from $668.3 billion at end FY2024/25 to $691.1 billion at end-FY2025/26 due to valuation gains of gold offsetting reduced FX holdings. - At end-FY2025/26, reserves represented about 224 percent of short-term debt (on residual maturity), about 108 percent of the IMF’s ARA EM metric, and close to eight months of import coverage. - Assessment: Reserves adequate for precautionary purposes; FX interventions should be limited to periods marked by destabilizing risk premiums given deep, liquid FX markets and well-anchored inflation expectations. --- ### Indonesia — Overall Assessment and Potential Policy Responses - Overall Assessment: The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - Medium-term outlook and risks: - External balance expected to be sustained despite external shocks and higher uncertainty; exchange rate flexibility and structural policies would help contain the CA deficit. - External financing needs appear sustainable, but reliance on foreign portfolio investment exposes the economy to sharp swings in market sentiment and global financial conditions. - Potential Policy Responses: - Enhance buffers within the fiscal rule and pursue structural reforms to raise productivity and promote trade. - Structural reforms recommended: (1) higher and more efficient infrastructure investment; (2) higher, more efficient, and better targeted social spending to foster human capital and strengthen social safety net; (3) reduce or eliminate restrictions on inward FDI and external trade, including moving away from non-tariff barriers; (4) promote greater labor market flexibility. - Industrial policies should be targeted where externalities or market failures prevent market solutions; exchange rate flexibility should continue to support external stability. - Continue progress on trade integration, structural reforms, and deregulation to lower trade and investment barriers. ### Indonesia — Foreign Asset and Liability Position and Trajectory - Background: - NIIP fell from −17.6 percent of GDP at end-2024 to −18.9 percent of GDP at end-2025. - Deterioration reflects a 1.2 percent of GDP improvement in gross external assets more than offset by a 2.5 percent of GDP increase in gross external liabilities. - Gross external debt moderate at 30.0 percent of GDP at end-2025 (30.4 percent in 2024). - External rollover risks contained due to large share of long-term debt. - NIIP-to-GDP projected to stabilize at current levels in the medium term as robust nominal GDP growth offsets projected small CA deficits. - Assessment: - Level and composition of NIIP and gross external debt indicate sustainable external position with limited rollover risk. - High dependence on foreign portfolio investment (20.3 percent of GDP in 2025) increases vulnerability to global market sentiment swings. - 2025 (% GDP) indicators: - NIIP: −18.9 - Gross Assets: 38.7 - Res. Assets: 10.8 - Gross Liab.: 57.6 - Debt Liab.: 30.0 ### Indonesia — Current Account, REER, Capital Flows - Current Account background and outlook: - CA deficit narrowed to 0.1 percent of GDP in 2025 from 0.6 percent of GDP in 2024, reflecting resilient export demand. - On savings-investment side, a 0.3 percent of GDP decrease in savings (income pressures on households, more supportive fiscal policy) was more than offset by a 0.8 percent decrease in investment (higher uncertainty). - CA deficit projected to widen in 2026 due to the war in the Middle East and a smaller contribution from initial investment announcements by the new sovereign wealth fund (Danantara). - CA deficit expected to remain close to the norm throughout the projection horizon amid stable savings and investment outlooks. - Assessment and EBA results: - Staff estimates a CA gap of 0.2 percent of GDP for 2025. - Cyclically adjusted CA deficit estimated at −0.2 percent of GDP; norm of −0.4 percent of GDP. - Given uncertainty, CA gap for 2025 in range −0.3 to 0.7 percent of GDP. - EBA-identified policy gaps estimated at 0.6 percent of GDP, driven by a tighter fiscal stance than in other countries (0.7) and underspending on health care (0.5), partly offset by credit gap (−0.5) and reserve accumulation policy gap (−0.2). - 2025 (% GDP) CA indicators: - CA: -0.1 - Cycl. Adj. CA: -0.2 - EBA Norm: -0.4 - EBA Gap: 0.2 - Staff Adj.: 0.0 - Staff Gap: 0.2 - Real Exchange Rate: - Average REER and NEER depreciated by about 4.9 and 4.8 percent respectively in 2025 vs 2024. - Depreciation reflected heightened external and domestic policy uncertainty, capital outflows, and easing domestic monetary policy tightening yield differentials. - REER as of March 2026 was 2.6 percent below its 2025 average. - Staff CA gap estimate of 0.2 percent of GDP implies a REER gap of −1.1 percent (elasticity 0.16). - Staff assess REER gap range −4.4 to 2.2 percent, midpoint −1.1 percent. - Capital and Financial Accounts: - Net capital and financial flows worsened in 2025 (−0.3 percent of GDP) from 1.0 percent of GDP in 2024. - Portfolio investment flows turned negative reflecting net outflows from equities and private bonds and retrenchment of non-resident holdings of BI’s local currency instrument (SRBI). - Net FDI inflows declined to 1.0 percent of GDP in 2025 (1.1 percent in 2024, 1.4 percent in 2022). - Share of nonresident holdings of rupiah-denominated government bonds at 13.4 percent at end-2025, below 39 percent earlier. *International Monetary Fund | 2026 — CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS* ### 2019. Portfolio equity outflow pressures rose in early 2026, including amid calls to enhance market operations and trans ### ch2 - 2019. Portfolio equity outflow pressures rose in early 2026, including amid calls to enhance market operations and trans ### Portfolio equity outflow pressures and medium-term outlook - Portfolio equity outflow pressures rose in early 2026. - Amid external shocks, financial flows are expected to be somewhat subdued into the medium term. - Capital and financial account vulnerabilities are expected to remain contained. - Given still deepening domestic markets, reliance on foreign portfolio investment exposes the economy to sharp swings in market sentiment and risk premiums, and to fluctuations in global financial conditions. - Assessment and policy guidance: - Continued strong policies focused on safeguarding the fiscal position and long-standing policy frameworks. - Advance financial deepening. - Implement structural reforms that provide credibility and certainty and enable the business, trade, and investment environment. - These measures should help sustain capital inflows in the medium term, particularly in a likely period of prolonged global policy uncertainty and external headwinds to growth. *Key statistics (respective to the discussed country context in 2025–2026):* - Official foreign reserves slightly increased to US$156.5 billion in 2025 (10.8 percent of GDP) from US$155.7 billion in 2024 (11.2 percent of GDP). ### FX Intervention and Reserves Level (Indonesia context) - Background: - Since mid-2013, Indonesia has had a more flexible exchange rate policy framework. - Official foreign reserves: US$156.5 billion in 2025 (10.8 percent of GDP); US$155.7 billion in 2024 (11.2 percent of GDP). - Reserves movements reflect declines due to FX interventions during stress periods offset by efforts to rebuild buffers at other times. - Assessment: - End-2025 level of reserves equals 119.8 percent of the IMF’s reserve adequacy metric and 5.7 months of prospective imports. - Predetermined short-term foreign currency drains have been stable through 2025. - In line with the IPF, use of FXI is appropriate under certain shocks and circumstances, particularly when shocks trigger spikes in market premiums given shallow FX markets. - FXI usage should be judicious to preserve buffers in a shock-prone environment. ### Italy: Economy Assessment (2025) - Overall assessment: - The external position in 2025 was moderately weaker than the level implied by medium-term fundamentals and desirable policies. - CA balance: surplus of 1.1 percent of GDP in 2025 (broadly unchanged from 2024). - Italy is reliant on imported energy; surge in global energy prices following the onset of the war in the Middle East likely to weigh on the CA before gradually increasing over the medium term. - CA projected to remain below the CA norm, reinforcing need for additional fiscal consolidation and productivity-enhancing structural reforms. - Potential policy responses: - Additional comprehensive reforms to boost productivity, competitiveness, and potential growth. - EU single market deepening to raise productivity and resilience. - Reforms to