## Preface and Executive Summary — 2026 External Sector Report (selected content) ## Source details **Canonical URL:** [Preface and Executive Summary — 2026 External Sector Report (selected content)](https://www.imf.org/-/media/files/publications/esr/2026/english/text.pdf) ## Other formats - [Markdown version](/-/media/files/publications/esr/2026/english/text.pdf.md) - [Structured JSON version](/-/media/files/publications/esr/2026/english/text.pdf.json) --- ### Overview - The IMF’s annual External Sector Report analyzes global external developments and provides multilaterally consistent assessments of external positions of the world’s largest economies representing more than 90 percent of global GDP. - Coverage: current accounts, real exchange rates, external balance sheets, capital flows, and international reserves. - Basis for assessments: latest version of the IMF’s External Balance Assessment methodology, external sector data as of May 18, 2026, and IMF staff projections in the April 2026 World Economic Outlook. ### Key findings (2025 developments and context) - Global current account balances widened further in 2025, reversing the post-global financial crisis narrowing trend. - The increase was driven primarily by China; the United States remained the largest deficit in level terms. - China’s 2025 developments: - Current account surplus increased by about $300 billion (¼ percent of world GDP) in 2025. - Private sector saving fluctuated around 39 percent of GDP between 2015 and 2019. - Since 2023, the increase in China’s current account has been primarily driven by a decline in investment. - PBOC reserves recovered to $3.7 trillion by end-2025 and about $3.8 trillion as of end-March 2026. - United States: - 2025 current account deficit about 0.9 percent of world GDP in level terms (largest deficit). - Since 2022, public saving averaged around −0.8 percent of world GDP (compared with 0 percent over 2000–06). - Global indicators and dynamics: - Excess global current account balances continued to widen in 2025; global excess CA balances for ESR economies rose by a further 0.7 percent of ESR GDP in 2025. - Global real interest rates have risen steadily since 2023. - Global financial conditions eased in 2025, partly reflecting buoyant US equity markets; the dollar remains close to post-2000 highs. - Large and persistent excess current account balances can heighten macrofinancial vulnerabilities and increase trade tensions and economic fragmentation. ### Scenarios and macroeconomic implications - Simultaneous policy actions across major economies yield the most favorable outcome: excess global current account balances narrow and global growth is supported. - Continuation of current trends scenario: - Assumptions include US AI-driven boom with renewed fiscal expansion; China with weaker domestic demand and protracted property downturn; euro area with persistently weak productivity and subdued investment. - Projected outcome: larger current account surpluses in China and the euro area, deeper US deficit, further widening of global balances. - Unilateral adjustment scenarios: - China Adjustment (unilateral): China reforms reduce its surplus but spillovers raise global interest rates; US sovereign risk premium could rise, worsening US fiscal fragility. - US Adjustment (unilateral): US fiscal consolidation improves US current account but lowers global growth and inflation; financial-risk amplification can further reduce output globally. - Quantitative scenario summaries: - Global current account balances widen further by about 0.4 percent of world GDP in some reference adverse scenarios. - Under simultaneous adjustment, global balances fall on average by 0.5 percent of world GDP three to five years out. - Real investment in the US in one scenario declines by about ½ percent (real) in the short run. ### Policy priorities and recommendations - General principle: Sustained external rebalancing requires policy action in both surplus and deficit countries and pragmatic international cooperation. - For surplus countries (selected guidance): - Implement durable market-oriented structural reforms to boost insufficient domestic demand and lift medium-term investment. - China: fiscal stimulus focused on boosting consumption, scale back inefficient investment and unwarranted industrial policy support, allow exchange rate flexibility, increase social spending, and support residential transition. - Germany: ease regulatory constraints on domestic investment; training to enhance employability of older workers. - Korea: enhance social protection, orderly household deleveraging, structural reforms to facilitate AI transition. - For deficit countries (selected guidance): - Pursue appropriate fiscal consolidation to rebuild buffers and increase saving. - United States: implement fiscal consolidation aimed at achieving a general government primary surplus of about 1 percent of GDP. - Türkiye: tighten monetary and fiscal policy to contain demand, raise saving, and reduce inflation. - Trade and industrial policy guidance: - Trade policy frameworks should be clear, transparent, predictable, and mutually beneficial; trade measures addressing cross-border spillovers should be carefully targeted. - Distortive arrangements (purchase commitments, quantitative restrictions) are unlikely to address imbalances rooted in domestic saving-investment dynamics and should be avoided. - Financial safety net and resources: - Directors encouraged members to consent to quota increases under the Sixteenth General Review of Quotas to ensure the Fund remains adequately resourced. ### Measurement, methodology, and governance notes - 2026 EBA refinements included: - Update and extension of data, improved calculation of commodity terms of trade gaps, revision of demographic bloc, examination of trade barriers in current account determination, and introduction of an excess-adjusted Net Foreign Assets (NFA) with implementation planned for the 2027 ESR. - Role of judgment: - IMF staff combine EBA model outputs with staff adjustors and country-specific judgment; residuals capture country-specific factors not captured by models. - Executive Board views: - Directors welcomed refinements but noted large residuals and urged caution and transparency; differing views on NFA adjustments require continued Board engagement. ### Selected quantitative facts and country-level highlights (preserve exact values) - Global Current Account Balance (Billions of US Dollars): - 2023: 3,263 - 2024: 4,025 - 2025: 4,374 - 2026 Projection: 4,530 - Overall Surpluses (Billions of US Dollars): - 2023: 1,756 - 2024: 2,285 - 2025: 2,512 - 2026 Projection: 2,462 - Overall Deficits (Billions of US Dollars): - 2023: −1,502 - 2024: −1,787 - 2025: −1,872 - 2026 Projection: −2,030 - Notable country current account balances (Billions of US Dollars; 2023–2026 projections): - United States: 2023: −928; 2024: −1,185; 2025: −1,116; 2026 Projection: −1,200 - China: 2023: 257; 2024: 462; 2025: 735; 2026 Projection: 725 - Japan: 2023: 158; 2024: 193; 2025: 217; 2026 Projection: 166 - Germany: 2023: 252; 2024: 276; 2025: 229; 2026 Projection: 212 - Singapore: 2023: 849; 2024: 991; 2025: 1,011; 2026 Projection: 1,090 - Global excess CA balances: - Global excess CA balances for ESR economies rose by 0.7 percent of ESR GDP in 2025. - Aggregate absolute sum of excess surpluses and deficits (percent of aggregate GDP for economies included) = 2.0. - Net International Investment Position (NIIP), selected aggregates (Billions of US Dollars): - Overall Creditors: - 2022: 19,855 - 2023: 22,025 - 2024: 25,214 - 2025: 27,981 - Overall Debtors: - 2022: −24,977 - 2023: −30,108 - 2024: −34,840 - 2025: −36,349 - Selected country NIIP (Billions of US Dollars; 2022–2025): - United States: 2022: −16,161; 2023: −20,417; 2024: −26,539; 2025: −27,537 - China: 2022: 2,422; 2023: 2,851; 2024: 3,178; 2025: 4,071 - Japan: 2022: 3,101; 2023: 3,263; 2024: 3,495; 2025: 3,693 - Germany: 2022: 2,956; 2023: 3,152; 2024: 3,639; 2025: 4,307 ### Trade barriers and empirical findings (Box 1.1 highlights) - Incorporating gravity-based trade barriers into the EBA current account regression yields a statistically significant but economically modest effect: - A ten-percent rise in import barriers reduces CA/GDP by roughly 0.3 percentage points. - Key estimated coefficients (EBA regression using updated data from 1986 to 2019): - Export barriers: 0.006 (Column 2); 0.028** (Column 3) [standard errors: 0.009, 0.013] - Import barriers: –0.028*** (Column 2); –0.033*** (Column 3) [standard errors: 0.007, 0.007] - R2: 0.513 (Column 2); 0.539 (Column 3); 0.115 (Column 4) - Observations: 1,404 (all columns) - Trade barriers are associated with lower saving and lower investment, muting net impact on current accounts. ### Selected country assessment exemplars (selected extracts) - Argentina (2025 highlights): - 2025 CA: −1.1 (% of GDP); Cycl. Adj. CA: −1.9; EBA Norm: 0.7; EBA Gap midpoint: −2.5 - NIIP at end-2025: US$48 billion (7.1 percent of GDP) - GIR estimated at 34.1 percent of the standard ARA EM metric at end-2025. - China (2025 highlights): - Staff-assessed REER gap midpoint: −21.3 percent (staff range −17.3 to −25.3 percent reported). - Financial account deficit (excluding net errors and omissions) increased to 4.0 percent of GDP in 2025 (from 2.7 percent of GDP in 2024). - Weak inward FDI: 0.4 percent of GDP in 2025. - Euro area (2025 highlights): - CA: 1.7 (% of GDP); Cycl. Adj. CA: 1.8; EBA Norm: 0.7; EBA Gap midpoint: 1.0; Staff Gap: 0.9 - NIIP: 11.0 (% of GDP); Gross Assets: 256.8; Gross Liab.: 245.7 - Korea (2025 highlights): - CA: 6.6 (% of GDP); Cycl. Adj. CA: 6.4; EBA Norm: 3.3; EBA Gap: 3.1; Staff Gap midpoint: 2.5 - NIIP nominal value in 2025: $886 billion; NIIP-to-GDP ratio: 47.3 - REER depreciation in 2025: −4.6 percent (average relative to 2024); March 2026/Average 2025 REER: −5.7 - Türkiye (2025 highlights): - CA: −1.9 (% of GDP); Cycl. Adj. CA: −1.6; EBA Norm: 1.3; EBA Gap: −2.9; Staff Gap: −2.9 - NIIP: −20.3 (% of GDP); Gross international reserves: US$186 billion at end-2025. - Saudi Arabia (2025 highlights): - CA: −2.6 (% of GDP in 2025); Cycl. Adj. CA: −1.91 - Official reserve assets at end-2025: $436.6 billion (34.2 percent of GDP); broader official reserves reached $460 billion. - Staff-estimated CA gap (EBA-Lite CA model): −1.11 percent of GDP. ### Data, preparation, and governance - Report prepared under guidance of Pierre-Olivier Gourinchas; External Sector Coordinating Group chaired by Rudolfs Bems. - Editorial leadership: Cheryl Toksoz; production support from MPS and the Grauel Group. - External sector data vintage: as of May 18, 2026; IMF staff projections: April 2026 WEO. - Corrections and revisions incorporated into digital editions; multiple digital editions and datasets available on IMF eLibrary. *Italic: Source — Preface, Executive Summary, Chapter 1 and Chapter 2 excerpts from the 2026 External Sector Report (International Monetary Fund).* ### Preface ### Preface ### Overview - The IMF’s annual External Sector Report analyzes global external developments and provides multilaterally consistent assessments of external positions of the world’s largest economies representing more than 90 percent of global GDP. - The report covers current accounts, real exchange rates, external balance sheets, capital flows, and international reserves. - Chapter 1, “External Positions and Policies,” discusses evolution of global external positions in 2025, key risks to external sector stability, and policy priorities for reducing excess imbalances over the medium term. - Chapter 2, “2025 Individual Economy Assessments,” provides details on the overall external assessments for 30 economies and associated policy recommendations. - This year’s external assessments are based on the latest version of the IMF’s External Balance Assessment methodology, external sector data as of May 18, 2026, and IMF staff projections in the April 2026 World Economic Outlook. ### Key Findings (2025 developments and context) - Global current account balances widened further in 2025, reversing the post-global financial crisis narrowing trend. - The increase was driven primarily by China, where the current account surplus recorded the largest widening over two and a half decades, offset by some narrowing in the United States and the euro area. - In level terms, the US deficit remains by far the largest, exceeding the combined surpluses of China and the euro area. - Persistent elevated current account positions reflect primarily underlying domestic macroeconomic imbalances and are also affected by spillovers from other countries via the international environment. - In China, structurally high private saving—driven by precautionary saving motives due to weak social safety nets—remains prevalent; the recent widening of the surplus has been driven by weakening investment. - In the United States, large current account deficits reflect sustained low saving, with fiscal balances remaining deeply negative. - In the euro area, the surplus continues to be associated with subdued investment and weak productivity growth. - The recent rise in global current account balances has occurred amid rising trade tensions and a significant shift in US trade policy. - Historically, trade barriers in effect in the past have not been associated with clear effects on aggregate current accounts; the impact of the recent increase is complicated by other factors, but trade barriers have led to a marked reconfiguration of trade patterns across time and trading partners. - Global real interest rates have risen steadily since 2023, as demand for funds from deficit countries outweighs the supply from surplus ones. - Global financial conditions eased in 2025, partly reflecting buoyant US equity markets. - The dollar remains close to post-2000 highs. - Excess global current account balances, measured as the sum of the absolute value of IMF staff-assessed current account gaps, continued to widen in 2025. - The widening was driven predominantly by a convergence of desirable current account balances (i.e., current account norms and the applied staff adjustments) across countries, as well as a widening of headline current account balances. - The largest increases in excess balances originated from China and the United States. - If the current trend continues, excess global current account balances are expected to increase further; although growth would be temporarily higher, it comes with a buildup of financial vulnerabilities, increasing the risk of a disorderly adjustment down the road. - Large and persistent excess current account balances can signal uneven growth patterns, heighten macrofinancial vulnerabilities, generate adverse cross-border spillovers, and increase trade tensions and economic fragmentation. ### Scenarios and Macroeconomic Implications - Simultaneous policy actions to address domestic imbalances yield the most favorable outcome for the global economy: excess global current account balances narrow over the medium term while mutually reinforcing policies support stronger global growth. - In the absence of simultaneous actions, rebalancing effort by one country can still meaningfully reduce excess global balances, but its policy action would worsen domestic imbalances elsewhere, heightening the case for other countries to take appropriate actions. - Unilateral adjustments could pose risks for the financial markets with negative impacts on growth and inflation. ### Policy Priorities and Recommendations - Sustained external rebalancing requires policy action in both surplus and deficit countries. - In surplus countries: - Implement durable market-oriented structural reforms to boost insufficient domestic demand. - Lift medium-term growth prospects to promote investment. - In deficit countries: - Pursue appropriate fiscal consolidation to help rebuild fiscal buffers and increase saving. - Pragmatic international cooperation remains vital in sustaining global growth and mitigating cross-country spillovers. ### Report Preparation, Data, and Governance - The report was prepared under the overall guidance of Pierre-Olivier Gourinchas, IMF Economic Counsellor and Director of Research, and under the direction of the External Sector Coordinating Group chaired by Rudolfs Bems. - The report draws on contributions from a wide set of IMF staff across area and functional departments and from country teams. - The 2026 EBA refinement benefited from early contributions by Pau Rabanal and Jaewoo Lee. - Editorial leadership was provided by Cheryl Toksoz from the Communications Department, with production support from MPS and the Grauel Group. - The analysis benefited from comments and suggestions by IMF staff and from the IMF’s Executive Directors following their discussion of the report on July 22, 2026; however, projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities. - Corrections and revisions to data and analysis are incorporated into the digital editions available from the IMF website and on the IMF eLibrary; all substantive changes are listed in the online table of contents. - Multiple digital editions are available on the IMF eLibrary at www.elibrary.IMF.org/ESR26, and a free PDF and data sets for each chart can be downloaded from imf.org/en/Publications/ESR. *Preface — International Monetary Fund | 2026* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Executive Board views and methodology - Executive Directors broadly agreed with the findings and policy recommendations of the 2026 External Sector Report (ESR). - Key observations: - Global current account balances widened further in 2025, mainly reflecting a larger surplus in China, while balances narrowed in the euro area and the United States; although the US current account deficit remained the largest in level terms. - Excess global current account balances continued to widen, reflecting primarily developments in major economies, with methodological changes to the External Balance Assessment (EBA) contributing to a lesser extent. - Directors welcomed staff’s efforts to refine the EBA methodology but noted continued large residuals and changes in current account norms following refinements. - Directors stressed the importance of even-handedness, transparency, judgment, and caution when interpreting and communicating individual country assessments and encouraged ongoing methodological improvements. - Directors expressed differing views on proposed adjustments to the net foreign assets methodology and underscored that continued Board engagement is essential before methodological changes are finalized. ### Global current account developments in 2025 - Overall trends: - Global current account balances widened further in 2025, continuing the increasing trend since the COVID-19 pandemic and reversing the declining trend after the global financial crisis. - Just under half of the External Balance Assessment (EBA) countries saw their current account move further away from zero in 2025. - The widening of global balances in 2025 was predominantly driven by China and mirrored by narrowing surpluses or expanding deficits in a diverse group of countries. - Notable quantitative developments: - China’s current account surplus increased by about $300 billion (¼ percent of world GDP) in 2025, marking the largest current account widening (in absolute terms) over the past two and half decades. - Taiwan Province of China, Japan, and Korea increased their surpluses by $47 billion, $24 billion, and $23 billion, respectively. - In level terms in 2025: - China’s current account surplus rose to the largest globally, at about 0.6 percent of world GDP. - The euro area surplus was about ¼ percent of world GDP. - The United States remained the largest deficit economy, with a deficit of about 0.9 percent of world GDP—broadly offsetting the combined surpluses of China, the euro area, and oil exporters. - Oil exporters’ surpluses declined due to lower oil prices. ### Drivers by major economies - China: - Current account surplus continues to be driven by structurally high private saving and, more recently, weakening investment. - Private sector saving fluctuated around 39 percent of GDP between 2015 and 2019, roughly double levels in advanced and emerging market economies, stemming mainly from weak social safety nets. - Since 2023, the increase in China’s current account has been primarily driven by a decline in investment. - The investment decline initially concentrated in the real estate sector following the 2022 housing market correction and broadened in the second half of 2025 to include manufacturing and infrastructure. - Household saving has ticked up amid weak consumer confidence, partly offset by lower public saving. - United States: - The current account has been driven by the public sector imbalance. - The deficit widened in 2024, driven mostly by a sharp decline in public saving, but narrowed somewhat in 2025. - The 2025 narrowing reflected higher public saving and lower aggregate investment, which more than offset the decline in household saving and an increase in technology-related investment. - Increased tariff revenues contributed to the improvement in public saving, while household saving declined further from already low levels partly driven by wealth effects from a buoyant stock market. - Since 2022, public saving has averaged around −0.8 percent of world GDP, compared with 0 percent over 2000–06. - Euro area: - The current account surplus reflects continued weak investment. - Investment declined in 2024 amid weak consumer and business confidence, before rebounding in 2025 supported by easing monetary conditions, higher public spending, and inventory accumulation. - The current account decline in 2025 was particularly pronounced in Germany, France, and Ireland, with Ireland exhibiting particularly volatile current account balances due to distortions associated with large multinational enterprises. - The euro area’s current account remains large and continues to reflect high private saving (above pre-pandemic averages) and persistently weak investment dynamics, driven in part by subdued productivity growth, demographic headwinds, and structural barriers in some member states. ### Trade barriers, globalization, and spillovers - Historical and recent context: - Historically, rising trade barriers in effect in the past have had a muted impact on current accounts and global balances. - The 2025 widening occurred against elevated trade tensions, including a sharp increase in US tariffs, and heightened policy uncertainty—distinct from the early 2000s when global balances widened amid deepening trade and financial globalization. - Since late 2024, the global economy experienced a significant rise in policy uncertainty and trade barriers. - Directors’ observations: - Historically, trade barriers have not been associated with clear effects on current accounts. - Directors considered that increasing trade barriers, such as industrial policies and tariffs, are reconfiguring trade and investment patterns. - The impact of non market policies and practices on external balances is hard to quantify due to lack of comprehensive data; Directors called for further work to better capture these distortions. - Some Directors called for greater attention to spillovers from persistently large and rising surpluses; other Directors maintained the analysis places undue emphasis on surplus economies. - Many Directors stressed that a disorderly rebalancing could have substantial spillover effects, amplify external vulnerabilities, and further limit policy space in many emerging market and developing economies, low income countries, and small states. ### Scenarios, risks, and policy priorities - Projections and uncertainty: - Directors generally agreed that global current account balances are likely to narrow over the medium term, contributing modestly to the reduction of excess global balances, but cautioned the projection is subject to unusually high uncertainty. - Directors welcomed forward-looking scenario analysis and concurred that global balances would widen further if current policy settings were maintained. - A number of Directors saw merit in analyzing a more severe adverse scenario. - Policy priorities: - Directors encouraged both excess surplus and deficit economies to pursue policies to address domestic imbalances. - In economies with excess current account deficits, emphasis on credible fiscal consolidation, particularly where public debt remains high. - In economies with persistent excess surpluses, support for measures to promote investment and reduce excess saving. - Importance of strengthening links between ESR assessments and Article IV consultations. - Directors emphasized the Fund’s role in enhancing international policy dialogue and coordination to sustain global growth, preserve an open, rules based multilateral trading system, and mitigate cross border spillovers. - Trade measures implemented to address cross border spillovers should be carefully targeted. - Directors stressed the importance of a well functioning international monetary system, supported by a strong global financial safety net with the IMF at its center, and encouraged members to consent to quota increases under the Sixteenth General Review of Quotas to ensure the Fund remains adequately resourced. - Research and monitoring: - Directors encouraged further analytical work to better capture the impact of non market policies and practices and deeper analysis of stock positions and associated risks. - Directors underscored that simultaneous adjustments to address domestic imbalances yield benefits in reducing global external imbalances, while unilateral adjustments can be effective but may pose risks and spillovers. - Administrative note: - The following remarks were made by the Acting Chair at the conclusion of the Executive Board’s discussion of the External Sector Report on July 22, 2026. *The following remarks were made by the Acting Chair at the conclusion of the Executive Board’s discussion of the External Sector Report on July 22, 2026.* ### 1. Trade ### 1. Trade ### Trade and Financial Globalization - Real trade index normalized to the average of 2011 to 2019 = 100 (figure note). - Financial integration defined as assets plus liabilities; includes weighted sum of three groups (advanced economies, emerging and developing economies, and financial centers) (figure note). - Centrality measure: each dot represents annual value of a country’s centrality in trade and financial networks; financial network = cross-border portfolio asset holdings + banks’ loans and deposit claims; mirror data used to fill missing data; portfolio holdings corrected using rescaling matrix of Coppola and others (2021); intra-EMU holdings and trade excluded (figure note). ### Tariffs, Trade Policy Shifts, and Current Accounts - Recent increases in trade barriers show no clear relationship with aggregate current account balances over the last four decades (text reference to Box 1.1 and IMF 2026d). - The most recent increase in trade barriers coincided with other influences on the current account, including the AI boom and the US dollar adjustment (Figure 1.12; Box 1.2). - Reconfiguration of trade patterns after the US trade policy shift: - China’s trade surplus expanded while the euro area, Japan, and many other surplus economies saw declines; US trade balance broadly unchanged (Figure 1.13). - US imports surged in anticipation of the April 2 announcement, concentrated in durables as firms ran up inventories; imports subsequently moderated, leaving overall US imports as a share of GDP broadly unchanged versus 2024 (Box 1.2). - Differential US tariff rates led to a decline in US imports from China offset by increased imports from the rest of the world. - Tech-related investment boom drove increased US imports from Taiwan Province of China, Korea, and Japan. - Figure highlights: - Figure 1.10: US Effective Tariff Rates on All Imports — statutory effective tariffs and applied effective tariffs tracked from Jan. 2017 through Oct. 2025 (figure axes and legend in source). - Figure 1.12: Tariffs and Current Account: 2024 vs 2025 — changes measured as change in percent of GDP between 2024 and 2025; US Tariff changes represent change in trade-weighted average tariffs between January 1 and November 14, 2025. ### Global Interest Rates, Financial Conditions, and Flows - Global real interest rates rose steadily since 2023 as demand for funds from deficit countries outpaced supply from surplus ones (Figure 1.14). - Saving in surplus countries, notably China, fell short of global demand for funds; the United States was a major driver of demand due to large fiscal deficits and strong technology-related investment. - Current episode differs from early 2000s: global balances widened alongside rising real interest rates because saving declined more than investment (text). - Despite higher global interest rates, global financial conditions eased in 2025, partly reflecting stronger US equity markets (Figure 1.15). - Easing relaxed leverage constraints on global financial intermediaries, enabling greater intermediation of cross-border funding toward higher-return projects and implying a widening of global current account balances (text). ### Exchange Rates, Currencies, and Balance Sheets - US dollar: - Experienced a strong appreciation in real effective terms in Q4 2024 followed by sharp depreciation around Q2 2025 (Figure 1.16). - Depreciation between January and the April tariff announcement can be largely explained by fundamentals (positive interest rate differentials and upside US growth surprises) (Figure 1.17). - Depreciation following the April tariff announcement shows some disconnect from fundamentals, potentially reflecting shifts in risk sentiment, higher policy uncertainty, concerns about US fiscal trajectory, and easing global financial conditions. - The US dollar remains at a high level: close to the 2023–25 average and well above its 2000–25 average (Figure 1.16). - A strong dollar does not necessarily imply a US current account deficit; relationship depends on underlying forces (Figure 1.18; reference to Bai and others, 2026). - Other major currencies in 2025: - Euro: appreciated in nominal effective terms over first half of 2025 and remained flat since then. - Pound sterling: strengthened in 2025. - Renminbi: depreciated in first half of 2025, appreciated toward year-end after May trade agreement; overall broadly stable vis-à-vis the US dollar, implying a real effective depreciation given inflation differentials. - De jure exchange rate arrangement for RMB: “managed floating” with a 2 percent floating band against the US dollar in the interbank foreign exchange market (IMF 2026b) (figure note). - Japanese yen: depreciated in 2025 despite first-half appreciation and falling 10-year interest rate differentials versus the United States; much of yen movements since mid-2025 remain unexplained by fundamentals and co-move with positions in the yen futures market; developments coincided with greater role of market perceptions of fiscal risk driving the term premium on Japanese government bond yields (IMF 2026c). - Exchange market pressure across groups: - Both advanced and emerging markets faced uniform appreciation pressure in H1 2025; in H2 2025 pressure was two-sided in advanced economies while appreciation tendency continued in many emerging markets (Figure 1.19). - Adjusted changes in FX reserves contributed to absorbing appreciation pressure (Poland, Thailand) and depreciation pressure (Korea, China). - India faced depreciation pressure in H2 2025 partly reflecting further US-imposed tariffs. - Monetary policy contribution remained subdued despite policy rate adjustments across many ESR sample economies. ### Global Financial Flows and External Positions - Gross capital flows increased in 2025 in both emerging and advanced economies as global financial conditions eased. - Emerging markets: - Total net capital flows to emerging markets recovered in 2025 but China remained an outlier with net capital flows remaining negative (Figure 1.20). - Gross inflows to China remained close to zero due to continued weak inward FDI, reflecting a decline in return to capital in China (IMF 2026a). - Gross outflows from China recovered in line with other emerging economies. - In other emerging markets, gross inflows picked up in 2025 with portfolio and other investment flows (largely banking-related) increasing, though gross FDI inflows remained below their pre-COVID-19 average (Figure 1.21). - United States and other advanced economies: - Gross capital inflows to the United States remained robust in 2025 with a compositional shift toward equity; portfolio inflows were the main driver and equity accounted for most of the increase, consistent with an AI-related investment boom (Figures 1.22 and 1.23). - Net inflows into US treasuries eased, particularly at longer maturities. - In other advanced economies, both gross inflows and outflows picked up strongly with stronger portfolio and other investment flows. - Global balance sheets and NIIP: - Net external creditor and debtor positions narrowed slightly in 2025 after widening in 2024 (Figure 1.24). - US NIIP-to-GDP ratio narrowed slightly in 2025 as positive FX valuation effects and nominal GDP growth more than offset net financial outflows and price valuation losses (Figure 1.25). - Narrowing on the creditor side was driven by declines from oil exporters, offsetting increases in financial centers, China, and Germany. - Composition shift: strong net capital inflows in equities and persistent asset price outperformance since COVID-19 led the United States to switch from a net long equity position to a net short one (Figure 1.26). - This trend accompanied a deterioration in the net investment income balance to close to zero, consistent with a secular decline of return differential between US external assets and liabilities (text). *Source: 2026 External Sector Report, Chapter 1, "External Positions and Policies" (International Monetary Fund).