boost labor force participation of women and youth. - Increase public sector savings and decisive public debt reduction. - Deploy industrial policies cautiously, remain targeted, coordinated at the EU level, and minimize trade and investment distortions. - Foreign asset and liability position and trajectory: - NIIP ended 2025 at 15.4 percent of GDP (from 14.9 in 2024). - Gross foreign assets: 193.5 percent of GDP in 2025. - Gross foreign liabilities: 178.0 percent of GDP in 2025. - Debt assets: 77.3 percent of GDP; Debt liabilities: 124.8 percent of GDP. - Bank of Italy’s TARGET2 liabilities declined from peak of 34 percent of GDP in 2022 to 16 percent of GDP at end-2025. - Public sector external liabilities make up around 50 percent of total external liabilities, corresponding to 66 percent of GDP. Seventy percent of public sector external liabilities are long term. - Assessment: - Further strengthening public sector balance sheets and undertaking structural reforms would lessen vulnerabilities associated with high public debt, reinvigorate productivity and economic growth, and reduce potential negative feedback loops between the debt stock and debt-servicing costs. - Current account: - CA averaged a surplus of 1.4 percent of GDP between 2019 and 2024 (surpluses in all years except 2022). - CA surplus in 2025: 1.1 percent of GDP (1.1 in 2024). - Cyclically adjusted CA estimated at 1.2 percent of GDP for 2025. - EBA estimated CA norm: 2.4 percent of GDP. - EBA gap: −1.2 percentage points of GDP (range of the CA gap assessed to be −1.7 to −0.7 percent of GDP, midpoint −1.2 percent of GDP). - Total estimated policy gap: +1.0 percent of GDP, comprising: - +0.4 percent of GDP contribution from a fiscal policy gap. - +0.5 percent of GDP contribution from the credit gap. - A sizable unexplained residual of −2.3 percent of GDP suggests model may not fully capture Italy-specific structural impediments. - 2025 (% GDP) summary: CA: 1.1; Cycl. Adj. CA: 1.2; EBA Norm: 2.4; EBA Gap: −1.2; Staff Adj.: 0.0; Staff Gap: −1.2. - Real exchange rate: - 2019–25 CPI-based REER appreciated by 1.1 percent; ULC-based REER appreciated by 0.5 percent. - During 2025, CPI-based REER appreciated by 0.6 percent due to strengthening of the euro. - As of March 2026, CPI-based REER was 0.2 percent above the 2025 average. - Assessment: - Model-based CA gap implies a REER gap of 4.8 percent in 2025 (elasticity 0.25). - Level and index CPI-based REER models suggest overvaluation in 2025 of 2.6 percent and 3.3 percent, respectively. - Based on staff CA gap, REER gap range: 2.6 to 6.8 percent, midpoint 4.7 percent. - Capital and financial accounts: - Capital account: broadly unchanged at around 0.2 in 2025 (0.0 in 2024). - Financial account posted net outflows of 1.2 percent of GDP in 2025 (from net outflows of 2.3 percent of GDP in 2024). - Outflows driven by reduction in TARGET2 liabilities and increase in other financial investment inflows. - Assessment: Large refinancing needs of sovereign and banking sector suggest Italy remains vulnerable to market volatility. Private sector, a net creditor, is mainly exposed to equity risk-rewards. - FX intervention and reserves: - Background: euro has status of a global reserve currency. - Italy’s reserves increased by 31 percent in 2025, in part owing to valuation effects. - Assessment: reserves held by the euro area are typically low relative to standard metrics. The currency is freely floating. ### Japan: Economy Assessment (2025) - Overall assessment: - External position in 2025 was moderately stronger than the level implied by medium-term fundamentals and desirable policies. - CA surplus increased to 4.9 percent of GDP in 2025 from 4.6 percent in 2024. - Primary income surplus reflects large positive NIIP and high rate of return on net foreign assets. - CA surplus expected to fall by 1.1 percent of GDP in 2026 due to rising energy import bill triggered by the war in the Middle East and will stabilize in the medium term as primary income surplus normalizes to historical rates of return. - Potential policy responses: - Structural reforms to reduce labor market duality, improve labor mobility, boost labor force participation, and improve firm dynamism. - Fiscal adjustment needed to preserve debt sustainability; a medium-term fiscal plan needed to offset spending pressures from rising interest payments and health and long-term care. - Industrial policies should be narrowly targeted and minimize trade and investment distortions. - Promote transparent, predictable, and mutually beneficial trade policy frameworks and prioritize Japan’s global leadership role in fostering regional/multilateral trade agreements. - Foreign asset and liability position and trajectory: - NIIP: 86 percent of GDP in 2025:Q4 (pre-pandemic 2016–19 average was 59 percent). - Japan holds net foreign assets valued at $3.7 trillion in 2025:Q4. - 2025 (% GDP) summary: NIIP: 86; Gross Assets: 272; Debt Assets: 90; Gross Liab.: 187; Debt Liab.: 108. - Gross foreign assets composition (as of 2025:Q4): portfolio investment about 43 percent of total, FDI 22 percent. Of portfolio investment, about 18 percent was yen denominated and 60 percent was dollar denominated. - Assessment: - Japan’s foreign asset holdings are well diversified by geography and risk classes. - A large yen appreciation against the dollar poses risk of negative valuation effects. - Liabilities vulnerabilities are contained: equity and direct investment account for about 38 percent of gross foreign liabilities. - NIIP estimated to have generated net annual investment income return of about 7.6 percent in 2025 (pre-pandemic average 6.2 percent). - Improved return partly driven by increasing share of FDI in external assets. - Large positive NIIP partly related to asset accumulation for old-age consumption; gradual decumulation expected over long term. - Current account: - CA surplus increased to 4.9 percent of GDP in 2025 from 4.6 percent in 2024. - Income balance: 6.3 percent of GDP in 2025 (6.4 in 2024). - Goods trade deficit shrank to −0.1 percent of GDP in 2025. - Medium-term CA projected at 4.1 percent of GDP, below current levels. - From savings-investment perspective, change between 2025 and 2024 attributable to increase in public savings; projected medium-term decline in CA surplus reflects expected decline in public savings. - Assessment: 2025 cyclically adjusted CA is 4.9 percent of GDP; model-implied cyclically adjusted CA norm is 3.6 percent of GDP (range between 2.6 and 4.6 percent of GDP). CA gap midpoint assessed at 1.3 percent of GDP (range 0.3 to 1.3 percent). EBA-identified policy gaps contribute 0.2 percent to CA gap. Unexplained residual mainly attributable to cyclical windfall from high rate of return on NFA. - 2025 (% GDP) summary: CA: 4.9; Cycl. Adj. CA: 4.9; EBA Norm: 3.6; EBA Gap: 1.3; Staff Adj.: 0.0; Staff Gap: 1.3. - Real exchange rate: - REER appreciation that started in second half of 2024 continued into first half of 2025, then depreciation in second half of 2025. - Assessment: - Staff CA gap implies REER gap of −7.2 percent in 2025 (elasticity 0.18). - EBA REER index and level models deliver gaps of −37.3 and −38.7 percent, respectively. - REER gap assessed in range of −12.6 to −1.8 percent, midpoint −7.2 percent. - Capital and financial accounts: - Financial account recorded net outflows in 2025, mirroring the CA surplus, and increased to 4.5 percent of GDP in 2025 from [text truncated in source at this point]. *International Monetary Fund | 2026 EXTERNAL SECTOR REPORT — Chapter content as provided.* ### 4.0 percent in 2024. Net FDI outflows of 3.9 percent of GDP are primarily driven by outward FDI flows to Asia, Europe, a ### ch2 - 4.0 percent in 2024. Net FDI outflows of 3.9 percent of GDP are primarily driven by outward FDI flows to Asia, Europe, a ### Korea — Overall assessment and policy messages - Overall Assessment: The external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies, largely driven by record-high external demand for semiconductors supporting the global artificial intelligence (AI) transformation. - Semiconductor contribution: Semiconductor exports contributed about 90 percent of the increase in the current account (CA) surplus to 6.6 percent of GDP in 2025 (from 5.3 percent in 2024). - Medium-term projection: CA surplus projected to moderate, with the surplus expected to be around 5.5 percent of GDP by 2031. - Potential Policy Responses: - Continue soft-landing measures for financing of real estate. - Implement structural reforms to facilitate the AI transition to support recovery of private investment. - Adopt policies to enhance social protection and encourage orderly deleveraging of household debt to reduce household life cycle saving and support household consumption. - Preserve exchange rate flexibility as first line of defense; limit foreign exchange intervention to preventing disorderly market conditions. - Pursue structural reforms to boost innovation, diversify trade destinations and supply chains, and sustain export competitiveness. - Ensure industrial policies are narrowly targeted and minimize trade and investment distortions. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Foreign asset and liability position (NIIP) — key facts and assessment - Background: - NIIP nominal value in 2025: $886 billion. - NIIP-to-GDP ratio in 2025: 47.3 percent. - Both nominal NIIP and NIIP-to-GDP decreased sharply relative to 2024, reflecting negative valuation effects from higher domestic equity prices only partially offset by higher net outbound portfolio investment. - NIIP projected to rise to about 70 percent of GDP in 2031 on continued CA surpluses. - Assessment: - Large and positive NIIP supports external resilience. - Foreign asset composition: 40 percent in equity or debt securities. - Currency composition: About 62 percent of foreign assets denominated in dollars. - Liability structure: Direct investment and long-term loans together account for 46 percent of liabilities; 61.6 percent of liabilities denominated in Korean won. - 2025 (% GDP) statistics: - NIIP: 47.3 - Gross Assets: 153.2 - Debt Assets: 61.1 - Gross Liab.: 105.9 - Debt Liab.: 41.1 ### Current Account — developments, drivers, and assessments - Background: - CA surplus increased from 5.3 percent of GDP in 2024 to 6.6 percent of GDP in 2025. - Record-high semiconductor net exports explain most of the increase (semiconductor net exports: 1.2 percent of GDP relative to 2024). - Semiconductor exports up by 22 percent (y/y) in 2025, fueled by the global AI transformation. - From saving–investment perspective: higher CA surplus driven by significant drop in domestic investment (downturn in construction sector partially offset by higher facilities investment) and a moderate increase in domestic saving rate. - Medium-term projection: CA around 5.5 percent of GDP by 2031, reflecting precautionary savings needs due to rapid population aging. - Assessment and model results: - EBA CA model: cyclically adjusted CA at 6.4 percent of GDP; CA norm 3.3 percent of GDP; standard error 0.6 percent of GDP. - Adjustor applied: 0.6 percentage point of GDP to account for accelerating population aging, bringing staff-adjusted CA norm to 3.9 percent of GDP. - Staff estimates 2025 CA gap midpoint: 2.5 percent of GDP, with a range of 1.9 to 3.1 percent of GDP. - Net contribution of relative policy gap: 1.3 percent of GDP (mostly from lower health spending and a less negative fiscal balance than the rest of the world). - Unexplained residual: may reflect high household saving due to lower coverage and amounts of social protection and rapid aging, and cyclical contribution of semiconductor prices to higher terms of trade. - 2025 (% GDP) statistics: - CA: 6.6 - Cycl. Adj. CA: 6.4 - EBA Norm: 3.3 - EBA Gap: 3.1 - Staff Adj.: −0.6 - Staff Gap: 2.5 ### Real exchange rate (REER) — movements and assessment - Background: - REER depreciated by 4.6 percent in 2025 on average relative to 2024, extending the weakening trend from 2024. - Main drivers: depreciation of the won against currencies of major trading partners (especially the United States) and sharp increase in net portfolio outflows, particularly higher investment in foreign equity by domestic investors. - As of March 2026, the REER had depreciated by about 5.7 percent (y/y) relative to the 2025 average. - Assessment: - EBA CA gap implies a REER undervaluation of 7.5 percent (elasticity applied: 0.33). - EBA REER index model estimates undervaluation of 5.8 percent. - EBA REER level model estimates undervaluation of 9.8 percent. - Staff assessment: REER gap range −9.2 to −5.8 percent, midpoint about −7.5 percent. ### Capital and financial accounts — flows and measures - Background: - Net capital outflows increased to 6.4 percent of GDP in 2025 from 5.2 percent of GDP in 2024, dominated by a rise in outbound equity investment. - Net FDI outflows declined by 0.6 percent of GDP. - Net portfolio outflows picked up by 2.3 percent of GDP, reflecting a sharp increase in residents’ outbound investment, particularly in equity (3.9 percent of GDP), outpacing foreigners’ inbound investment, mostly debt (2.1 percent of GDP). - Assessment: - Korea has demonstrated resilience to short-term capital flow volatility amid multiple global shocks. - Corporate governance reforms adopted in 2025 should enhance attractiveness of domestic equity market and contribute to higher net capital inflows. - Inclusion of Korea’s government bonds in the World Government Bond Index expected to lead to higher capital inflows in 2026 from a diversified investor base. - Present configuration of capital flows appears sustainable over the medium term, consistent with projected NIIP increase from sustained CA surpluses. ### FX intervention and reserves — background and assessment - Background (Q4–2025 and broader): - Reserves (Q4–2025) stood at $1.4 trillion, or about 32 percent of GDP, reflecting legacy accumulation; little changed since end-2024. (Note: separate Korea-specific end-2025 reserve figure below.) - Korea has a floating exchange rate. Based on IMF staff estimates and published data, FX intervention since 2015 has been two-sided. - In 2025, FX intervention increased from net sales of US$11.2 billion (0.4 percent of GDP) in 2024 to US$28 billion (1.5 percent of GDP), mostly conducted in Q4 during periods of heightened exchange rate volatility. - As of end-2025, reserves stood at US$428 billion, higher than US$416 billion as of end-2024. - As of end-2025, FX reserves were about 23 percent of GDP, 2.4 times short-term debt, 6.1 months of imports, or 15 percent of M2. - Assessment: - Exchange rate volatility generally does not pose significant economic challenges for Korea due to limited currency mismatches and manageable pass-through to consumer prices. - FX market depth lags advanced economy peers despite ranking higher than most emerging markets. - In periods of high global financial market uncertainty and rapid shifts in expectations, herding behavior amid temporarily shallow markets could lead to sharp FX movements and impaired market functioning. - FX intervention should remain limited and isolated, used only to address disorderly market conditions. - Ongoing FX market reforms have started to deepen FX markets, improving efficiency and resilience. - Systemwide stress tests show reserves provide sufficient FX liquidity buffers under a wide range of plausible shocks. *Source: ch2 — 2026 EXTERNAL SECTOR REPORT (chapter content provided).* ### 0.2 percent of GDP. ### 0.2 percent of GDP. ### Assessment: government finances, debt structure, and banking sector - Long maturity of sovereign debt and relatively high share of local-currency-denominated debt reduce exposure of government finances to FX depreciation and refinancing risks. - The banking sector is resilient. - FX risks of non-financial corporate debt are generally covered by natural and financial hedges. ### FX Intervention and Reserves Level (Mexico) - Background: - Authorities committed to a free-floating exchange rate regime, with FX intervention only in limited occasions of extreme volatility. - At the end of 2025, gross international reserves were $256 billion (14 percent of GDP), up from $232 billion at the end of 2024, mainly reflecting the returns on reserves holdings and valuation changes. - In 2025, no FX intervention was conducted. - Assessment: - Mexico’s foreign currency reserves—at 130.5 percent of the ARA metric and 303.5 percent of short-term debt (at remaining maturity)—remain adequate at the end of 2025. - The Flexible Credit Line arrangement continues to provide an additional buffer. ### The Netherlands: external position and policy priorities - Overall assessment: - External position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies. - Complicating factors: role as global trading hub, financial center, and host for MNCs; sizable and volatile primary income flows; measurement bias of portfolio equity retained earnings. - Key 2025 figures (% GDP): - CA: 7.9 - Cycl. Adj. CA: 8.0 - EBA Norm: 2.9 - EBA Gap: 5.2 - Staff Adj.: –1.6 - Staff Gap: 3.6 - NIIP: 45.5 - Gross Assets: 878.1 - Debt Assets: 221.2 - Gross Liab.: 832.6 - Debt Liab.: 242.3 - Background and drivers: - CA surplus fell to 7.9 