* ### 2. Emerging Markets Excluding China ### 2. Emerging Markets Excluding China ### Gross capital flows and portfolio inflows - High-frequency data indicate a continued strong gross portfolio inflow to EMs (excluding China) through early 2026 (Figure 1.30). - Gross portfolio inflows to EMs dropped in March 2026 with the onset of the war in the Middle East; the decline was broad-based and particularly large in emerging and developing Asia, driven mainly by the reduction in gross portfolio equity inflows. - Figures referenced in the chapter show component decomposition of gross inflows and outflows (Other, Reserves, Portfolio, FDI, Total) for EM (excl. China) over 2014–25 (percent of GDP) but the chapter text highlights the persistence of strong portfolio inflows into EMs (excl. China) in high-frequency indicators. ### Developments in early 2026 affecting EMs (excl. China) - Global trade balances and current account patterns: - China recorded another large increase in its trade balance in the first two months of 2026, supported by strong electronics exports. - Korea recorded historical high trade surpluses in early 2026. - Trade balances in both the United States and the euro area have declined (Figure 1.29). - Early 2026 trade data indicate a larger statistical discrepancy as the sum of global surplus exceeds the sum of global deficits; the discrepancy could reflect measurement difficulty and might be revised away over time. - Tariff environment and US policy developments: - In February (2026), following a ruling by the Supreme Court, all tariffs imposed under the authority of the International Emergency Economic Powers Act were invalidated. - The US administration then implemented a 10 percent import surcharge (with certain specific exemptions) under section 122 of the Trade Act of 1974 which may remain in force for up to 150 days. - Taking into account recent changes under section 122 of the Trade Act, the average applied effective tariff rate on imports into the United States remains at around 7 to 8.5 percent. - The US Administration has announced an intent to return to the pre-February status quo. - War in the Middle East: - The war created further headwinds for a reduction of global current account balances, but the impact remains uncertain depending on oil price developments and potential second-round effects (Box 1.3). - Historically, higher oil prices are accompanied by current account improvements for energy exporters and deteriorations for energy importers (2024 External Sector Report). - Energy exporters whose production is directly affected by the war could experience a narrowing of their current account surplus as energy revenues fall and governments provide support to their economies. - The United States is now a modest oil exporter, so its current account deficit may narrow given a positive terms of trade shock from higher oil prices. - The war led to a moderate tightening of global financial conditions, which could narrow global current account balances. - The dollar appreciated somewhat following the outbreak, reflecting its safe-haven status. ### Assessment framework and implications for EMs (excl. China) - Coverage and methodological context: - The report provides multilaterally consistent individual assessments of external positions for 30 of the world’s largest economies, representing about 90 percent of world GDP. - Assessments use the EBA methodology (2026 refinements) to produce medium-term current account and real exchange rate norms reflecting country fundamentals and desirable policies. - 2026 EBA refinements include an update and extension of the data, improvement in the calculation of the commodity terms of trade gaps, a revision of the demographic bloc, examination of the role of trade barriers in current account determination, and introduction of an excess-adjusted Net Foreign Assets (NFA) with implementation planned for the 2027 External Sector Report. - Translation of gaps and role of judgments: - Current account gaps are derived by comparing EBA norms with realized current accounts after adjusting for cyclical and other temporary factors; these gaps measure excess external balances. - Current account gaps are translated into real exchange rate gaps using estimated semi-elasticities; the overall assessment places more weight on current account models. - IMF staff judgment, staff adjustors, and economy-specific insights are essential because models may not capture all relevant characteristics and are subject to statistical uncertainty. ### Assessment results and drivers relevant to EMs (excl. China) - Aggregate and country-group outcomes: - The report classifies economies in 2025 as moderately stronger/stronger/substantially stronger, moderately weaker/weaker/substantially weaker, or broadly in line with medium-term fundamentals and desirable policies; China is among those assessed as stronger, while a set including Argentina, Brazil, and Türkiye are assessed as weaker. (Full list in text.) - Contributions to current account gaps: - In many countries the residual is the largest contributor to the staff-assessed current account gaps for 2025 (Figure 1.32). - Policy gaps remain relevant in some cases (examples include a negative credit gap in the Netherlands, weaker social safety nets in Malaysia, and a larger fiscal deficit in the United States). - The aggregated contribution of policy gaps can understate the impact of unilateral policy changes due to cross-country interactions (spillovers). Examples: - If the United States closes its fiscal gap, its CA gap would narrow by about 1 percentage point. - If all economies simultaneously close their fiscal gaps, the reduction in the US CA gap would be about 0.5 percentage points. - Changes in actual current accounts accounted for about 60 percent of the variation in current account gaps in 2025 (Figure 1.33). - Shifts in CA norms and staff adjustors also played important roles, partly reflecting the 2026 EBA methodological refinements. - Residuals and country-specific considerations: - Residuals reflect country-specific factors not captured by the EBA models and can include fundamental variables, rigidities, measurement issues, and policy distortions. - Examples of positive residual explanations: - China: elevated precautionary saving linked to social safety net weaknesses and a prolonged housing downturn. - Germany: regulatory constraints that impede investment and measurement issues related to differential statistical treatment of retained earnings. - Examples of negative residual explanations: - United States: reserve currency status, deep financial markets, and frontier position in technological innovation attracting strong capital inflows. - Türkiye: persistently elevated inflation and inflation expectations affecting private saving, combined with the positive wealth effect from higher gold prices. - Residuals can also capture cross-cutting policy aspects excluded from EBA specifications (pension systems, labor/product market regulation), which may affect EM assessments. *Source: IMF staff assessments and calculations, 2026 External Sector Report chapter content.* ### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES ### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES ### Current Account Norms in 2025 - Main contributors to CA norms: NFA, output per worker, demographics, and desirable policies (including fiscal policy, public health spending as proxy for social safety net, the credit gap, and foreign exchange intervention interacted with capital controls). - NFA captures persistent cross-country differences in slow-moving fundamentals. - Output per worker reflects capital flows from high-income countries to faster-growing economies. - Demographic bloc captures age composition and longevity effects on saving. - Desirable policies affect desired CA and exchange rate via precautionary saving and credit/financial cycle channels. - Changes in 2025 norms relative to 2024 reflect both 2025 data updates and the 2026 EBA refinements. - Data update and extension account for the majority of norm changes, though model specification revisions drive some changes. - The 2026 EBA refinements produced norm compression: economies with initially positive CA norms generally saw declines; those with initially negative norms experienced increases. - Three key factors behind compression: - Changing demographic trends: convergence in key demographic variables reduced dispersion in demographic contributions to norms. - Weaker estimated relationship between current account and NFA: modest weakening reduces NFA’s contribution to cross-country dispersion. - Desirable health policies: stronger precautionary saving motives (heightened by shocks such as COVID-19 and the war in Ukraine) increase the role of social safety nets in shaping household saving. - Counteracting factor: output per worker contributes to a widening of norms, possibly reflecting stronger capital outflows from advanced economies to EMEs. - Country examples: - Korea and Japan: declines in demographic contributions are main drivers of norm changes. - United States: norm increase driven by demographics, NFA, and output per worker. - China: norm decreased partly due to a lower contribution from output per worker. ### Global Excess Current Account Balances - Global excess CA balances for ESR economies rose by a further 0.7 percent of ESR GDP in 2025, the largest increase in the past decade. - The widening was predominantly driven by data revision and extension, reflecting changing relationships between the current account and macro fundamentals. - Increase in excess balances is broad-based but predominantly driven by widening excess CA balances in China and the United States. - China: reflects a widening of the headline current account balance. - United States: driven by the data update and extension. - Staff-assessed excess CA balances account for about 2/3 of the overall global CA balances for ESR economies. ### Outlook and Risks - April 2026 World Economic Outlook reference forecast: - Global current account balances are projected to narrow over the medium term. - Among surplus countries, reductions especially in China, Japan, Korea, and the euro area. - Oil exporters: projected shrinking surpluses over the medium term, but a short-lived uptick in 2026 due to recent energy price spike. - Major deficit economies (United States and United Kingdom) projected to reduce deficits. - Offsetting factors: widening deficits in some EMEs (for example, India and Indonesia). - Contributions to projected narrowing: - Projected medium-term fiscal consolidation in current account deficit economies and fiscal expansion in surplus economies expected to contribute about 0.2 percentage points to projected narrowing of global balances. - Waning of cyclical factors expected to contribute about 0.05 percentage points to falling global balance. - Projected fiscal adjustment accounts for about 10 percent of the EBA-estimated excess global balances. - Risks of large and persistent global imbalances: - Can indicate uneven growth drivers and create macro, financial, or fiscal stability risks. - Excess surpluses can depress real interest rates, tilt investors toward riskier assets, and increase leverage. - Large and persistent excess CA deficits are particularly risky if they unwind disorderly, often associated with abrupt capital flow reversals and sharp asset price corrections. - Increased CA surplus in large countries can generate negative spillovers on trading partners, especially when partner monetary policy is constrained (for example, by the effective lower bound). - Rapid increases in surpluses can have disproportionate negative effects on specific bilateral trade partners or sectors, with potentially large short-term dislocations. - Sectoral imbalances in key industries can heighten trade tensions and trigger defensive or retaliatory industrial and trade policies. ### Scenario: Continuation of Current Trends - Scenario assumptions: - United States: intensification of tech- and AI-driven boom (AI-boom), driven by domestic demand and productivity gains, alongside renewed fiscal expansion on top of robust consumer spending and large fiscal deficits. - Note: The general government deficit is expected to remain in the 7- 7½ percent of GDP range over the medium term in the 2026 United States IMF Staff Report. - China: weaker domestic demand, weaker consumption, protracted property sector downturn, diminishing returns to investment despite industrial production incentives, and limited currency adjustment. - Euro area: persistently weak productivity growth and subdued investment. - Projected impacts under continuation scenario: - Larger current account surpluses in China and the euro area and a deeper deficit in the United States, implying further widening of global balances. - United States: - Renewed fiscal expansion reduces saving and supports domestic demand, but higher interest rates and reduced investment largely offset demand effect. - AI-boom raises investment and import demand, leading to dollar depreciation offsetting pressure from stronger domestic demand; current account deficit widens. - Output increases supported by robust investment and productivity gains, and to a lesser extent higher fiscal spending. - International spillovers: - Positive from the AI-boom: Emerging Asia benefits disproportionately as main supplier for AI-related imports; output and inflation increase globally, especially in Latin America and Asian countries. - RMB real effective depreciation benefits Chinese exports and adds upward pressure on inflation in China. - Spillovers from AI-boom to euro area and rest of world positive but smaller. - Medium-term fiscal expansion spillovers are limited; financial channel (permanently higher real interest rate associated with increased public debt) dominates real channel. - China: worsening domestic demand increases private saving; diminishing returns to investment reduce demand and contribute to surplus buildup. - Model simulation result summary: - Continuation of current policies that exacerbate imbalances risks a further widening of global balances relative to the reference forecast. *Source: CHAPTER 1 EXTERNAL POSITIONS AND POLICIES (text).* ### 2. Current Account ### 2. Current Account ### Overview and model framing - Figures and reported responses capture medium-term responses as the average of the three- to five-year horizon. Short-term refers to the one- to two-year horizon. All responses are reported as deviations from baseline. - Reported model responses are for four countries/regions: (1) China, (2) the euro area, (3) the United States, and (4) the rest of the world. - Definitions used in the analysis: AI = artificial intelligence; Investment = sum of private and public investment; REER = real effective exchange rate (a decrease represents a depreciation); Real interest rate = short-term real interest rate; Saving = sum of private and public saving. - “Own policy” denotes the response to domestic policy shocks (fiscal expansion for the United States, weak demand for China, weak productivity for euro area). “AI boom” reports response to US-led AI boom. “Policy spillovers” shows total domestic impact from foreign policy shocks. ### Key findings — baseline and reference scenarios - China: Protracted weak real estate investment can moderately reduce investment despite production incentives; current account surplus widens. Limited nominal exchange rate adjustment leads to REER depreciating as deflationary pressure increases. Output in China is supported by strong net exports. - United States: Lower global real interest rates—reflecting permanently higher saving in China—boost investment and lower saving in other regions, causing current account balances to decline in the United States, euro area, and the rest of the world; output in other regions increases supported by cheaper intermediate goods from China and lower global real interest rates. - Euro area: Dimmer growth prospects induce higher household saving; real investment falls but the investment share of GDP declines less because output falls. Current account increases. Spillovers to other regions are mainly via permanently lower global real interest rates, which raise investment and lower saving elsewhere. ### Global imbalances and aggregate outcomes - Global current account balances widen further by about 0.4 percent of world GDP over the medium term, with contributions from China, the euro area, and the United States. - Large and persistent excess global imbalances call for policy actions; the mode of adjustment matters. Well-calibrated, simultaneous, and timely policies across economies allow rebalancing to proceed more smoothly, limit adverse spillovers, and support global growth. - Simultaneous adjustment versus unilateral action: - Simultaneous adjustment supports gradual and orderly rebalancing with limited adverse spillovers. - Unilateral action reduces excess balances but may exacerbate domestic imbalances elsewhere, increasing the case for other countries to take action. ### Simultaneous Adjustment Scenario (major-economy collective action) - Scenario assumptions: - US: expenditure-driven fiscal consolidation while AI-driven boom continues. - China: increases social spending, supports residential transition, rolls back industrial policy, increases business dynamism; renminbi adjusts flexibly. - Euro area: higher public investment via full utilization of Recovery and Resilience Facility and use of fiscal space; EU-level and national reforms boost productivity and private investment. - Outcomes: - Convergence of current account balances across major economies. - US: fiscal reforms significantly reduce fiscal deficit and increase public saving, improving current account balance; lower real interest rates permanently increase private investment and output. International spillovers are limited. - China: domestic consumption surges; private saving rate falls considerably; investment improves though falls as a share of GDP; China’s current account balance falls substantially; renminbi real appreciation under flexible exchange rate. - Euro area: investment share of output increases, imports rise, net exports fall, current account falls despite higher saving share amid higher interest rates. - Global: global balances fall on average by 0.5 percent of world GDP already three to five years out and continue in subsequent years. Global growth is revised up considerably. Inflation and real interest rates are higher globally over the medium term, increasing more in China while remaining contained in the United States. ### Analysis of Unilateral Adjustments — methodology and risks - Two unilateral cases examined: 1. China rebalances while rest of world follows reference forecast. 2. United States embarks on fiscal consolidation while others follow reference forecast. - Unilateral actions are modeled with an additional layer of financial risks (illustratively captured by assumed increases in sovereign risk premium and higher corporate risk premiums) to reflect potential amplification of adverse effects. - Higher global interest rates associated with China’s rebalancing may be accompanied by a decline in the convenience yield on US treasuries, raising the US sovereign risk premium. US fiscal consolidation can tighten global financial conditions, raising corporate risk premia. ### China Adjustment Case — unilateral rebalancing by China - Domestic reforms in China improve growth and reduce current account surplus, generating international spillovers. - Higher interest rates in China spill over to global interest rates. - United States: - Initial impact on US public debt is small, but higher interest rates put US debt on an increasing trajectory; public debt increases persistently after year six before gradually falling to the initial level. - US private saving increases more than public saving falls; investment as a share of GDP declines somewhat, leading to an improvement in the US current account. - US output is broadly unchanged as positive demand spillovers offset upward pressure on global interest rates. - If US sovereign risk premium rises (financial-risk channel), this leads to a larger increase in US interest rates, downward pressure on US inflation and growth, higher public debt short- and medium-term, higher saving, lower investment, and a larger improvement in the US current account. - Over a longer horizon, the primary balance strengthens further to support debt stabilization. - Global: global current account balances narrow, reflecting declines in both the China surplus and US deficit. However, higher sovereign risk premia can worsen US growth and fiscal fragility, reducing growth gains relative to simultaneous adjustment. ### US Adjustment Case — unilateral US fiscal consolidation - US fiscal consolidation increases the US current account but reduces growth and inflation globally. - China: much lower growth and inflation as external demand weakens; RMB adjusts only limitedly in nominal terms and depreciates in real terms, supporting China’s net exports and cushioning the decline. - Euro area and rest of world: REER appreciation boosts domestic demand, supporting consumption and investment that partly offset trade headwinds. - Global real interest rates fall as US fiscal consolidation improves US fiscal position, raising investment and lowering saving in China, euro area, and rest of world, thereby lowering their current account balances. - Financial-risk amplification (higher corporate risk premium) can further reduce output and inflation across regions, disproportionately affecting low-growth and deflation-prone economies. - If the effective lower bound (ELB) on monetary policy becomes binding in China, growth could weaken significantly: output and inflation decline sharply, REER depreciates, real interest rates rise, saving increases and investment falls, improving China’s current account—leaving China’s current account broadly unchanged when the ELB binds but with significantly weaker output and higher government debt. ### Quantitative and model-specific notes - Global current account balances widen by about 0.4 percent of world GDP in some reference adverse scenarios. - Under simultaneous adjustment, global balances fall on average by 0.5 percent of world GDP three to five years out. - Real investment in the US in one scenario declines by about ½ percent; its share of GDP falls by less due to the fall in output. - The model captures medium-term responses as three- to five-year averages; short-term responses correspond to one- to two-year horizons. ### Policy implications and priorities for external rebalancing - A symmetric (simultaneous) rebalancing across major economies yields the most favorable global outcome: complementary policy actions reduce global imbalances while supporting growth. - Important policy priorities include: - In the United States: fiscal consolidation to reduce deficits and increase public saving while managing the disinflationary effects so that lower real interest rates can support private investment. - In China: increase social spending, support residential-sector transition, roll back industrial policies that constrain business dynamism, and allow exchange rate flexibility to facilitate rebalancing toward domestic consumption. - In the euro area: higher public investment and structural reforms to lift productivity and private investment, supported by EU-level reforms (for example, savings and investment union) to increase potential growth. - Unilateral adjustment can be desirable when simultaneous action is infeasible, but it raises the risk of adverse spillovers, financial-market amplification, and worsening domestic imbalances elsewhere—strengthening the case for coordinated policy where possible. *Source: IMF staff calculations and analysis as presented in the chapter text.* ### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES ### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES ### Key messages and risks - Collective actions reduce negative spillovers and dampen adverse financial market reactions; in the absence of coordination, unilateral action can still meaningfully reduce global imbalances but may amplify domestic imbalances elsewhere. - Continuation of current trends in major economies would result in a significant widening of global current account balances; while global output is temporarily higher, persistent current account imbalances further widen net external creditor and debtor positions and raise macrofinancial risks. - Maintaining flexible exchange rates can facilitate adjustment to external shocks; Temporary foreign exchange intervention or targeted capital flow management measures may be warranted in specific circumstances but should not substitute for necessary macroeconomic adjustments or the development of domestic macroprudential policies. - A well-functioning international monetary system must continue to provide global public goods—including the global financial safety net. The approval in 2023 of the 16th General Review of Quotas was an important step; implementation awaits receiving the necessary consents from members to their respective quota increase. ### Scenarios and modeled impacts (figures referenced) - Scenario labels used: - Simultaneous Adjustment - China Adjustment - US Adjustment - Continuation of Current Trends - Figure 1.44: Medium-term responses (three- to five-year horizon) show deviations from baseline for Real GDP, Current Account, Saving, Investment, Inflation, REER, Public Debt, Real Interest Rate for four regions: China, the euro area, the United States, and the rest of the world. (ELB = effective lower bound; GFCs = Global Financial Conditions.) - Figure 1.45: Long-term responses (at least 50 years ahead) show short-term real interest rate deviations from baseline under policy shocks defined for China, the euro area, and the United States. Long-term percent deviations shown range approximately between −0.12 and 0.08 in the plotted series. - Figure 1.46: Medium-term responses for Global Real GDP (Percent) and Global Current Account Balance (Percent of world GDP) are reported as deviations from baseline across the four scenarios. The Global Real GDP panel depicts values up to about 1.0 (Percent) across scenarios; the Global Current Account Balance panel reports deviations within a range that includes negative and positive changes around zero (Percent of world GDP). ### Policy prescriptions for external rebalancing (tailored guidance) - General approach: - Correcting external imbalances requires addressing underlying domestic imbalances in both excess current account surplus and deficit economies (April 2026 World Economic Outlook). - Distortive arrangements—such as purchase commitments and quantitative restrictions—are unlikely to address external imbalances rooted in domestic saving and investment dynamics. Export controls and barriers to cross-border trade that exacerbate supply disruptions should be avoided. - Trade policy frameworks should be clear, transparent, predictable, and mutually beneficial; trade measures addressing cross-border spillovers should be carefully targeted. - For economies with stronger-than-warranted external positions (excess surplus): - Focus on policies that promote investment and limit excess saving. - Country-specific examples cited: - China: fiscal stimulus focused on boosting consumption to help reduce the CA surplus. - India: liberalizing the FDI regime. - Germany: easing regulatory constraints on domestic investment. - The Netherlands: raising investment in infrastructure, housing, and R&D. - Malaysia, Singapore: higher public spending to address aging through health care, social safety nets, and human capital investment. - Germany, Sweden: planned higher public spending for defense. - The Netherlands, Singapore: planned higher public spending for infrastructure. - Growth-enhancing structural reforms: completing the single market and supporting innovation (Spain); expanding investment in productivity-enhancing projects (Sweden). - For economies with weaker-than-warranted external positions (excess deficit): - Focus on policies that boost saving and competitiveness. - Country-specific examples cited: - United States: fiscal consolidation to put the debt-to-GDP ratio on a downward path. - Fiscal consolidation also needed in Australia, Belgium, Brazil, Italy, Saudi Arabia, and the United Kingdom. - Canada: remove internal trade barriers and scale up R&D investment. - Belgium: enhance productivity through pension, labor, and product-market reforms. - Türkiye: tighten monetary and fiscal policy to contain demand and raise saving. - For economies with external positions broadly in line with fundamentals: - Continue to address domestic imbalances to prevent excessive external imbalances. - Examples: - Fiscal consolidation needed in Hong Kong SAR, Poland, South Africa. - Structural reforms to improve productivity and increase investment in France, Indonesia, Mexico. - Euro area: deepen the EU Single Market and complete the Banking Union to raise productivity. - Switzerland: use fiscal space to support growth if risks materialize; maintain a medium-term plan to address structural fiscal needs on aging, climate, and defense. ### Trade barriers, potential channels, and measurement (Box: trade barriers and the EBA) - Identity: CA = S − I; trade barriers affect current accounts via effects on aggregate saving (S) and investment (I). - Two determinants of impact: - Scope: trade barriers limited to select products or bilateral relationships may not have a significant impact on the aggregate external balance. - Perceived duration: temporary barriers can temporarily raise national saving by postponing consumption; permanent barriers may reduce investment and have ambiguous net effects on the current account. - Empirical approach used: - A gravity-based catch-all measure of trade barriers is constructed from bilateral trade flows (drawing on Eaton and Kortum 2002; Waugh 2010; Boz and others 2019) and aggregated into overall import and export barriers using lagged bilateral trade shares. - This measure covers tariffs, non-tariff policy barriers (quotas, regulatory barriers) and non-policy barriers (transport costs), and can be constructed for goods and services. - Advantages and limitations: - Advantage: comparable measure across countries and time; captures distortions from industrial policies (for example, export subsidies). - Limitations: relies on stability of the structural gravity model (Head and Mayer 2014); cannot identify whether asymmetries arise on importer or exporter side; cannot unpack heterogeneous effects of individual policy instruments; potential endogeneity concerns. - Empirical checks: constructed gravity-based trade barrier measures reflect trade policy changes and display expected macro correlations (see Online Annex Table 1.7.1 and 1.7.2). Findings are robust to computing trade barriers using only goods trade data. ### Key statistics from tables (selected figures preserved exactly) - Global Current Account Balance (Billions of US Dollars): - 2023: 3,263 - 2024: 4,025 - 2025: 4,374 - 2026 Projection: 4,530 - Overall Surpluses (Billions of US Dollars): - 2023: 1,756 - 2024: 2,285 - 2025: 2,512 - 2026 Projection: 2,462 - Overall Deficits (Billions of US Dollars): - 2023: −1,502 - 2024: −1,787 - 2025: −1,872 - 2026 Projection: −2,030 - Notable country current account balances (Billions of US Dollars; 2023–2026 projections): - United States: 2023: −928; 2024: −1,185; 2025: −1,116; 2026 Projection: −1,200 - China: 2023: 257; 2024: 462; 2025: 735; 2026 Projection: 725 - Japan: 2023: 158; 2024: 193; 2025: 217; 2026 Projection: 166 - Germany: 2023: 252; 2024: 276; 2025: 229; 2026 Projection: 212 - Singapore: 2023: 849; 2024: 991; 2025: 1,011; 2026 Projection: 1,090 - Net International Investment Position (NIIP), selected aggregates (Billions of US Dollars): - Overall Creditors: - 2022: 19,855 - 2023: 22,025 - 2024: 25,214 - 2025: 27,981 - Overall Debtors: - 2022: −24,977 - 2023: −30,108 - 2024: −34,840 - 2025: −36,349 - Selected country NIIP (Billions of US Dollars; 2022–2025): - United States: 2022: −16,161; 2023: −20,417; 2024: −26,539; 2025: −27,537 - China: 2022: 2,422; 2023: 2,851; 2024: 3,178; 2025: 4,071 - Japan: 2022: 3,101; 2023: 3,263; 2024: 3,495; 2025: 3,693 - Germany: 2022: 2,956; 2023: 3,152; 2024: 3,639; 2025: 4,307 *Source: CHAPTER 1 EXTERNAL POSITIONS AND POLICIES, 2026 External Sector Report; IMF staff calculations and April 2026 World Economic Outlook.* ### Box 1.1. Trade Barriers and the Current Account ### Box 1.1. Trade Barriers and the Current Account ### Do Trade Barriers Improve the EBA Model? - Incorporating overall import and export barriers computed from the gravity approach into the 2019 EBA current account regression yields a statistically significant but economically modest effect. - A ten-percent rise in import barriers reduces CA/GDP by roughly 0.3 percentage points. - Similar results hold using the log change in trade barriers or the log level of tariffs as a direct measure of trade policies. - Adding trade barriers to the EBA framework adds very little explanatory power over and above existing EBA variables and has almost no impact on predicting yearly CA/GDP changes relative to the baseline EBA framework. Key estimated coefficients (EBA regression using updated data from 1986 to 2019): - Table 1.1.1. Trade Barriers in EBA - Export barriers: 0.006 (Column 2); 0.028** (Column 3) [standard errors: 0.009, 0.013] - Import barriers: –0.028*** (Column 2); –0.033*** (Column 3) [standard errors: 0.007, 0.007] - R2: 0.513 (Column 2); 0.539 (Column 3); 0.115 (Column 4) - Observations: 1,404 (all columns) - Note: Column 4 regresses CA/GDP only on trade barriers using the same sample as Column 2. Standard errors in brackets. *p < 0.10, **p < 0.05, and ***p < 0.01. ### Trade Barriers and Saving and Investment - Higher trade barriers are associated with both lower saving and lower investment relative to GDP, which mutes the net impact of trade barriers on current account balances. - Findings are consistent with theoretical effects of permanent changes in trade barriers and with the estimated very persistent nature of shocks to gravity-implied trade barriers. Key estimated coefficients on saving and investment (estimations do not include EBA controls): - Table 1.1.2. Trade Barriers and Saving and Investment - Export barriers: –0.022 (Saving/GDP, Column 2); –0.055*** (Investment/GDP, Column 3) [standard errors: 0.016, 0.016] - Import barriers: –0.084*** (Saving/GDP, Column 2); –0.054*** (Investment/GDP, Column 3) [standard errors: 0.008, 0.008] - Note: *p < 0.10, **p < 0.05, and ***p < 0.01. - Persistence evidence: - Gravity-implied trade barriers display very persistent shock dynamics (see Figure 1.1.2 local projection specification). ### Interpretation and Limitations - Although coefficient signs and statistical significance vary across specifications, results consistently point to limited economic significance of trade barriers in the EBA model. - The increase in explanatory power from adding trade barriers is a fraction of what trade barriers explain without EBA controls, suggesting tariffs’ effects may be captured through indirect channels already present in EBA (for example, lagged REER, expected future growth, and controls stripping cyclical components). - The analysis is not definitive and identifies several avenues for future research. ### Suggested Avenues for Future Research - Develop and apply structural models to sharpen identification of trade barriers and macro-relevant industrial policies and isolate quantitatively significant channels affecting current accounts. - Produce more granular measurement of trade barriers, separating transitory and permanent components, and distinguishing aggregate export and import costs. - Examine significant recent policy episodes in a more granular fashion to deliver novel insights informing theory and estimation of the relationship between trade barriers and the current account. *Source: Box 1.1 from the IMF 2026 External Sector Report.