percent of GDP in 2025, from 9.1 percent in 2024, due to lower investment income and current official transfers. - FDI remains largest component of IIP, accounting for more than half of external assets and liabilities. - NIIP fell to 45.5 percent of GDP in 2025, from 62.1 percent in 2024, mainly reflecting a 16 percentage points (pp) of GDP decline in the net stock of portfolio investment. - The decline driven by large negative exchange rate and price effects; FDI stock remained stable at 72 percent of GDP in 2025 as in 2024. - REER and valuation: - CPI- and ULC-based REERs appreciated in 2025, by 2.2 and 1.2 percent, respectively. - As of March 2026 (February 2026), the CPI-based REER (ULC-based REER) was 0.5 percent (0.6 percent) above its 2025 average. - Assuming a semi-elasticity of the CA balance to the REER of 0.64, staff CA gap of 3.6 percent of GDP implies a REER undervaluation in the range of 4.8 to 6.4 percent, with a midpoint of 5.6 percent. - EBA REER model estimates for 2025 indicate an overvaluation in a range from 5.9 percent (level model) to 21.5 percent (index model); staff assess REER as undervalued by about 4.8 to 6.4 percent, midpoint 5.6 percent. - Potential policy responses: - Raise public investment and foster private investment, notably in infrastructure and housing. - Ease electricity grid and nitrogen-related growth bottlenecks. - Increase R&D spending, advance climate transition, expand residential investment. - Deploy industrial policies cautiously; work with EU partners to deepen single market and savings and investments union. ### Poland: external position, reserves, and recommendations - Overall assessment: - External position in 2025 was broadly in line with level implied by medium-term fundamentals and desirable policies. - CA declined to −0.9 percent of GDP in 2025 from 0.3 percent in 2024. - CA projected to decline slightly to −1.1 percent of GDP in 2026; medium-term CA projected to remain broadly stable at about −1 percent of GDP. - Key 2025 figures (% GDP and USD): - NIIP: −31.0 - Gross Assets: 64.3 - Reserve Assets: 26.2 - Gross Liab.: 95.3 - Debt Liab.: 52.6 - CA: -0.9 - Cycl. Adj. CA: -0.8 - EBA Norm: -0.4 - EBA Gap: -0.4 - Staff Adj.: 0.0 - Staff Gap: -0.4 - FX reserves: US$272 billion (26 percent of GDP) in 2025, up from US$223 billion (24 percent of GDP) in 2024. - Net reserves: US$257 billion (25 percent of GDP) in 2025, up from US$197 billion (21 percent of GDP) in 2024. - At about 161.3 percent of the IMF’s reserve adequacy metric, Poland’s level of gross reserves is adequate. - Background and drivers: - NIIP declined to −31.0 percent of GDP in 2025 from −27.5 in 2024. - Gross external debt increased to 52.6 percent of GDP in 2025 from 50.3 percent in 2024, mainly due to higher government external borrowing. - REER appreciation: NEER annual average appreciated by 3.0 percent in 2025; CPI-based REER appreciated by 3.8 percent. - REER has appreciated by about 25 percent over last 5 years. - Policy recommendations: - Significantly increase public savings and private investment. - Cumulative fiscal adjustment of at least 4 percent of GDP by 2030 to reduce fiscal deficit from about 7 percent of GDP in 2025 to 3 percent over the medium term. - Ease regulatory hurdles to private sector participation and advance EU Savings and Investment Union. - Deploy industrial policies cautiously and coordinate at EU level. ### Russia: external position, reserves, and exchange rate developments - Overall assessment: - External position in 2025 appears moderately weaker than level implied by medium-term fundamentals and desirable policies. - Models do not fully account for idiosyncratic situation and data uncertainties; high uncertainty due to conflict in Ukraine, sanctions, and war in Middle East. - Key 2025 figures (% GDP and USD): - NIIP: 43.3 - Gross Assets: 69.8 - Reserve Assets: 29.3 - Gross Liab.: 26.5 - Debt Liab.: 13.0 - CA: 1.7 - Cycl. Adj. CA: 2.3 - EBA Norm: 3.4 - EBA Gap: −1.1 - Other Adj.: 0 - Staff Gap: −1.1 - Official reserves increased by $145.7 billion to $754.8 billion in 2025 (of which about $300 billion remain immobilized). - As of end-2025, international reserves stood at 379 percent of the IMF’s reserve adequacy metric and 229 percent of the ARA metric excluding immobilized reserves. - Background and drivers: - NIIP remained broadly stable at 43.3 percent of GDP in 2025. - Gross assets declined by 1.0 percentage point of GDP to 69.8 percent of GDP. - Share of total external debt held in domestic currency rose to 43.4 percent in 2025, up from 36.6 percent in 2024. - Share of non-resident holdings of domestic government debt declined to 3 percent by end-2025. - CA surplus declined to 1.7 percent of GDP in 2025 due to lower oil and gas export revenues and widening fiscal deficit to 2.6 percent of GDP. - CA projected to rebound to 2.9 percent of GDP in 2026, subject to high geopolitical and data uncertainty. - REER and valuation: - Ruble strengthened by 16.7 percent in 2025 in nominal effective terms. - BoR policy rate remained high at 16 percent as of end-2025. - REER appreciated by 14.5 percent in 2025. - As of March February 2026, the REER is 1.7 percent above the 2025 average. - EBA REER index models suggest a REER undervaluation of 2.4 percent; EBA REER level model points to undervaluation of 29.8 percent, both for 2025. - Staff assess REER gap in range 2.2 percent to 11.8 percent, midpoint 7.0 percent (overvalued), assuming elasticity 0.15. - Capital flow and controls: - Capital control measures introduced in 2022 have been subsequently relaxed; restrictions on FX repatriation and surrender requirements eliminated in 2025. - Net private capital outflows declined from 2.3 percent of GDP in 2024 to 1.8 percent in 2025. - Assessment: Large FX reserves and floating exchange rate regime continue to help absorb shocks; remaining transfer restrictions curtailed outflows and helped preserve buffers. - FX intervention and reserves management: - BoR framed all FX operations in 2025 as fiscal-rule (National Wealth Fund) mirroring and not discretionary intervention. - From January 2025 onward the BoR resumed regular FX sales and purchases linked to the budget rule. - By December 2025, BoR lifted measures on FX transfers abroad for residents and non-residents from friendly jurisdictions. ### Saudi Arabia: headline assessment (partial) - Overall assessment (2025): - External position moderately weaker than level implied by medium-term fundamentals and desirable policies. - Current account shifted to a larger deficit of 2.6 percent of GDP. - NIIP decreased to 56.6 percent of GDP at the end of 2025, down from 62.3 percent of GDP in 2024, mainly driven by increased external inflows to finance a widening current account deficit. - Central government’s non-oil primary balance to non-oil GDP ratio expected to improve from −23.3 percent in 2025 to −17.2 percent in 2031. - Potential policy responses: - Continued fiscal consolidation including enhanced revenue mobilization and energy price reforms to raise public saving. - Sustained structural reforms to diversify economy and boost nonoil exports. - Narrowly targeted industrial policies; promote transparent, predictable, mutually beneficial trade policy frameworks. *Source: ch2 - 0.2 percent of GDP.* ### 37.6 percent of GDP in 2025, up from 29.5 percent in 2024, with its share in gross liabilities rising to 54 percent, fro ### ch2 - 37.6 percent of GDP in 2025, up from 29.5 percent in 2024, with its share in gross liabilities rising to 54 percent, fro ### Foreign asset and liability position and trajectory - NIIP and composition: - NIIP expected to decline to about 38 percent of GDP by 2031. - Based on composition of external assets: portfolio and other investments, reserves, and FDI currently account for around 55.2 percent, 28.6 percent, and 16.1 percent of total external assets, respectively. - Assessment: Despite the projected decline in the NIIP, the external balance sheet remains strong. Substantial accumulated assets represent both protection against vulnerabilities from oil price volatility and a store of exhaustible resource revenues for future generations. - 2025 (% GDP) indicators: - NIIP: 56.6 - Gross Assets: 126.2 - Res. Assets: 36.1 - Gross Liab.: 69.6 - Debt Liab.: 19.2 ### Current account - Background and recent developments: - The current account deficit rose to 2.6 percent of GDP in 2025, up from 1.3 percent in 2024. - Drivers: lower oil export revenue (average oil export price declined to $70.4/bbl), higher goods imports due to investment and consumption growth, partly offset by a 17 percent surge in non-oil