* ### Box 1.3. Energy Price Shock and External Balances ### Box 1.3. Energy Price Shock and External Balances ### Scenario and methodology - The results are from simulations using the IMF’s G20 model. - All responses are reported as deviations from baseline for selected macro variables in 2026. - Reported model responses cover five countries/regions: (1) China, (2) the euro area, (3) the United States, (4) oil exporting countries (AGO, ARE, AZE, BHR, BRN, COG, DZA, ECU, GAB, GNQ, IRN, IRQ, KAZ, KWT, LBY, NGA, OMN, QAT, SAU, TCD, TKM, TLS, TTO, UZB, YEM), and (5) the rest of the world (ROW). - EA = euro area. OX = oil exporting countries. REER = real effective exchange rate, with a decrease representing a depreciation. Interest rate = short-term nominal interest rate. Investment = sum of private and public investment. Saving = sum of private and public saving. ### Selected macroeconomic responses in 2026 (deviations from baseline) - Real GDP (Percent): model shows deviations across regions with scale indicated between −3.5 and 0.5 percent on the figure axis; responses reported for US, EA, China, OX, ROW. - Current Account (Percent of GDP): responses plotted between −4 and 8 percent of GDP across regions. - Saving (Percent of GDP): responses plotted between −4 and 8 percent of GDP across regions. - Investment (Percent of GDP): responses plotted between −4 and 8 percent of GDP across regions. - Inflation (Percent): plotted between −0.5 and 3.0 percent deviations. - REER (Percent): plotted between −2 and 3 percent deviations (negative = depreciation). - Oil & Gas Production (Percent): plotted between −20 and 5 percent deviations. - Interest Rate (Percent): plotted between −1.5 and 1.0 percentage point deviations. - Components reported in figures include contributions from “Commodity prices,” “Second-round effects,” and “Risk-off/financial conditions,” and a “Total” which sums those components. Second-round effects and Risk-off/financial conditions are shown separately and combined with commodity prices to form Total. ### Global impacts (2026–2027, deviations from baseline) - World GDP (Percent): responses shown for 2026 and 2027 with scale between −3.0 and 0.0 percent in the figure; components include Commodity prices, Second-round effects, Risk-off/financial conditions, and Total. - Global Current Account Balance (Percent of world GDP): change shown as sum of absolute values of current accounts across countries; plotted between −0.2 and 0.6 percent for 2026 and 2027 with component breakdowns (Commodity prices; Second-round effects; Risk-off/financial conditions; Total). ### Key cross-country/current-account findings described in text - Most of the effect is driven by the energy shock layer. - While the current account is in deficit for some oil exporters in 2025, notably Saudi Arabia, the shock raises oil exporters’ current accounts to a strong surplus, contributing to a widening of global imbalances. - For major deficit economies, the impact varies with oil exporter status: - Canada’s current account moves from deficit to a small surplus. - Deficits in Australia and the United Kingdom widen. - For the United States, the current account deficit increases only slightly as percent of GDP, but given the economy’s size, it still contributes to widening global imbalances. - Current accounts in major surplus economies such as China, the euro area, and Japan weaken, partly counteracting the widening of global imbalances. - The text notes impacts extending into 2027, with effects “up to 0.5 percent in 2027” driven largely by the energy shock layer. ### Notes on figures and calculation - Figure 1.3.2: shows responses for selected macro variables in 2026, deviations from baseline, using the IMF’s G20 model, with data labels using ISO country codes and a list of oil-exporting country codes provided. - Figure 1.3.3: shows responses for selected macro variables in 2026 and 2027, using IMF G20 model simulations. “Total” is the sum of “Commodity prices,” “Second-round effects,” and “Risk-off/ financial conditions.” The bottom panel’s change in global current account balance is calculated as the sum of absolute values of current accounts across countries. *Source: Box 1.3, 2026 EXTERNAL SECTOR REPORT (International Monetary Fund).* ### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES ### CHAPTER 1 EXTERNAL POSITIONS AND POLICIES ### Annex Table 1.1.2 — Summary of External Assessment Indicators, 2025: Key findings - Overall assessment (selected economies): - Argentina: Weaker; Actual CA (Percent of GDP) = –1.1; Cycl. Adj. = –1.9; IMF Staff CA Gap (Midpoint) = –2.5 ±1; IMF Staff REER Gap (Percent) = 15.9; International Investment Position Net Liabilities = 657,720 (Percent of GDP column value presented as 657720). - China: Stronger; Actual CA = 3.8; Cycl. Adj. = 3.6; IMF Staff CA Gap (Midpoint) = 3.0 ±0.6; IMF Staff REER Gap = –21.3. - Germany: Stronger; Actual CA = 4.5; Cycl. Adj. = 4.3; IMF Staff CA Gap (Midpoint) = 2.1 ±0.5; IMF Staff REER Gap = –6.6. - Japan: Moderately stronger; Actual CA = 4.9; Cycl. Adj. = 4.9; IMF Staff CA Gap (Midpoint) = 1.3 ±1; IMF Staff REER Gap = –7.2. - Korea: Stronger; Actual CA = 6.6; Cycl. Adj. = 6.4; IMF Staff CA Gap (Midpoint) = 2.5 ±0.6; IMF Staff REER Gap = –7.5. - Singapore: Substantially stronger; Actual CA = 16.7; Cycl. Adj. = 17.0; IMF Staff CA Gap (Midpoint) = 7.6 ±2; IMF Staff REER Gap = –15.2. - United States: Weaker; Actual CA = –3.6; Cycl. Adj. = –3.5; IMF Staff CA Gap (Midpoint) = –2.2 ±0.7; IMF Staff REER Gap = 19.9. - Aggregate indicators: - The euro area is assessed as Broadly in line; Actual CA = 1.7; Cycl. Adj. = 1.8; IMF Staff CA Gap (Midpoint) = 0.9 ±0.8; IMF Staff REER Gap = –2.6. - Notes and data coverage: - “...” indicates data are not available or not applicable. - CA = current account; Cycl. Adj. = cyclically adjusted; NFA = net foreign assets; REER = real effective exchange rate; SE = standard error. - The IMF staff–assessed euro area CA gap and norms are calculated as GDP-weighted averages for the 11 largest euro area economies. ### Annex Table 1.1.3 — IMF Staff–Assessed Current Account Gaps and Staff Adjustments, 2025 - IMF staff–assessed CA gap methodology and examples: - IMF staff–assessed CA gap [E] = EBA CA Gap [D = B − C] + IMF Staff Adjustments [F]. - Several economies show zero or no adjustments in the “IMF Staff Adjustments” columns (Other = 0.0, Total = 0.0), examples: Argentina, Australia, Belgium, Brazil, China, France, Italy, Japan, Mexico, Poland, Russian Federation, South Africa, Spain, Thailand, Türkiye, United States. - Noted nonzero country adjustments and comments: - Canada: IMF Staff–Assessed CA Gap = –2.8; IMF Staff Adjustments total = 0.6 (Portfolio Equity Retained Earnings Bias). - Euro Area: IMF Staff–Assessed CA Gap midpoint = 0.9; IMF Staff Adjustments total = –0.1 (Portfolio Equity Retained Earnings Bias). - Korea: IMF Staff–Assessed CA Gap = 2.5; IMF Staff Adjustments total = –0.6 (Demographics (population aging)). - The Netherlands: IMF Staff–Assessed CA Gap = 3.6; IMF Staff Adjustments total = –1.6 (Portfolio Equity Retained Earnings Bias). - Switzerland: IMF Staff–Assessed CA Gap midpoint = 1.0; IMF Staff Adjustments total = –1.1 (Portfolio Equity Retained Earnings Bias). - Hong Kong SAR: Cycl. Adj. CA = 11.8; IMF Staff–Assessed CA Gap midpoint reported with comment: NIIP and gold trade; IMF Staff Adjustments total = –9.0. - Singapore: Cycl. Adj. CA = 17.0; IMF Staff–Assessed CA Gap midpoint = 7.6; IMF Staff Adjustments total = –4.6 (NFA composition, health spending). - Aggregate measures: - Absolute sum of excess surpluses and deficits (percent of aggregate GDP for economies included) = 2.0. - Discrepancy (GDP-weighted sum of IMF staff–assessed CA gaps) = –0.03. ### Annex Table 1.1.4 — IMF Staff–Assessed REER Gaps and EBA REER Gaps, 2025 - Definitions and interpretation: - IMF Staff–Assessed REER Gap refers to the midpoint of the IMF staff–assessed REER gap. - Implied REER gap = –(IMF staff–assessed CA gap/CA-to-REER elasticity). - CA/REER Elasticity (semi-elasticity) is used by IMF country teams; REER (Percent change) columns show Average 2025/Average 2024 and March 2026/Average 2025. - Selected country REER and elasticity entries (preserve exact values): - Argentina: IMF Staff–Assessed REER Gap = 15.9; REER Gap Implied by IMF Staff–Assessed CA Gap = 15.9; EBA REER-Level Gap = 18.6; CA/REER Elasticity = 0.16; REER Average 2025/Average 2024 = 2.9; March 2026/Average 2025 = 0.2. - China: IMF Staff–Assessed REER Gap = –21.3; REER Gap Implied = –21.3; CA/REER Elasticity = 0.5; REER Average 2025/Average 2024 = –3.5; March 2026/Average 2025 = 3.0. - Germany: IMF Staff–Assessed REER Gap = –6.6; REER Gap Implied = –6.6; EBA REER-Level Gap = –9.1; CA/REER Elasticity = 0.3; REER Average 2025/Average 2024 = 1.4; March 2026/Average 2025 = 0.5. - Japan: IMF Staff–Assessed REER Gap = –7.2; REER Gap Implied = –7.2; EBA REER-Level Gap = –38.7; CA/REER Elasticity = 0.18; REER Average 2025/Average 2024 = 1.9; March 2026/Average 2025 = –8.1. - Korea: IMF Staff–Assessed REER Gap = –7.5; REER Gap Implied = –7.5; EBA REER-Level Gap = –9.8; CA/REER Elasticity = 0.33; REER Average 2025/Average 2024 = –4.6; March 2026/Average 2025 = –5.7. - United States: IMF Staff–Assessed REER Gap = 19.9; REER Gap Implied = 19.9; EBA REER-Level Gap = 21.3; CA/REER Elasticity = 0.1; REER Average 2025/Average 2024 = 0.3; March 2026/Average 2025 = –1.9. - Singapore: IMF Staff–Assessed REER Gap = –15.2; REER Gap Implied = –15.2; CA/REER Elasticity = 0.5; REER Average 2025/Average 2024 = 0.6; March 2026/Average 2025 = 1.1. - Discrepancy: GDP-weighted average sum of IMF staff–assessed REER gaps = 2.1. ### Annex Table 1.1.5 — EBA Current Account Regression: Policy Gap Contributions, 2025 - Framework notes: - EBA Gap decomposed across policy channels: Fiscal Gap, Public Health Expenditure Gap, Private Credit Gap, Foreign Exchange Intervention and Capital Controls Gap. - Columns include Total, Identified Domestic contributions, Domestic Residual, coefficients, P (actual level), P* (desired level), and foreign policy contributions (fixed in notes). - Selected country total policy gap (EBA Gap) and notable contributions (values in percent of GDP, coefficients and comments preserved exactly): - Argentina: EBA Gap = –2.5; Fiscal Total = –1.1; Public Health Total = –1.4; Private Credit Total = 0.5; FXI and KC Total contribution columns include large numeric entries in the FXI/KC breakdown with Dom Residuals and coefficients presented in table. - Australia: EBA Gap = –3.0; Fiscal Total = 0.1; Public Health Total = –3.0; Private Credit Total = –1.5; FXI and KC contributions include large gross positions reported (e.g., 7.5, 7.2) with domestic and residual splits. - Brazil: EBA Gap = –1.5; Fiscal Total = –1.2; Public Health Total = –0.2; Private Credit Total = –3.5; FXI and KC columns show positive and negative domestic contributions and residuals. - China: EBA Gap = 3.0; Fiscal Total = –0.1; Public Health Total = 3.1; Private Credit Total = –7.6; FXI and KC contributions include negative large domestic components (e.g., –5.1) and identified residuals. - Germany: EBA Gap = 2.1; Fiscal Total = –0.1; Public Health Total = 2.2; Private Credit Total = –2.3; FXI and KC domestic effects small or zero. - India: EBA Gap = 1.6; Fiscal Total = 0.0; Public Health Total = 1.5; Private Credit Total = –8.2; FXI and KC include foreign components (e.g., –1.8). - Korea: EBA Gap = 3.1; Fiscal Total = 1.3; Public Health Total = 1.8; Private Credit Total = –1.2; FXI and KC show a strong negative contribution (–7.2) in foreign exchange intervention and capital controls columns. - Netherlands: EBA Gap = 5.2; Fiscal Total = 3.2; Public Health Total = 1.9; Private Credit Total = –2.1; FXI and KC show a very large negative domestic FXI/KC contribution (–36.2). - Türkiye: EBA Gap = –2.9; Fiscal Total = 0.5; Public Health Total = –3.4; Private Credit Total = –2.8; FXI and KC show sizeable negative domestic contributions (–21.8) and large domestic residuals (–10.9). - United States: EBA Gap = –2.2; Fiscal Total = –0.6; Public Health Total = –1.7; Private Credit Total = –7.3; FXI and KC foreign contributions noted at –11.4 in summary notes. - Methodological notes from table: - Total contribution after adjusting for multilateral consistency is reported as “Total 1”. - Total domestic contribution = coefficient * (P – P*). - Total foreign exchange intervention and capital controls contribution = Coeff * [(FXI × KC) – (desirable FXI × desirable KC)]. - Foreign contributions are estimated as follows (in percent of GDP): fiscal = –0.9; public health = 0.1; private credit = 0.7; foreign exchange intervention = 0.0. *Source: CHAPTER 1 EXTERNAL POSITIONS AND POLICIES, text - CHAPTER 1 EXTERNAL POSITIONS AND POLICIES (tables and notes as provided).* ### Annex Table 1.1.6. 2025 Individual Economy Assessments: Summary of Policy RecommendationsEconomy ### Annex Table 1.1.6. 2025 Individual Economy Assessments: Summary of Policy RecommendationsEconomy ### Substantially stronger - Singapore: Implement higher public investment to address the structural transformation from a rapidly aging population and a transition to a green and digital economy. This includes spending on health care, green and other physical infrastructures, and human capital, as well as ongoing reforms to strengthen social safety nets, to help reduce external imbalances over the medium and long term by reducing net saving in both the public and private sectors of the economy. ### Stronger - China: Fiscal stimulus focused on boosting consumption by investing in people and facilitating a more efficient property sector adjustment, while scaling back inefficient investment and unwarranted industrial policy support. Further monetary easing accompanied by a strong fiscal and structural package can facilitate reflation and exchange rate flexibility can help absorb external shocks. Structural reforms that durably reduce household savings and boost investment in services would further reduce the CA surplus. - Germany: Planned policies aimed at promoting investment and diminishing excess saving would support external rebalancing. Structural reforms to ease regulatory constraints on domestic investment could avoid a widening of external imbalances in the longer run due to fiscal adjustment that will be needed to eventually stabilize the debt-to-GDP ratio. Training to enhance employability of older workers could also extend working lives and reduce the need for savings. - Korea: The continuation of soft-landing measures for the financing of real estate, along with structural reforms aimed at facilitating the AI transition would support the recovery of private investment in the near term. Over the medium term, adopting policies to enhance social protection and encourage the orderly deleveraging of household debt would help reduce the need for household life cycle saving and support household consumption while bringing the external position in line with fundamentals. Structural reforms aimed at boosting innovation and diversifying trade destinations and supply chains would help sustain Korea’s export competitiveness and reduce exposure to external shocks. - Spain: Sustained fiscal consolidation efforts would rebuild fiscal space and raise public saving, thus increasing the CA and the NIIP. This could be offset by the negative CA impact of the growth-enhancing structural reforms recommended by staff, which include further efforts to complete the single Spanish market (in addition to the single EU market) for goods and services, facilitate firms’ access to financing through domestic initiatives to boost access to equity and support innovation by young firms by redesigning the R&D tax credit and streamlining red tape. - Sweden: The expansionary fiscal stance is supportive of the economic recovery and external rebalancing. There is scope to enhance both private and public investment in productivity-enhancing projects, the green transition, and the health sector. Higher domestic absorption would help reduce external imbalances, while enabling Sweden to maintain its high living standards amid demographic challenges, support meeting the country’s ambitious climate goals and scaling up of defense spending. - Thailand: Promote productive investment, further liberalize the services sector, and reduce competition-distorting tax incentives and subsidies to support durable growth, reduce internal imbalances, and facilitate external rebalancing. Fiscal policy should remain prudent given elevated public debt, with spending focused on targeted social transfers and growth-enhancing investment, while revenue-driven medium-term fiscal consolidation would help rebuild fiscal buffers. ### Moderately stronger - India: Further reduce import restrictions, especially on intermediate goods, while continuing to improve the business environment to boost private investment and liberalize the FDI regime. These efforts should be complemented by the development of trade infrastructure and continued expansion of trade networks. - Japan: Implement structural reforms to reduce labor market duality, improve labor mobility, boost labor force participation, and improve firm dynamism to boost private-sector-led potential growth. Fiscal adjustment, including a medium-term plan to offset rising interest, health, and long-term care costs, is needed to preserve debt sustainability. While fiscal consolidation would push the CA surplus higher, this would be offset by higher investment and a decrease in private savings. - Malaysia: Implement policies to strengthen social safety nets and public health care, including through a reorientation of fiscal spending. Strengthening social safety nets and swiftly implementing structural reforms under the 13th Malaysia Plan would help lower private sector net savings and strengthen domestically driven growth. Structural policies should be implemented to encourage private investment and improve productivity growth. ### Broadly in line - Euro Area: Deepening the EU Single Market and completing the Banking Union would raise productivity while enhancing resilience through scale and internal diversification. Improving coordination on public goods investment and enacting structural reforms can boost investment and private demand. These measures can help address the identified credit-related policy gap and offset the need for increased public savings in some countries. Delayed fiscal consolidation would support the external balance only temporarily, as it would eventually require a sharper and more disruptive fiscal correction. - France: Structural reforms to support productivity, boost innovation, and incentivize private investment would help maintain the external position in line with medium-term fundamentals. - Hong Kong SAR: Implement gradual fiscal consolidation over the medium term to raise public savings to 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. Continued strong financial supervision, prudent fiscal management, and flexible markets will sustain the credibility of the LERS and its stabilizing role. - Indonesia: Enhance buffers within the fiscal rule, and implement structural reforms to raise productivity and promote trade including, higher and more efficient infrastructure investment; higher, more efficient and better targeted social spending to foster human capital development and strengthening the social safety net; reducing or eliminating restrictions on inward FDI and external trade, including by moving away from non-tariff barriers; and promoting greater labor market flexibility. - Mexico: Structural reforms are critical to boost investment in the medium to long term. In addition to boosting growth, this would offset the effect of needed fiscal consolidation and, thus, help maintain external balance. Priorities include addressing infrastructure and governance gaps, reducing informality, promoting financial deepening, and increasing private sector participation in the energy sector. - Poland: Implement a cumulative fiscal adjustment of at least 4 percent of GDP by 2030, reducing the fiscal deficit from about 7 percent of GDP in 2025 to 3 percent over the medium term. To boost Poland’s structurally low private investment levels, efforts should focus on easing regulatory hurdles to private sector participation and advancing the EU’s Savings and Investment Union. - South Africa: Implement structural reforms supporting competitiveness, jobs, investment, and growth, that focus on addressing energy and logistics bottlenecks (including by promoting private sector participation), as well as on improving the business environment, governance, and the functioning of labor markets. An ambitious fiscal consolidation is needed to stabilize and put debt on a sustained downward path toward a more prudent level, while protecting vulnerable groups. - Switzerland: Substantial fiscal policy space should be used to support growth if downside risks materialize. A comprehensive medium-term plan is needed to address increasing structural fiscal needs on aging, climate, and defense. Monetary policy should continue to pursue price stability and avoid the risk of inflation settling at a very low or negative level. ### Weaker - Argentina: Implement a more balanced stabilization program with greater emphasis on external stability to proactively rebuild reserves, sustain a gradual disinflation process, and durably access international capital markets. - Australia: A gradual medium-term fiscal consolidation could contribute to narrowing the CA deficit. Meaningful progress on the authorities’ structural reforms agenda to boost productivity could strengthen export competitiveness and support medium-term external rebalancing. - Canada: Strengthen external competitiveness by removing internal trade barriers, enhancing labor productivity, and scaling up investment in R&D. Targeted and temporary fiscal support may be necessary to allow businesses and households to adjust to the new trade landscape. - Türkiye: Strengthen the policy framework to underpin external sustainability going forward. Tighten both the monetary and fiscal policy stance to contain demand, raise savings, bring down inflation, make medium-term growth more sustainable, and help pave the way for lower CA deficits over the medium-term. Collectively, these policies would improve confidence and help sustain capital inflows, which would allow for a welcome accumulation of international reserves. - United Kingdom: The fiscal consolidation path will support external rebalancing by containing import growth and reducing interest rates on domestic liabilities, while progress in the net-zero transition should help mitigate risks of further energy-related terms of trade shocks. - United States: Implement fiscal consolidation aimed at achieving a general government primary surplus of about 1 percent of GDP to put the debt-to-GDP ratio on a downward path and adjust the external position to the level implied by medium-term fundamentals and desirable policies. ### Moderately weaker - Brazil: Implement efforts to raise national savings, increasing scope for priority investments. A sustained and more ambitious fiscal consolidation would help increase net public saving. - Italy: Implement refortms to boost productivity, competitiveness, and potential growth, including reforms that boost the labor force participation of women and youth to further boost economic activity and savings. Simultaneously, strengthening the external position would require an increase in public sector savings, supported by decisive public debt reduction. - Russian Federation: . . . - Saudi Arabia: Implement fiscal consolidation, including through enhanced revenue mobilization and energy price reforms, to help raise public saving. Implement the structural reform agenda to diversify the economy, and boost non-oil exports. ### Substantially weaker - Belgium: Implement a sustained expenditure-led fiscal consolidation beyond current plans. Fiscal buffers should be rebuilt, and space needs to be created to increase public investment to boost potential growth and support the green transition. 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National Bureau of Economic Research, Cambridge, MA. https://doi.org/10.3386/w33997. - Waugh, Michael E. 2010. “International Trade and Income Differences.” American Economic Review, 100 (5), 2093–2124. - Waugh, Michael E. 2026. “Trade in AI-Related Products.” Working Paper, Federal Reserve Bank of Minneapolis. - Zalla, Ryan. 2017. “Economic Policy Uncertainty in Ireland.” Atlantic Economic Journal, 45 (2), 269–71. ### Methodology and process for individual economy assessments - Methods: - Use External Balance Assessment (EBA) models developed by the IMF’s Research Department to estimate desired current account balances and real exchange rates. - Model estimates and policy-distortion discussions are complemented by other external indicators: capital and financial account flows and measures, foreign exchange intervention and reserve adequacy, and foreign asset or liability positions. - Role of judgment and adjustors: - EBA model outputs provide numerical inputs for identifying external imbalances but may not capture all economy-specific features. - IMF staff estimate an economy’s current account gap by combining the EBA model’s current account gap estimate with adjustors. - The staff estimate the real effective exchange rate (REER) gap consistent with the staff current account gap by applying a country-specific elasticity; additional information (EBA REER regression models, unit-labor-cost-based measures) may be used. - Multilaterally consistent process: - A process was developed for multilaterally consistent external assessments for the 30 largest economies, representing about 90 percent of global GDP. - Individual economy assessments are discussed with respective authorities as part of bilateral surveillance. - Data vintage and projections: - The individual economy assessments for 2025 are based on external sector data as of May 18, 2026 and IMF staff projections in the April 2026 World Economic Outlook. ### Presentation of assessments, labels, and uncertainty - External assessments are presented in ranges, reflecting inherent uncertainties. - Ranges of uncertainty for IMF staff–assessed current account gaps are country-specific estimated measures; REER ranges vary by country reflecting country-specific factors and different exchange rate semi-elasticities. - Labels for overall external positions: “broadly in line,” “moderately weaker (stronger),” “weaker (stronger),” or “substantially weaker (stronger).” - Wording conventions: - When comparing cyclically adjusted current account with current account norm, use “higher” or “lower” corresponding to positive or negative current account gaps. - A quantitative estimate of the IMF staff’s view of the REER gap is generally reported as ( ) percent “over” or “under” valued. - Definition of “broadly in line”: - Current account gaps in the range of ±1 percent of GDP. - REER gaps in a range reflecting the country-specific exchange rate semi-elasticity (example given: ±5 percent based on an elasticity of −0.2). ### Table 2.A — Description in External Sector Report Overall Assessment (rules mapping) - CA Gap / REER Gap (Using Elasticity of −0.2) / Description in Overall Assessment: - > 4% / < −20% . . . substantially stronger . . . - 2%, 4%–20%, −10% . . . stronger . . . - 1%, 2%–10%, −5% . . . moderately stronger . . . - –1%, 1%–5%, 5% The external position is broadly in line with fundamentals and desirable policies. - –2%, –1% 5%, 10% . . . moderately weaker . . . - –4%, –2% 10%, 20% . . . weaker . . . - < −4% / > 20% . . . substantially weaker . . . ### Selection of economies (Table 2.B) - The 30 systemic economies analyzed in detail: - Argentina, Australia, Belgium, Brazil, Canada, China, Euro Area, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, The Netherlands, Poland, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Türkiye, United Kingdom, United States. - Selection criteria included global rank in purchasing power GDP (IMF’s World Economic Outlook), level of nominal gross trade, and degree of financial integration. ### Two-country illustrative example and policy implications - Stylized setup: - Country A: large current account deficit, large fiscal deficit, high public and external debt. - Country B: current account surplus (matching Country A’s deficit), large creditor position, no policy distortions. - Overall external assessment: - Country A has an external imbalance reflecting its fiscal deficit; Country B has equal and opposite surplus imbalance. - Country A’s exchange rate appears overvalued; Country B’s appears undervalued. - Policy gaps: - Country A: domestic policy distortion requiring adjustment. - Country B: no domestic policy gaps; adjustment by Country A would automatically reduce Country B’s imbalance. - Individual write-up implications: - Country A: capital flows and foreign asset/liability position sections note vulnerabilities from international liabilities; policy response focuses on reinning in the fiscal deficit and limiting financial excesses. - Country B: write-up finds no fault with policies; notes that adjustment among other economies would help reduce the imbalance. - Broader implications: - Critical to distinguish between domestic and foreign fiscal policy gaps. - Elimination of fiscal policy gap in a systemic deficit economy would help reduce excessive surpluses in other systemic economies. - Policy actions addressing external imbalances relate to determinants of current account balances: private and public saving-investment balances. - Policy advice highlights reforms and policy changes to address saving/investment gaps and vulnerabilities associated with external stock positions, including reserves and foreign exchange intervention policies. *International Monetary Fund — 2026 External Sector Report: References and Methodology section.* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### Argentina — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was weaker than the level implied by medium-term fundamentals and desirable policies. Factors: very precarious reserve coverage, absence of sustainable market access, large FX debt obligations, incipient reserve recovery since end-2025 from record agricultural exports and renewed portfolio inflows, some real appreciation of the currency, and high uncertainty. - Potential Policy Responses: - Implement a more balanced stabilization program with greater emphasis on external stability to rebuild reserves, sustain gradual disinflation, and durably access international capital markets. - Complement strong fiscal anchor with sustained structural reforms to boost exports and attract investment. - Increase exchange rate flexibility. - Channel commodity export windfalls toward reserve accumulation. - Transition toward a more open and competitive economy with reduced barriers in product, labor, and external markets. - 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. ### Argentina — Foreign Asset and Liability Position and Trajectory - Background: - NIIP rose from −20 percent of GDP in 1999 to an average of 24 percent between 2020 and 2023; dynamics changed since early 2024. - Household sector net accumulation of assets abroad in 2025: US$30 billion, 2.3 percent of GDP. - Corporate external liabilities increased 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 generally unchanged since end-2023, with increases in official debt liabilities matched by lower bondholder debt and higher gross reserve assets (IMF). - Assessment: - External vulnerabilities remain despite positive NIIP reflecting 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. - Key 2025 figures (% GDP): - NIIP: 7.1 - Gross Assets: 72.4 - Debt Assets: 40.8 - Gross Liab.: 65.3 - Debt Liab.: 40.1 ### Argentina — Current Account - Background: - CA averaged about negative 0.2 percent of GDP over 2020–2024; surplus of 1 percent in 2024 due to investment compression. - 2025 CA: deficit of 1.1 percent of GDP driven by goods export volume growth (~10 percent) offset by imports rise (30.5 percent) and deterioration in services balance. - Projected 2026 CA: about −0.8 percent supported by tight fiscal policy, more robust monetary and FX regime, and improvements in energy balance from Vaca Muerta production. - Projected medium-term CA path consistent with rebuilding reserves to 100 percent of the ARA metric. - Assessment (EBA and staff measures): - 2025 EBA cyclically adjusted CA balance: −1.9 percent of GDP. - Estimated EBA CA norm: 0.7 percent of GDP. - EBA CA gap: (−1.5 to −3.5) percent of GDP, midpoint −2.5 percent of GDP. - Half of the gap accounted for by an unexplained residual (transitional factors, structural competitiveness constraints, release of pent-up import demand). - Staff-assessed CA norm: subject to significant uncertainty. - Key 2025 figures (% GDP): - CA: −1.1 - Cycl. Adj. CA: −1.9 - EBA Norm: 0.7 - EBA Gap: −2.5 - Staff Adj.: 0.0 - Staff Gap: −2.5 ### Argentina — Real Exchange Rate - Background: - Average REER modestly appreciated by 3 percent between 2024 and 2025; REER weakened by 16 percent between December 2024 and December 2025. - 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 similar; wage-based adjusted with lag, reflecting narrowing profit margins. - Assessment: - Staff-assessed CA gap for 2025 implies average REER gap of 9.6–22.2 percent, midpoint 15.9 percent, using semi-elasticity 0.16. - Considering REER dynamics since April 2025, REER gap narrowed as of end-2025 compared to annual average, but recent appreciation amid strong FX inflows has eroded gains. - Over medium term, stronger REER could be justified if structural reforms deliver productivity and competitiveness gains. ### Argentina — Capital and Financial Accounts: Flows and Policy Measures - Background: - Net capital inflow in 2025: about US$11.4 billion (1.7 percent of GDP), reversing 2024's small net outflow. - Gross liabilities: 5.5 percent of GDP (largely IMF and multilateral disbursements and corporate borrowing, smaller 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, temporary tightening ahead of October midterm elections. - Starting January 2026, corporates can freely repatriate dividends from 2025 investments onward. - Assessment: - Careful easing of remaining exchange rate restrictions and CFM measures, along with tight macroeconomic policies and competitiveness-enhancing reforms, expected to support exchange rate flexibility, reserve accumulation, attract foreign investment, and facilitate sustained international capital market access. - Complementary tight macroprudential policies needed to ensure sustainability of capital inflows. - Risks to capital inflows tilted to the downside amid rising global geopolitical tensions and more challenging external financing environment. ### Argentina — FX Intervention and Reserves Level - Background: - NIR fell to −$11.7 billion (at current rates) by end-2025, below end-2024 levels (−$2.4 billion) and similar to end-2023 (−$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; increased by further $5.0 billion through May 13, 2026 to US$32.5 billion. - BCRA purchases about $8.0 billion year-to-date; NIR at program rates increasing by about US$4.5 billion (as of May 13, 2026). - Bank FX deposits rose 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 organic reserve rebuilding essential to secure better market access and manage shocks amid elevated global uncertainty and volatile external financing conditions. --- ### Australia — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was weaker than the level implied by medium-term fundamentals and desirable policies. CA deficit widened from 2.2 percent of GDP in 2024 to 2.6 percent of GDP in 2025 due to a lower trade surplus and weaker terms of trade. - Potential Policy Responses: - Gradual medium-term fiscal consolidation to help narrow the CA deficit. - Meaningful progress on structural reforms to boost productivity and export competitiveness. - Narrowly targeted industrial policies minimizing trade and investment distortions. - Maintain exchange rate flexibility as primary shock absorber. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Australia — Foreign Asset and Liability Position and Trajectory - Background: - NIIP improved to −22.4 percent of GDP in 2025 from −23 percent in 2024 and an average of −58 percent pre-COVID (2015–19). - Improvement driven by valuation gains on foreign equity holdings and reduced value of external debt. - About 48 percent of gross liabilities are debt obligations; about 57 percent of these are denominated in domestic currency. - Assets largely denominated in foreign currency. - Foreign liabilities composition: ~1/4 FDI, ~1/2 portfolio investment (principally banks’ borrowing abroad and foreign holdings of government bonds), ~1/4 other investments and derivatives. - Assessment: - NIIP level and trajectory sustainable. - Structure reduces vulnerability associated with negative NIIP; positive net foreign currency asset position from large compulsory pension assets invested abroad. - Banking sector’s net foreign currency liability position mostly hedged; external funding maturity has lengthened. - Growing exposure to foreign equity markets may raise vulnerability to extreme global financial market volatility. - Key 2025 figures (% GDP): - NIIP: −22.4 - Gross Assets: 159.7 - Debt Assets: 38.1 - Gross Liab.: 182.1 - Debt Liab.: 88 ### Australia — Current Account - Background: - CA deficit widened to 2.6 percent of GDP in 2025 from 2.2 percent in 2024 driven by weaker terms of trade. - Converging back to pre-pandemic average deficit levels (2.8 percent of GDP in 2015–19). - Merchandise trade surplus declined from 2.5 percent of GDP in 2024 to 1.6 percent in 2025; services deficit reduced marginally to 1.3 percent of GDP. - Factors that could support external demand in 2026: stronger terms of trade, reshoring, higher defense spending, data-center expansion; investment-promoting reforms may temporarily weaken savings-investment balance. - Assessment: - EBA model CA norm: 0.0 percent of GDP. - Cyclically adjusted CA deficit: −2.9 percent of GDP in 2025. - Model-based CA gap: −3.0 percent of GDP (range −3.5 to −2.5 percent). - CA gap mainly reflected in model residual; EBA model does not fully capture Australia’s attractiveness to foreign investors and resource-rich characteristics. - Key 2025 figures (% GDP): - CA: −2.6 - Cycl. Adj. CA: −2.9 - EBA Norm: 0.0 - EBA Gap: −3.0 - Staff Adj.: 0.0 - Staff Gap: −3.0 ### Australia — Real Exchange Rate - Background: - REER in 2025 on average 2.4 percent lower than in 2024; Australian dollar depreciated by 3.6 percent in 2025 relative to 2024 against peer currencies. - As of March 2026, REER was 9 percent above its 2025 average. - Movements likely reflected interest rate differentials and commodity price movements. - Assessment: - Staff-assessed CA gap implies REER gap of 16.7 percent (elasticity 0.18). - EBA REER level model overvaluation: 24.4 percent. - EBA index model overvaluation: 3.8 percent. - Staff assess REER gap range: 14.0 to 19.6 percent, midpoint 16.8 percent. ### Australia — Capital and Financial Accounts; FX Intervention and Reserves - Capital and Financial Accounts: - Financial account recorded net inflows in 2025 driven by portfolio investment and direct investment inflows; equity flows remained negative in net terms. - Assessment: Vulnerabilities contained, supported by credible commitment to floating exchange rate. - FX Intervention and Reserves: - Currency free floating since 1983; central bank has not intervened in FX market since the global financial crisis. - Reserve assets increased in 2025 to US$75.3 billion from US$63.6 billion at end-2024. - Assessment: Authorities strongly committed to floating regime, reducing need for reserves; domestic banks’ external liabilities are in local currency or hedged. --- ### Belgium — Overall Assessment and Policy Responses - Overall Assessment: The external position in 2025 was substantially weaker than the level implied by medium-term fundamentals and desirable policies. CA deficit worsened in 2025 to 1.9 percent of GDP, driven by higher trade deficits. - Potential Policy Responses: - Sustained, expenditure-led fiscal consolidation beyond current plans to bring external position closer to fundamentals. - Rebuild fiscal buffers and create space to increase public investment for potential growth and green transition. - Implement significant pension, social benefit, tax, labor, product-market, and wage-setting reforms to enhance productivity and competitiveness. - Work with EU partners to deepen the single market and further the saving and investment union to increase productivity, resilience, scale, internal diversification, and risk sharing. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Belgium — Foreign Asset and Liability Position and Trajectory - Background: - NIIP declined to 52.1 percent of GDP in 2025 from 58.6 percent at end-2024 (average 54.6 percent over 2020–24). - Decline reflects reduction in gross foreign assets (by 2.0 ppts of GDP) and larger increase in gross foreign liabilities (by 4.5 pp of GDP), driven by higher portfolio liabilities and other investment liabilities. - Net portfolio investment increased by 0.5 pp of GDP to 37.5 percent of GDP in 2025 due to net equity investment increase offsetting decline in debt securities. - Net foreign direct investment declined by 8.3 pp of GDP to 14.1 percent of GDP. - Net other investment liabilities declined to 6.8 percent of GDP in 2025 from peak 15.3 percent at end-2022. - Interbank debt on liabilities side remained elevated since 2022 due to economic sanctions on Russia. - Decline in NIIP over last five years reflects lower net direct investment and portfolio positions (percent of GDP). - Assessment: - NIIP-to-GDP ratio modestly declined since 2024 and expected to edge lower over medium term reflecting projected CA deficits and growth dynamics. - NIIP remains substantially positive and not a sustainability concern. - Large gross international asset and liability positions driven by corporate treasury centers do not appear to give rise to macro-relevant balance sheet mismatches. - Key 2025 figures (% GDP): - NIIP: 52.1 - Gross Assets: 413.9 - Debt Assets: 127.1 - Gross Liab.: 361.8 - Debt Liab.: 148.0 ### Belgium — Current Account - Background: - CA averaged 0.1 percent of GDP over 2020–24; CA deficit widened to 1.9 percent of GDP in 2025 from 0.4 percent in 2024. - Deterioration driven by widening goods and services deficit (1.9 percent of GDP in 2025) due to weakening exports of goods. - Primary income balance and current transfers broadly neutral. - From saving-investment perspective: increase in investment to 25.6 percent of GDP in 2025 (from 24.5 percent) driven by private investment; modest decline in savings to 23.7 percent of GDP (from 24.1 percent). - Assessment: - EBA model CA norm: 3.2 percent of GDP. - Cyclically adjusted CA balance: −1.6 percent of GDP. - CA gap: −4.7 percent of GDP. - Staff assess CA gap range: −5.0 to −4.4 percent of GDP (standard error ±0.3 percent). - Overall policy gap positive (1 percent of GDP), with negative contributions from fiscal balance and health expenditure offset by positive credit gap. - Large unexplained residuals likely driven by structural competitiveness constraints (labor market regulations, automatic wage indexation), measurement challenges from MNEs, and small open economy spillovers. - Key 2025 figures (% GDP): - CA: −1.9 - Cycl. Adj. CA: −1.6 - EBA Norm: 3.2 - EBA Gap: −4.7 - Staff Adj.: 0 - Staff Gap: −4.7 ### Belgium — Real Exchange Rate - Background: - CPI- and ULC-based REERs appreciated in 2025 by 1.7 and 1 percent respectively relative to 2024 annual averages due to higher inflation and wage increases than trading partners and currency appreciation. - As of March, CPI-based REER was 0 percent above 2025 average; as of February 2026, ULC-based REER was 0.3 percent above 2025 average. - ULC- and CPI-based REERs rose by 5.9 percent and 4.4 percent between January 2020 and December 2024 respectively. - Assessment: - Staff assess REER overvalued with midpoint of 7.1 percent ±0.5 percent using elasticity 0.67. ### Belgium — Capital and Financial Accounts (beginning note) - Background: - In 2025, the financial account recorded a net outflow of 1.6 percent of GDP. - Direct investment balance was positive at (text ends here in source). *Italic: Source — CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS (text - CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS) — 2026 EXTERNAL SECTOR REPORT* ### 1.3 percent of GDP, reflecting larger negative transactions on the liabilities than on the asset side. Portfolio investm ### text - 1.3 percent of GDP, reflecting larger negative transactions on the liabilities than on the asset side. Portfolio investm ### Belgium: Portfolio and Other Investment - Net external flow impact: 1.3 percent of GDP, reflecting larger negative transactions on the liabilities than on the asset side. - Portfolio investment: net outflow of 3.4 percent of GDP, driven by a larger increase on the liability side (strong investment in Belgian bonds by non-residents). - Other investment: net inflow of 0.8 percent of GDP, partially offsetting portfolio outflows, due to financial transactions in the banking sector. ### Belgium: Assessment - Belgium remains exposed to financial market risks and vulnerabilities associated with high external public debt. - These vulnerabilities are limited by the large, positive NIIP. ### FX Intervention and Reserves Level (Belgium / Euro area) - Background: The euro has the status of a global reserve currency. - Assessment: Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating. --- ### Brazil: Overall Assessment and Policy Responses - Overall assessment: The external position in 2025 was moderately weaker than the level implied by medium-term fundamentals and desirable policies. - Current account (CA): deficit narrowed slightly to 2.9 percent of GDP in 2025 and is projected to decline to 1.7 percent of GDP over the medium term, supported by rising oil exports and public saving. - Risks: geopolitical tensions and trade disruptions, volatility in global commodity markets, and insufficient progress on fiscal adjustment and structural reforms to boost competitiveness. - Potential policy responses: - Raise national saving to increase scope for priority investments. - Undertake sustained and more ambitious fiscal consolidation to increase net public saving. - Target industrial policies where externalities or market failures prevent effective market solutions, minimizing trade and investment distortions. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. - Deepen trade integration progress (recent progress is welcome). ### Brazil: Foreign Asset and Liability Position and Trajectory (2025) - Background: NIIP fell to −49.4 percent of GDP in 2025 (from −38.2 percent in 2024 and an average of −41.5 percent during 2020–23), reflecting 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, a 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 has remained 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 as continued CA deficits are broadly offset by robust nominal GDP growth. - Key 2025 (% GDP) figures: - NIIP: −49.4 - Gross Assets: 47.1 - Reserve Assets: 15.7 - Gross Liab.: 96.5 - Debt Liab.: 35.9 ### Brazil: Current Account (2025) - 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: narrowing goods trade balance (from 3.0 to 2.6 percent of GDP) offset by smaller service deficit (−2.2 percent of GDP from −2.5 percent) and reduced primary income deficit (−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. - Medium-term: CA deficit expected to narrow to 1.7 percent of GDP. - Assessment and model metrics: - 2025 (% GDP) CA: −2.9 - Cycl. Adj. CA: −2.9 - EBA Norm: −1.4 - EBA Gap: −1.5 - Staff Adj.: 0 - Staff Gap: −1.5 ### Brazil: Real Exchange Rate (REER) - Background: REER appreciated by 10 percent in 2025 at a 12-month rate as of end-2025, following a sharp 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 a REER gap of 11.2 percent in 2025 (using elasticity 0.13). REER index model suggests a REER gap of −30.4 percent and REER level model suggests −21.3 percent. Staff assess REER gap range 7.8–14.7 percent, midpoint 11.2 percent. ### Brazil: Capital and Financial Accounts; 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, though net annual flows registered a modest outflow of 0.4 percent of GDP. - Assessment: Composition of capital flows expected to maintain a favorable risk profile, with sustained net FDI inflows outweighing relatively small and volatile net portfolio flows; foreign liabilities increasingly dominated by FDI liabilities. - Policy note: The IOF-FX tax applicable to capital transactions, assessed to be a capital flow management measure under the Institutional View, should be phased out. ### Brazil: FX Intervention and Reserves Level - Background: Brazil has a floating exchange rate. Authorities intervened during 2020–22 and 2024 to ensure smooth market functioning; in 2025 largely refrained from spot FX intervention while unwinding FX swap stock from previous interventions. - Reserves: increased by US$28.5 billion to US$359 billion at end-2025, largely reflecting valuation effects. - Assessment: Flexible exchange rate serves as shock absorber. Reserves adequate per IMF reserve adequacy metric, which stood at 121 percent at end-2025. FX intervention can be used to address episodes of higher risk premiums when FX liquidity becomes shallow, without substituting for warranted macroeconomic adjustment. _ Source: https://www.imf.org/-/media/files/publications/esr/2026/english/text.pdf_ ### 11.8 percent weaker than its 2021 level. ### text - 11.8 percent weaker than its 2021 level. ### Real Exchange Rate (China) - Findings: - EBA REER index model estimates the REER gap at 0.5 percent. - EBA REER level model estimates the REER gap at −2.7 percent. - 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). ### Capital and Financial Accounts: Flows and Policy Measures (China) - Background (2025 and early 2026): - Financial account deficit (excluding net errors and omissions) increased to 4.0 percent of GDP in 2025 (from 2.7 percent of GDP in 2024). - Weak inward FDI: 0.4 percent of GDP in 2025. - Large equity purchases by the Chinese private non-financial sector: 1.0 percent of GDP in 2025. - In the first four months of 2026, authorities modestly relaxed several CFMs: eased restrictions on overseas lending for corporates and selected banks; lowered the reserve requirement on banks’ FX forward purchases to zero; increased the QDII quota. - Assessment: - Net outflows remained sizable despite some moderation in 2025:Q2. - Contributing factors to outflows: concerns about China’s growth outlook, 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. ### FX Intervention and Reserves Level (China) - 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 (2026), reserves were at about $3.8 trillion. - Assessment: - As of end-2025, 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. ### Euro Area: Overall Assessment (Table 2.7) - 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 1.7 percent of GDP in 2025 from 2.7 percent of GDP in 2024, driven mainly by weaker net investment income and services; goods balance held up. - CA surplus projected to gradually increase over the medium term but 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. - Address identified credit-related policy gap and offset need for increased public savings in some countries. - Avoid delayed fiscal consolidation as a long-term strategy; it would only temporarily support external balance and eventually require a sharper fiscal correction. - Countries with excess CA surpluses should strengthen domestic demand where historical policy gaps persist. - Germany’s increase in defense and public investments and rotation from public to private spending in other countries will boost investment and help lift productivity. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. - Keep industrial policies targeted to areas with externalities or market failures, coordinate at EU level, and minimize distortions. ### Euro Area: Foreign Asset and Liability Position and Trajectory - Background and key statistics (2025): - NIIP: 11.0 percent of GDP. - Gross Assets: 256.8 percent of GDP. - Debt Assets: 93.8 percent of GDP. - Gross Liabilities: 245.7 percent of GDP. - Debt Liabilities: 87.2 percent of GDP. - NIIP turned positive in 2022 and remained comfortably positive in 2025, reaching 11.0 percent of GDP (roughly unchanged from end-2024). - Movements in 2025 largely valuation-driven. - Gross external debt declined modestly by end-2025:Q4. - SPEs account for a sizable share of direct investment positions. - Assessment: - Projections of continued CA surpluses over the medium term suggest NIIP-to-GDP will rise further at a moderate pace. - Year-to-year movements may remain volatile given prominent role of valuation effects in 2025. - Overall NIIP financing vulnerabilities appear low, but large net external debtor countries bear elevated risk of a sudden stop of gross inflows, especially with large gross cross-border balance sheets. ### Euro Area: Current Account - Background: - CA surplus narrowed to 1.7 percent of GDP in 2025 from 2.7 percent 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. - Growing profit footprint of US affiliates weighed on direct investment income; royalty payments contributed to widening services deficit. - Goods surplus edged up, supported by continued 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 over the same period. - Business investment weakened; corporate investment rate fell to 21.4 percent in 2025:Q4—its lowest since 2015. - Surpluses remain concentrated in creditor economies, reflecting high saving and comparatively weak investment. - Model estimates and staff assessment (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 - Assessment: - EBA model estimates a CA norm of 0.7 percent of GDP against a cyclically adjusted CA of 1.8 percent of GDP implying a gap of 1.0 percent of GDP. - Adjustments of −0.1 percent of GDP to underlying CA to account for portfolio retained earnings bias in the Netherlands. - Unexplained residual of 0.5 percent partly reflects activity of multinationals in Ireland. - Staff assesses the CA gap to be 0.9 percent of GDP in 2025, with a range of 0.1–1.7 percent of GDP (considering a standard error of 0.8). ### 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. - Euro area 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, 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. - Aggregate REER gap masks large heterogeneity across member states. - EBA REER index and level models suggest an overvaluation of 5.1 percent and 2.7 percent, respectively. ### Euro Area: Capital and Financial Accounts - 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 in the euro area. - Other investment expanded sharply on both asset and liability sides, indicating stronger