exports. - Crude oil production averaged 9.5 million barrels per day in 2025. - Oil exports declined to USD 213.7 billion in 2025. - Projections: current account deficit projected to narrow to −0.3 percent of GDP in 2026, then widen to around 3 percent of GDP by 2031 reflecting medium-term oil price outlook and sustained investment-driven imports. - Structural outlook: private investment expected to grow thanks to domestic reforms; private saving moderates as consumption picks up. - Assessment and model estimates: - Staff estimate a current account gap of −1.11 percent of GDP using the EBA-Lite CA model. - Cyclically adjusted current account: −1.91 percent of GDP. - Current account norm: −0.80 percent of GDP. - EBA-lite commodity module consumption allocation rules suggest: - current account gap of −3.9 percent of GDP under the constant real annuity rule. - current account gap of −6.5 percent of GDP under the constant real per capita annuity allocation rule. - Investment Needs Model suggests a current account gap of −3.65 percent of GDP. - The estimated current account gap of −1.11 percent of GDP has an estimated range from −3.11 to 0.89 percent of GDP (range calculated using the standard error of Norway (2 percent)). - 2025 (% GDP) indicators: - CA: −2.6 - Cycl. Adj. CA: −1.91 - EBA Norm: — - EBA Gap: — - Staff Adj.: — - Staff Gap: −1.11 ### Real exchange rate - Background: - Riyal pegged to the US dollar at 3.75 since 1986. - Nominal effective exchange rate remained relatively stable; real effective exchange rate depreciated by about 0.7 percent in 2025, primarily due to inflation differentials with trading partners. - As of March 2026, the real effective exchange rate remained close to its 2025 year-end level. - Assessment: - EBA-lite CA model: REER gap implies an overvaluation of 6.7 percent. - EBA-lite REER model suggests an overvaluation of 18.3 percent. - Exchange rate movements have limited short-term impact on competitiveness because most exports are oil or oil-related products denominated in dollars and there is limited substitutability between imports and domestically produced products with significant imported labor and intermediate-input content. ### Capital and financial accounts: flows and policy measures - Background and recent flows: - Financial account recorded net inflows of $71 billion in 2025, following net inflows of $29.3 billion in 2024. - Trend drivers: rise in external financing—with growing portfolio and other investment inflows and net incurrence of other liabilities—to support domestic investment and consumption. - Moderation in accumulation of foreign assets by the sovereign wealth fund (PIF) and the national oil company (Aramco). - Official reserve assets rose by about $23 billion in 2025, reaching $460 billion by year-end. - Assessment: - A lack of detailed information on the nature of financial flows complicates financial account analysis. - Strong reserve position and sizable assets of the PIF limit risks and vulnerabilities associated with capital flows. ### FX intervention and reserves level - Background and levels: - Central bank’s official net foreign assets stood at $436.6 billion at end-2025, equivalent to 34.2 percent of GDP, about 13 months of imports, and 176 percent of the ARA metric, compared to $414.5 billion in 2024. - Central bank reserves expected to stabilize at above 13 months of imports over the medium term. - PIF also holds significant foreign assets abroad. - Assessment and policy implication: - Reserves serve dual roles as precautionary saving and saving for future generations. - Reserves are adequate for precautionary purposes as measured by IMF metrics. - Significant buffers available through external assets held by the PIF and Aramco. - Nevertheless, fiscal consolidation is needed over the medium term to strengthen the current account and increase saving for future generations. *International Monetary Fund — Chapter content provided in the source PDF.* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### Spain — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies. - NIIP and trajectory: - NIIP decreased in 2025 to −44.8 percent of GDP from −41 percent in 2024. - Gross Assets: 209.5 percent of GDP. - Debt Assets: 99.7 percent of GDP. - Gross Liab.: 254.3 percent of GDP (nearly 64 percent correspond to external debt). - Debt Liab.: 64.3 percent of GDP. - TARGET2 liabilities: 24.5 percent of GDP by December 2025. - Projection: NIIP projected to improve in the medium term, supported by sustained CA surpluses and the positive—though temporary—impact of Next Generation EU (NGEU) funds disbursements on the capital account until 2026. - Assessment: Large negative NIIP entails external vulnerabilities from large gross financing needs and risks of adverse valuation effects; mitigating factors include sovereign debt maturity averaging almost eight years and limited share of debt denominated in foreign currency (11.0 percent of total external debt). - Current Account (2025): - CA: 2.9 percent of GDP. - Cycl. Adj. CA: 3.2 percent of GDP. - EBA Norm: 0.8 percent of GDP. - EBA Gap: 2.4 percent of GDP (staff CA gap midpoint). - Staff Adj.: 0.0 percent of GDP. - Staff Gap: 2.4 percent of GDP. - Background: CA surplus declined from 3.2 percent of GDP in 2024 to 2.9 percent of GDP in 2025; trade surplus weakened due to slowing exports and stronger imports; medium-term CA projected to gradually shrink as tourism inflows slow and non-energy imports remain strong. - Cyclically adjusted CA balance is 3.2 percent of GDP; staff CA norm between 0.2 and 1.4 percent of GDP (midpoint 0.8 percent). - Overall estimated contribution of identified policy gaps: 0.8 percent of GDP, with a large positive contribution from low credit growth relative to the rest of the world (1.0 percent of GDP). - Real Exchange Rate: - 2025: CPI- and ULC-based REER appreciated versus 2024 averages by 1.7 and 3.2 percent, respectively. - As of March 2026, the CPI-based REER was 0.9 percent above the 2025 average. - Assessment: Staff CA gap implies a REER gap of −8.7 percent in 2025 (elasticity 0.28). EBA REER index and level models suggest overvaluation of 4.7 percent and 19.7 percent for 2025, respectively. Staff assess the REER to be moderately undervalued, midpoint 8.7 percent, range of uncertainty ±2.1 percent. - Capital and Financial Accounts: - Background: Capital account surplus remained high due to NGEU-related flows. Financial account surplus declined to 4.0 percent of GDP in 2025 from 5.3 percent in 2024, largely driven by the Bank of Spain’s balance sheet, partly offset by “Other Investment” outflows. - Assessment: Large external financing needs leave Spain vulnerable to sustained market volatility and tighter global financial conditions. - FX Intervention and Reserves: - Background: The euro has the status of a global reserve currency. - Assessment: Euro area economies typically hold low reserves relative to standard metrics, but the currency is free floating. - Potential Policy Responses (summary): - Sustain CA surpluses to improve NIIP. - Better policy mix could keep saving-investment balance and CA path broadly unchanged while better supporting domestic growth and fiscal sustainability. - Sustained fiscal consolidation to rebuild fiscal space and raise public saving, increasing the CA and NIIP. - Anticipated offset: Growth-enhancing structural reforms would boost investment and negatively affect CA. - Recommended reforms: complete the single Spanish market for goods and services, facilitate firms’ access to financing via domestic initiatives to boost access to equity and progress toward the EU savings and investment union, support innovation by young firms by redesigning the R&D tax credit and streamlining red tape. - Industrial policy guidance: address market failures, be coordinated at the EU level, and minimize trade and investment distortions. ### Sweden — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies; assessment subject to high uncertainty given large errors and omissions in BoP statistics. - NIIP and trajectory: - NIIP: 55.4 percent of GDP in 2025 (fell from 68 percent in 2024). - Gross Assets: 335.2 percent of GDP. - Debt Assets: 174.6 percent of GDP. - Gross Liab.: 279.8 percent of GDP. - Debt Liab.: 144.9 percent of GDP. - Composition: More than half of gross liabilities are gross external debt (157.5 percent of GDP). Other financial institutions hold bulk of net foreign assets (91 percent GDP), social security funds 23.5 percent of GDP, households 21.5 percent of GDP, Riksbank 7.9 percent of GDP; non-financial corporations (46.4 percent GDP), monetary financial institutions (36.3 percent GDP) and general government (4.5 percent GDP) are net external debtors. - Assessment: NIIP expected to grow in line with nominal GDP; foreign currency assets almost three times foreign currency liabilities; NIIP data include errors and omissions averaging about 1.8 percent of GDP over past decade; rollover risks mitigated by banks’ ample liquidity and large capital buffers; NIIP level and trajectory do not raise sustainability concerns. - Current Account (2025): - CA: 6.1 percent of GDP. - Cycl. Adj. CA: 5.8 percent of GDP. - EBA Norm: 1.8 percent of GDP. - EBA Gap: 4.0 percent of GDP. - Staff Adj.: —. - Staff Gap: 4.0 percent of GDP. - Background: 2024 CA revised down from 7.4 percent to 6.9 percent of GDP; 2025 CA fell to 6.1 percent of GDP; gross saving fell by 0.4 percentage points to 31.6 percent of GDP; gross investment increased by 0.4 percentage points to 25.5 percent of GDP; Sweden net oil importer with oil deficit estimated at 0.8 percent of GDP. Medium-term CA anticipated to decline to 4¾ percent of GDP. - Assessment: Cyclically adjusted CA 5.8 percent of GDP in 2025, 4 percentage points above EBA CA norm. Staff assess CA gap at 4 percent of GDP (model range 3.6 to 4.4 percent). Identified policy gaps explain 2.2 percentage points: fiscal policy less expansionary than rest of world 0.6 percentage points; negative credit gap 1.7 percentage points. Remaining gap may reflect mandatory contributions to fully funded pension schemes and strong regulatory environment; complementary EBA tools indicate each of these factors may contribute about 1 percentage point of GDP to the CA gap. - Real Exchange Rate: - Background: 2025 krona appreciated by 3.9 percent in real effective terms (OECD-ULC based) relative to 2024; CPI-based REER appreciated by 3.0 percent on average; ULC-based REER index depreciated by 13 percent since 1993 and was about 12 percent below its 30-year average in 2025. As of March 2026, REER was 1.5 percent above 2025 average. - Assessment: Staff CA gap implies REER gap of −9.8 percent (elasticity −0.41), range −10.8 to −8.8 percent. REER index and level models suggest gaps of −10.7 percent and −15.2 percent, respectively. Overall staff assess krona undervalued between 6 and 18.7 percent, midpoint 12.4 percent (guided by ULC-based REER index and standard deviation). - Capital and Financial Accounts: - Background: 2025 financial account swung to −1.5 percent of GDP reflecting weakening across flow categories and capital market-driven volatility; direct investment recorded net lending of −1.7 percent of GDP; net portfolio investment moderated to 3 percent of GDP from 10.6 percent in 2024; other net investment and financial derivatives posted net outflows of 1.8 and 1.4 percent of GDP, respectively; composition shifted toward more volatile portfolio and banking flows; large errors and omissions (−7.7 percent of GDP) suggest actual financial inflows were substantially higher. - Assessment: Large capital flow movements common given sizable financial sector (banking sector assets nearly three times GDP); risks mitigated by strong regulation and supervision and sound financial system; 2023 FSAP and stress tests find banking system resilient to large liquidity shocks despite reliance on wholesale funding. - FX Intervention and Reserves: - Background: Exchange rate de facto free floating. In 2025, official reserve assets rose by US$11.7 billion to US$74.9 billion; foreign currency reserves increased by US$3.8 billion to US$45.3 billion, equivalent to 15 percent of short-term external debt of monetary and financial institutions, and about three months’ worth of imports. FX hedges amount approximately US$10.3 billion. - Assessment: Sweden should maintain adequate foreign reserves given high dependence of commercial banks on wholesale funding in foreign currency and potential disruptions; Riksbank has standing swap line with ECB (€10 billion) and standing agreement with National Debt Office allowing borrowing foreign currency equivalent of up to 5 percent of GDP (with possibility of additional borrowing if needed). - Potential Policy Responses (summary): - Policy mix, particularly expansionary fiscal stance, supports recovery and external rebalancing. - Scope to enhance private and public investment in productivity-enhancing projects, green transition, and health sector. - Higher domestic absorption would help reduce external imbalances while maintaining high living standards and meeting climate and defense spending goals. - Deepening EU single market would boost private investment, productivity, resilience, and external rebalancing. - Industrial policies should be cautious, targeted, coordinated at EU level, and minimize trade and investment distortions. ### Switzerland — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies; assessment subject to high uncertainty due to measurement issues related to large multinational enterprises and data lags. - NIIP and trajectory: - NIIP: 111 percent of GDP in 2025. - Gross Assets: 616 percent of GDP. - Reserve Assets: 98 percent of GDP. - Gross Liab.: 504 percent of GDP. - Debt Liab.: 32 percent of GDP. - Background: NIIP increased by around 21 percent of 2025 GDP over past five years due to financial account surpluses (36 percent of 2025 GDP) and valuation effects (−16 percent of 2025 GDP), with statistical reevaluations 1 percent of 2025 GDP. Compared with 2024, NIIP decreased in 2025 by 10 percentage points of GDP. Assets essentially stagnated while liabilities rose markedly due to higher Swiss stock market prices. - Assessment: Large gross liability position and volatility of financial flows and investment returns present some risk, mitigated by large gross asset position and CHF denomination of about two-thirds of external liabilities. - Current Account (2025): - CA: 7.1 percent of GDP. - Cycl. Adj. CA: 7.0 percent of GDP. - EBA Norm: 6.1 percent of GDP. - EBA Gap: 1.0 percent of GDP. - Staff Adj.: −1.1 percent of GDP. - Staff Gap: −0.1 percent of GDP. - Background: CA surpluses averaged 6.4 percent of GDP during 2014–24. BoP methodological improvements materially affected CA balance; revisions impacted 2023–first two quarters of 2025 with upward revision for 2024 from 5.1 to 8.9 percent of GDP. 2025 CA estimated at 7.1 percent of GDP, lower than 2024 (revised up by 3.8 percentage points). Trade in goods decreased due to non-monetary gold trading deficit; services deficit increased; primary income deficit narrowed. From savings-investment perspective, savings increased by 0.9 percent of GDP, investment increased by 3 percent of GDP. CA surplus expected to remain broadly stable over medium term. - Assessment: EBA CA norm 6.1 percent of GDP is below previous year’s norm. Based on cyclically adjusted CA surplus 7.0 percent, overall EBA-estimated CA gap equaled 1.0 percent of GDP in 2025 (rounding). Policy gap entirely due to domestic factors: domestic credit (1.2 pp) and fiscal underspending (0.4 pp). Adjustment for retained earnings on portfolio equity investment (−1.1 pp) leads to a gap of −0.1 percent of GDP (±0.7 percentage points). - Real Exchange Rate: - Background: NEER appreciated by 3.7 percent relative to 2024; CPI-based REER appreciated by 1.4 percent in 2025. NEER appreciated by 37.6 percent since 2013; CPI-based REER appreciated by 8.4 percent. As of end-March 2026, NEER appreciated by 3.8 percent compared to 2025 average and CPI-based REER by 2.1 percent. - Assessment: Consistent with staff CA gap, staff assess the REER to be overvalued with a midpoint of 0.3 percent, ±1.25 percent (elasticity −0.56). - Capital and Financial Accounts: - Background: Net financial outflows totaled 9.1 percent of GDP in 2025, including private outflows of 9.9 percent of GDP (reflecting large CHF appreciation, aggressive monetary easing by the SNB, and investors seeking higher returns abroad) and a decrease in SNB reserve assets of [text truncated in source]. - Potential Policy Responses (summary): - Focus on ensuring economic resilience and addressing low inflation. - Use substantial fiscal policy space to support growth if downside risks materialize. - Develop a comprehensive medium-term plan to address increasing structural fiscal needs on aging, climate, and defense. - Monetary policy to continue pursuing price stability and avoid risk of inflation settling at a very low or negative level. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. - These policies are expected to maintain the “broadly in line” external position going forward. *Source: ch2 - CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS (PDF)* ### 0.5 percent of GDP. During 2014–24, net private inflows averaged −1.1 percent of GDP, while the average annual increase ### FX Intervention and Reserves Level ### Switzerland — Background - Official reserve assets (including gold) amounted to CHF 853 billion (US$1,070 billion, 98 percent of GDP) in 2025, up CHF 30 billion (US$38 billion) from 2024. - The SNB purchased CHF 5.176 billion (0.6 percent of GDP) of FX (net) through FXIs in 2025, compared to large FXIs selling that occurred in 2022–23. - Net private inflows averaged −1.1 percent of GDP during 2014–24. - The average annual increase in SNB reserves was 4.5 percent of GDP. - Resulting context: financial flows are large and volatile due to Switzerland’s financial center and safe-haven status, producing sizable net private financial flows during periods of uncertainty and adding to appreciation pressures. ### Switzerland — Assessment and Policy-Relevant Findings - Reserves are large relative to GDP, but more moderate compared 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. - Despite significant USD/CHF depreciation in 2025, the SNB made a profit in 2025 of CHF 26 billion (under the CHF 80.7 billion recorded for 2024) thanks to higher gold prices. - Financial losses incurred by the SNB in 2022 and 2023 indicate volatility in its income and risks associated with its large balance sheet. - IPF-compliant foreign exchange interventions (FXIs) can be considered in cases of disorderly market conditions or frictions identified in the IPF use cases to address risks of inflation expectations becoming de-anchored that could result from large and persistent exchange rate movements. --- ### Thailand — Foreign Asset and Liability Position and Trajectory - NIIP improved to 15.9 percent of GDP in 2025, from 8.5 percent in 2024. - Gross assets increased to 131.0 percent of GDP (from 122.2 percent) and gross liabilities increased to 115.1 percent (from 113.7 percent). - Gross assets composition: gross reserve assets (48.9 percent of GDP) and direct investment (39.4 percent of GDP). - Gross liabilities composition: direct (68.5 percent of GDP), portfolio (23.6 percent of GDP), and other investments (22.1 percent of GDP). - 2025 (% GDP): NIIP: 15.9; Gross Assets: 131.0; Debt Assets: 40.5; Gross Liab.: 115.1; Debt Liab.: 36.2. ### Thailand — Current Account and REER - CA surplus rose to 2.8 percent of GDP in 2025 from 2.2 percent in 2024; medium-term projection: CA surplus projected to moderate to around 2.7 percent of GDP. - Services balance improvement: post-pandemic recovery in tourism and transport improved the services balance by 0.2 percentage points of GDP. - Trade surplus held at 4.0 percent of GDP; both imports and exports expanded by about 13 percent. - From saving–investment perspective: higher CA surplus reflects a rise in private saving that more than offsets increased public and private investment as well as lower public saving. - EBA model estimates: cyclically adjusted CA balance of 2.7 percent of GDP and a CA norm of 0.6 percent of GDP for 2025; staff assess CA gap in range 1.4 to 2.6 percent of GDP, midpoint 2.0 percent of GDP for 2025. - CA gap decomposition: 1.6 percent policy gap and an unexplained residual of 0.4 percent; identified contributors: change in reserves (0.8 percentage points) and fiscal balance (0.8 percentage points). - Preliminary staff estimates: unrecorded retained earnings on portfolio equity imply a positive measurement bias of the headline current account that could account for most of the unexplained residual. - 2025 (% GDP): CA: 2.8; Cycl. Adj. CA: 2.7; EBA Norm: 0.6; EBA Gap: 2.0; Staff Adj.: 0.0; Staff Gap: 2.0. ### Thailand — Capital and Financial Accounts; FX Intervention and Reserves - Capital and financial account balance (excluding change in reserves) declined to −2.0 percent of GDP in 2025, from −1.2 percent in 2024. - Drivers: higher portfolio outflows (by 2.5 percentage points of GDP), stronger other investment inflows (by 1.4 percentage points), higher net FDI inflows (by 0.3 percentage points), and decrease in financial derivatives (by 0.1 percentage points). - Gross international reserves increased to 48.9 percent of GDP in 2025 from 44.8 percent of GDP in 2024; this is about 2.6 times short-term debt, 10 months of imports, and 231.3 percent of the IMF’s standard ARA metric. - Exchange rate regime classified de jure and de facto as floating; exchange rate allowed to adjust with some two-sided FX interventions in periods of large volatility. - Assessment: reserves higher than IMF reserve adequacy metrics; no need to build up reserves for precautionary purposes. Exchange rate should move flexibly as a shock absorber; FX intervention could be used to address disorderly market conditions and mitigate policy trade-offs when FX market becomes dysfunctional and deviations in hedging and financing premiums become excessive due to large non-fundamental shocks. - Policy recommendations: promote productive investment, further liberalize the services sector, reduce tax incentives and subsidies that distort competition, preserve monetary and fiscal space, smooth adjustment, keep fiscal policy prudent with spending focused on targeted social transfers and growth-enhancing investment, strengthen social safety nets and address informality, cautiously deploy targeted industrial policies minimizing trade and investment distortions, and promote transparent, predictable, and mutually beneficial trade policy frameworks. - Additional capital account policy notes: staff welcomes further liberalization measures (Non-Resident Qualified Company program expansion, facilitation of FX outflows, removal of documentation requirements for non-resident transactions); recommends reversing 2021 reduction in limit on Thai baht lending from domestic financial institutions to non-residents without underlying document submission and phasing out CFM measures on nonresident baht accounts. --- ### Türkiye — Foreign Asset and Liability Position and Trajectory - NIIP averaged −34.8 percent of GDP over 2020–24. - NIIP improved from −25.6 percent of GDP at end-2024 to −20.3 percent of GDP at end-2025, mainly driven by valuation effects (euro appreciation versus USD and gold price increases). - External debt declined slightly from 33.9 percent of GDP at end-2024 to 32.6 percent at end-2025. - Public sector (including the CBRT) holds 42.6 percent of Türkiye’s external debt; at end-2025, 32.2 percent of external debt was short term. - Net FX position of nonfinancial corporations deteriorated from US$ -148 billion at end-2024 to US$ -188 billion at end-2025; short-term net FX position deteriorated from US$13.5 billion to US$11.7 billion but remained positive. - NIIP projection: expected to decline over next three years due to larger current account deficits driven by higher oil prices, then stabilize around −26 percent of GDP as CA deficit stabilizes below 2 percent of GDP. - Risks: reversal of 2025 valuation effects (e.g., gold market) could negatively affect NIIP trajectory; external debt sustainable over medium term but subject to risks from large REER depreciation and rollover risk from high share of short-term debt. - 2025 (% GDP): NIIP: −20.3; Gross Assets: 25.9; Debt Assets: 9.8; Gross Liab.: 46.2; Ext. Debt.: 32.6. ### Türkiye — Current Account and REER - CA deficit averaged 2.9 percent of GDP over 2020–24. - CA deficit in 2025 reached 1.9 percent of GDP, almost double the 2024 level. - Drivers: deterioration in non-oil trade balance driven by strong imports, and a methodological change to the primary income account; deterioration reflects widening of private sector S-I balance, only partly offset by public sector savings from tightened fiscal policy. - Medium-term outlook: current account expected to improve to around 1.5 percent of GDP on back of subdued energy imports and robust exports. - EBA model estimates: cyclically adjusted CA balance of −1.6 percent of GDP and a CA norm of 1.3 percent of GDP in 2025; CA gap assessed in range −3.4 to −2.4 percent of GDP, midpoint −2.9 percent of GDP. - CA gap decomposition: identified policy gaps contribution 0.5 percent of GDP; Türkiye’s CA residual −3.4 percent of GDP (could reflect impact of persistently elevated inflation and inflation expectations on private saving and positive wealth effect from higher gold prices). - Policy recommendation: a disinflation program anchored by a credible monetary policy framework and tight fiscal policy can help redress the situation. - 2025 (% GDP): CA: −1.9; Cycl. Adj. CA: −1.6; EBA Norm: 1.3; EBA Gap: −2.9; Staff Adj.: 0.0; Staff Gap: −2.9. ### Türkiye — REER Assessment - CPI-based REER depreciated by an annual average of 6.3 percent over 2020–23. - In 2024, CPI-based REER appreciated by 11.9 percent compared to 2023; in 2025, CPI-based REER appreciated by a further 7.5 percent relative to the 2024 average but depreciated by 1.8 percent between end-December 2024 and end-December 2025. - PPI-based REER appreciated by 1.2 percent in 2025. - As of March 2026, CPI-based REER had appreciated by 4.7 percent relative to the 2025 average. - Assessment: consistent with staff CA gap, staff assess the REER to be overvalued by 12.1 percent (range goes from 9.8 percent to ...). *International Monetary Fund | 2026 EXtERNAl SECtoR REPoRt, Chapter 2.* ### 14.4 percent overvaluation (applying an estimated REER elasticity of 0.24). ### ch2 - 14.4 percent overvaluation (applying an estimated REER elasticity of 0.24) ### Key REER estimate - 14.4 percent overvaluation (applying an estimated REER elasticity of 0.24). ### Capital and Financial Accounts: Flows and Policy Measures - Background: - Net capital inflows (excluding reserves) were 1.3 percent of GDP in 2025, slightly lower compared to 2024. - Inflows from FDI and other investments outweighed limited net portfolio outflows. - Assessment: - Projections of annual gross external financing needs as a percentage of GDP have decreased but remain relatively high—at about 18 percent of GDP on average over 2026–31. - Türkiye remains vulnerable to adverse shifts in global investor sentiment. - Authorities’ policy normalization efforts since May 2023 have contributed to a rebound in capital flows. - The March 2025 capital outflow episode and the war in the Middle East underscore that sustaining capital inflows, including into lira-denominated assets, requires further strengthening of policy credibility and careful reduction of market distortions. - As conditions improve, CFMs on capital outflows will need to be phased out as CFMs do not substitute for warranted macroeconomic adjustment. ### FX Intervention and Reserves Level - Background: - The de jure exchange rate is free floating; the de facto classification, as of the 2025 Article IV consultation, is assessed as a crawl-like arrangement. - Gross international reserves reached US$186 billion at end-2025, up from $156 billion at end-2024, with the bulk of the increase coming from higher gold prices. - Assessment: - Gross international reserves were at 73 percent of the IMF’s ARA metric at the end of December 2024 (for a de facto crawl-like exchange rate arrangement), and rose to 78.7 percent by end-2025—still below the recommended 100 to 150 percent range. - International reserves net of off-balance-sheet swaps and other short-term liabilities were negatively impacted by the March 2025 outflow episode and again by the war in the Middle East. - Quality of reserves remains an issue; non–SDR basket currencies account for a large share (about 16 percent by the end of 2025) of FX reserves. - 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 the accumulation of reserves should be opportunistic given the uncertain market environment. *International Monetary Fund | 2026 External Sector Report, Chapter 2.* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### EBA models and commodity-module approach (Saudi Arabia) - The EBA models do not include Saudi Arabia. - Two EBA-Lite approaches considered: the EBA-Lite CA model and the EBA-Lite commodity module. - The EBA-Lite commodity module incorporates intertemporal considerations important for economies where exports of nonrenewable resources account for a very large share of output and exports. - The commodity-module estimates are directionally consistent with the EBA-Lite CA model: both point to a negative CA gap and an implied REER overvaluation, indicating an external position on the weaker side. - The sizable change in the CA norm relative to earlier vintages is driven primarily by updates to EBA-Lite desirable policy settings, in particular the desirable fiscal balance reflecting revisions in oil price forecasts, rather than by significant changes in slow-moving fundamentals. ### Singapore - Singapore has a negative income balance despite a large positive NIIP position; this reflects lower rates of return on its foreign assets relative to returns on its foreign liabilities and a composition of assets tilted toward safer, lower-return assets. - Income outflows are also associated with the presence of foreign-owned multinationals that accounted for 31 percent of GDP in 2020. - Singapore is not included in the EBA sample because it is an outlier along several dimensions. - Using EBA estimated coefficients applied to Singapore yields a CA norm of about 14.1 percent of GDP in 2025 (including the multilateral consistency adjustor); this approach understates the CA gap for Singapore. - Staff adjustments to account for Singapore-specific factors: - Downward adjustment of 1.4 percentage point to EBA’s implied contribution of public health expenditures to the norm, reflecting high health-sector efficiency despite lower public health expenditure levels. - Downward adjustment of 3.2 percentage points to the norm to better account for NFA composition and component-specific return differentials on the CA. - Adjusted staff-estimated CA gap is about 7.6 percent of GDP, with contributions: - Fiscal gap: about 1.4 percent of GDP - Public health spending: about 0.3 percent of GDP - Credit gap: 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 around Singapore’s assessment. - The reserves-to-GDP ratio is larger than in most other financial centers; external assets managed by Temasek amounted to 53.7 percent of GDP in 2025. ### Spain (TARGET2) - TARGET2 (T2) is the Eurosystem settlement system for monetary policy operations and bank-to-bank and commercial transactions. - When banks in Spain send more euros through T2 than they receive overall, the Bank of Spain incurs a T2 liability. - The Bank of Spain’s T2 liabilities increased until 2022 mostly as a result of the asset purchase program introduced by the European Central Bank in 2015, which technically led the Bank of Spain to purchase assets held by investors with bank accounts abroad. ### Sweden - Uncertainty around the EBA estimated norm is reflected by deriving upper and lower bounds by adding/subtracting the standard deviation (6.4 percent) from the average outcome (midpoint). ### Switzerland - Valuation changes reflect fluctuations of exchange rates (ERs) and prices of securities and precious metals that interact with differences among assets and liabilities in terms of currencies and instruments; an appreciation (depreciation) of the Swiss franc has a negative (positive) effect on the NIIP. - Other stock-flow adjustments include changes in statistical sources, such as changes in the number of entities surveyed and items covered. - Due to large revisions to historical BOP and NIIP data, particular caution is needed when comparing external sector assessment results for different periods. - The underlying CA is adjusted for a Switzerland-specific factor in the income account: retained earnings on portfolio equity investment that are not recorded in the income balance of the CA (the PE RE bias) under BPM6. - 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 it is similar in size to estimates based on the SNB’s pilot BPM7 data. ### Türkiye - Remaining capital flow measures (CFMs), as discussed in Türkiye’s most recent IMF Article IV Staff Report (IMF Country Report 26/043), include export surrender requirements and limits on swap transactions. - The calculation of the IMF’s ARA metrics differs depending on the de facto classification of the exchange rate arrangement. - Türkiye has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF’s Articles of Agreement. ### United Kingdom - The Bank of England’s December 2022 Financial Stability Report estimates that 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 estimates from ONS for 2023 suggest that net FDI could be approximately 14 percent GDP higher. - Retained earnings on portfolio equity that are not recorded in the income account affect the measured income balance. - Inflation differentials between the UK and the rest of the world can generate depreciation pressures on the pound and valuation effects that allow for smaller CA than other economies with different asset and liabilities structures. ### United States - The 2025 figure is based on data through 2025:Q4 and uses the quarterly annualized GDP measure for the ratio. *Source: CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS (PDF).* --- _Source: https://www.imf.org/-/media/files/publications/esr/2026/english/ch2.pdf_