cross-border intermediation (e.g., deposits/loans). - Portfolio investment flows were broadly offsetting in aggregate. - Assessment: - Aggregate risks appear contained due to net external creditor position and euro’s international role. - 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 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 (Table 2.8) - Overall Assessment: - External position in 2025 broadly in line with medium-term fundamentals and desirable policies. - CA balance declined to −0.3 percent of GDP in 2025 from 0.1 percent in 2024, driven by a fall in the income balance; trade balance declined slightly to −0.2 percent of GDP. - CA projected at 0.4 percent of GDP by 2031 as commodity prices stabilize at lower levels and external demand improves. - Potential Policy Responses: - Sustained fiscal adjustment will increase CA balance but may be partly offset by higher private investment and lower precautionary savings. - Structural reforms to raise productivity, boost innovation, and incentivize private investment. - Deepening the EU single market would strengthen productivity and resilience. - Industrial policies should remain targeted, coordinated at EU level, and minimize distortions. ### France: Foreign Asset and Liability Position (2025) - Key statistics (% GDP): - NIIP: −28.4 - Gross Assets: 384 - Debt Assets: 213 - Gross Liabilities: 412 - Debt Liabilities: 241 - Average TARGET2 balance in 2025: about −€198.0 billion. - Background: - NIIP stood at −28.4 percent of GDP in 2025, slightly below range observed 2014–19 (between −19 percent and −28 percent of GDP), broadly stable since 2023. - Gross assets: 384 percent of GDP; non-FDI- and non-portfolio-related assets ~49 percent. - Gross liabilities: 412 percent of GDP; external debt about 241 percent of GDP (56 percent by banks and 30 percent by public sector). - Most external debt liabilities denominated in domestic currency. - 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. ### France: Current Account - Background: - CA balance weakened to −0.3 percent of GDP in 2025 from a surplus of 0.1 percent in 2024. - Trade deficit increased by 0.1 percent of GDP to −0.2 percent of GDP. - Net factor income softened; drag from transfers increased contributing −0.1 percent of GDP to CA in 2025 (down from 0.2 percent in 2024). - Growth of national savings accelerated in 2025 due to higher household savings but was more than offset by expansion in private investment. - 2026 CA projected at −0.3 percent of GDP. - Medium-term CA projected at about 0.4 percent of GDP by 2031. - Model estimates and staff assessment (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 - Assessment: - Cyclically adjusted CA balance estimated at −0.3 percent of GDP compared with EBA norm of 0.3 percent. - Staff assess CA gap in 2025 between −0.9 and −0.1 percent of GDP, midpoint −0.5 percent of GDP. - Policy gap is zero as positive contribution from credit gap broadly offset by negative contributions from fiscal and health expenditure. ### 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 2026, ULC-based REER was 2 percent above the 2025 average. - Assessment: - 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 - Background: - Financial account recorded a net outflow of 0.9 percent of GDP in 2025, up from 0.2 percent 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 sovereign and banking sectors. ### France: FX Intervention and Reserves Level - Background and Assessment: - The euro has the status of a global reserve currency. - Reserves held by the euro area are typically low relative to standard metrics, but the currency is free floating. ### Germany: Overall Assessment (Table 2.9) - Overall Assessment: - External position in 2025 was stronger than level implied by medium-term fundamentals and desirable policies. - CA decreased to 4.5 percent of GDP in 2025 from 5.9 percent in 2024, due mainly to a drop in goods exports as a percent of GDP and slight rise in goods imports. - CA expected to decline further in 2026 as trade balance weakens in response to fiscal easing and higher energy import prices; projected to remain broadly stable thereafter. - Potential Policy Responses: - Policies to promote investment and diminish excess saving would support external rebalancing and reduce CA 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., accelerate licensing and permitting, support EU-level reforms such as a 28th corporate regime). - Training to enhance employability of older workers to extend working lives and reduce need for savings. - Industrial policies should remain targeted, coordinated at EU level, and minimize distortions. ### Germany: Foreign Asset and Liability Position (2025) - Key statistics (% GDP): - NIIP: 85 - Gross Assets: 335 - Debt Assets: 168 - Gross Liabilities: 250 - Debt Liabilities: 156 - Germany’s TARGET claims on the Eurosystem: €1.0 trillion at end-2025. - Background: - NIIP increased to 85 percent of GDP in 2025 versus 78 percent of GDP in 2024 due to CA surplus and valuation gains on external assets. - In past five years, NIIP increased by 17 percent of GDP, lifting primary income balance. - Assessment: - Germany’s exposure to the Eurosystem remains large. ### Germany: Current Account - Background: - CA surplus was 4.5 percent of GDP in 2025, down from 5.9 percent in 2024 and 8.1 percent average in pre-pandemic 2017–19. - Decrease driven mainly by decline in goods balance; primary income largely unchanged. - Private sector savings-investment balances fell: household consumption picked up and savings rate fell; corporate saving fell due to lessened competitiveness. - Household saving rate projected to remain broadly stable; higher public investment and recovering sentiment expected to crowd in somewhat higher private investment. - Model estimates and staff assessment (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 - Assessment: - EBA model cyclically adjusted CA estimated at 4.3 percent of GDP in 2025. - Staff assess CA norm between 1.7 and 2.7 percent of GDP, midpoint 2.2 percent. - CA gap for 2025 in range of 1.6–2.6 percent of GDP, midpoint 2.1 percent of GDP. - Policy gaps identified in EBA model negligible (−0.1 percent of GDP); residual (2.2 percent of GDP) reflects factors not captured by EBA model (e.g., regulatory constraints, measurement issues). ### 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, and broadly stabilized through end-2024. - In 2025, REER appreciated by 1.4 percent based on both CPI and ULC measures due to nominal exchange rate appreciation rather than relative inflation. - 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 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 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 - Background: - In 2025, capital and financial accounts widened slightly versus 2024, mainly due to increase in net portfolio investment with German capital flows into foreign equity assets increasing 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 strength of its external position. ### Germany: FX Intervention and Reserves Level - Background and Assessment: - The euro has the status of a global reserve currency. - Reserves held by euro area economies are typically low relative to standard metrics. The currency floats freely. *Source: International Monetary Fund | 2026 EXTERNAL SECTOR REPORT (chapter excerpts).* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### Hong Kong Special Administrative Region (Table 2.10) - Overall Assessment - The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - The current account surplus declined to 12.3 percent of GDP (from 13.1 percent in 2024) as strong exports of goods and services were offset by a surge in imports in 2025:Q4. - The surplus is 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. - Under the Linked Exchange Rate System (LERS), short-term REER movements largely reflect US dollar developments. The 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 - A gradual pace of fiscal consolidation over the medium term will help keep the external position broadly in line with fundamentals by raising public savings to offset stronger private demand and aging-related spending pressures, while addressing gaps in the social safety net. - Maintaining wage and price flexibility will support real exchange rate adjustment and preserve competitiveness under the currency board arrangement. - Continued strong financial supervision, prudent fiscal management, and flexible markets will sustain the credibility of the LERS and its stabilizing role. - 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). - Gross assets and liabilities are high, reflecting Hong Kong SAR’s status as an international financial center. 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) and direct investments account for a large share of gross assets and liabilities (35 and 54 percent, respectively, at end-2025), while only 13 percent of gross liabilities are portfolio investments. - Key statistics (2025, % GDP): NIIP: 586; Gross Assets: 1,806; Debt Assets: 1 436; Gross Liab.: 1,220; Debt Liab.: 1 224 - Current Account - Background: CA surplus 12.3 percent of GDP in 2025 (2024: 13.1 percent) as both gross national savings (+1.3 pp) and investment (+2.2 pp) rose. - Wider goods deficit (2.2 percent of GDP) reflected strong merchandise imports growth (17.4 percent y/y) outpacing exports growth (16.3 percent y/y). - Services surplus widened to 5.1 percent of GDP in 2025 (2024: 4.3 percent) with visitor numbers rising by 12.1 percent y/y. - Income balance remained significant at 9.3 percent of GDP, similar to 2024. - Projection: CA balance 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 (+4.9 pp by 2031) is expected to drive higher investment rate. - Assessment: After adjusting for cyclical factors, the CA surplus is estimated to be 11.8 percent of GDP in 2025, within the staff-assessed CA norm range of 11.1–12.7 percent of GDP (midpoint of 11.9 percent). The staff-assessed CA gap range is between −0.9 and 0.7 percent of GDP, with a midpoint of −0.1 percent. - Key statistics (2025, % GDP): CA: 12.3; Cycl. Adj. CA: 11.8; EBA Norm: —; EBA Gap: —; Staff Adj.: —; Staff Gap: −0.1 - Real Exchange Rate - Background: REER dynamics largely determined by US dollar developments and inflation differentials. REER depreciated modestly in 2025 (−0.3 percent), reflecting a 0.7 depreciation of the NEER due to a weaker US dollar; domestic inflation rate 1.4 percent partially offset nominal depreciation. - As of March 2026 REER was 2.2 percent below the average for 2025, largely reflecting a 2.3 percent depreciation of the NEER. - Assessment: Staff assess the REER gap to be in the range of −2.2 to 2.7 percent, midpoint 0.2 percent (based on a CA-REER elasticity of −0.321). - Capital and Financial Accounts: Flows and Policy Measures - Background: Open capital account. Net outflow in non-reserve financial flows (before net errors and omissions) amounted to 18.7 percent of GDP in 2025, up from 17.3 percent in 2024, driven by lower net portfolio outflows. - Financial account volatility reflects Hong Kong SAR and Chinese mainland financial conditions, shifting expectations of US monetary policy, and related arbitraging in FX and rates markets. - Assessment: Large financial resources, proactive supervision, and deep markets should limit risks from volatile capital flows. Greater exposure to the Chinese mainland could pose real sector and banking risks, though the banking system is assessed to be broadly resilient. - FX Intervention and Reserves Level - Background: HKD traded smoothly within the Convertibility Zone in 2025. HKMA recorded a net injection of US$1.4 billion in support of the Convertibility Undertaking, purchasing US$16.7 billion in May in response to large financial inflows; partially unwound over the following 3 months. - Total reserve assets amounted to USD 428 billion at end-2025 (1.6 times the monetary base at end-November), decreasing modestly to 100 percent of GDP from 103 percent of GDP at end-2024. - Assessment: FX reserves adequate for precautionary purposes and should continue to evolve with the currency board’s automatic adjustment. Despite a large fiscal deficit in 2025, fiscal reserves estimated at about 21 percent of GDP at end-2025. --- ### India (Table 2.11) - 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. - Buoyant service exports and inward remittances contained the CA deficit at an estimated 0.9 percent of GDP, 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 then 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 capital account regimes remain relatively restricted. - 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 expand trade networks. - Pursue industrial policies cautiously, narrowly targeted where market failures exist, to minimize trade and investment distortions. - Exchange rate flexibility should act as the main shock absorber; intervention limited to destabilizing risk premium episodes. - Foreign Asset and Liability Position and Trajectory - Background: NIIP improved to −6.7 percent of GDP at end-2025 from −9.8 percent in 2024 due to valuation changes and nominal GDP growth offsetting CA deficit impact. - 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 and elevated US trade policy uncertainty. - Bulk of assets: official reserves and outward FDI; liabilities: debt liabilities and inward FDI. - Assessment: NIIP-to-GDP ratio projected to widen modestly; external debt liabilities relatively low; short-term rollover risks limited. - Key statistics (2025, % GDP): NIIP: −6.7; Gross Assets: 30.9; Debt Assets: 4.1; Gross Liab.: 37.6; Debt Liab.: 18.2 - Current Account - Background: CA deficit edged up to an estimated 0.9 percent of GDP in FY2025/26 (from 0.6 percent), driven by precious metal imports. - Merchandise exports stable at around 11 percent of GDP. Gross domestic savings declined by 0.8 percentage points to 32.9 percent of GDP; gross domestic investment declined by 0.5 percentage points to 33.9 percent of GDP. - Projection: CA deficit projected to widen to 2 percent of GDP in FY2026/27 due to commodity price increases. - Assessment: EBA cyclically adjusted CA balance estimated at −0.7 percent of GDP in FY2025/26. EBA CA model norm −2.3 percent of GDP, standard error 0.6 percentage points. Staff assess CA gap 1.6 percent of GDP (range 1.0–2.2 percent). Contribution of policy gaps negligible. Competitiveness in tradeable services and relatively restrictive regimes could contribute to a positive CA residual of 1.5 percent of GDP. - Key statistics (2025, % GDP): 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 - Background: INR faced depreciation pressure amid 50 percent additional US tariffs from August 2025 to February 2026; commodity price pressures and portfolio equity outflows contributed to INR depreciating by more than 5 percent over January–March 2026. - With benign inflation in FY2025/26, REER depreciated; as of March 2026 REER was 6.7 percent below its 2025 annual average. - Assessment: EBA REER index and level models suggest an overvaluation of 0.8 percent and an 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: Flows and Policy Measures - Background: Net FDI inflow muted at an estimated 0.3 percent of GDP in FY2025/26; stronger gross inward FDI offset by elevated disinvestment and growing outward FDI. - 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; reliance on portfolio inflows for CA financing is limited. - FX Intervention and Reserves Level - Background: Official international reserves increased in FY2025/26 to $691.1 billion at end-FY2025/26 from $668.3 billion at end-FY2024/25, buoyed by valuation gains of gold offsetting reduction in FX holdings. RBI interventions aimed to smooth market volatility, generally at a smaller scale than FY2024/25. - Assessment: Reserves adequate for precautionary purposes. At end-FY2025/26 they 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. FX interventions should be limited to periods marked by destabilizing risk premiums. --- ### Indonesia (Table 2.12) - Overall Assessment - The external position in 2025 was broadly in line with the level implied by medium-term fundamentals and desirable policies. - In the medium term, 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. Reliance on foreign portfolio investment exposes the economy to swings in market sentiment and global financial conditions. - Potential Policy Responses - Enhance buffers within the fiscal rule and implement structural reforms to raise productivity and promote trade. - Structural reforms include: (1) higher and more efficient infrastructure investment; (2) higher, more efficient, and better targeted social spending; (3) reducing or eliminating restrictions on inward FDI and external trade, including moving away from non-tariff barriers; (4) promoting greater labor market flexibility. - Industrial policies should be targeted and minimize trade and investment distortions. Exchange rate flexibility should continue to support external stability. - Continue progress on trade integration and decisive implementation of reforms to strengthen trade, investment, and growth. - Foreign Asset and Liability Position and Trajectory - Background: NIIP fell from −17.6 percent of GDP at end-2024 to −18.9 percent at end-2025. Deterioration reflects a 1.2 percent of GDP improvement in gross external assets offset by a 2.5 percent of GDP increase in gross external liabilities. - Gross external debt remained moderate at 30.0 percent of GDP at end-2025 (30.4 percent in 2024). Short-term rollover risks contained due to large share of long-term debt. - Projection: NIIP-to-GDP projected to stabilize at current levels in the medium term as nominal GDP growth offsets small CA deficits. - Assessment: Level and composition of NIIP and gross external debt indicate sustainability and limited rollover risk. Dependence on foreign portfolio investment (20.3 percent of GDP in 2025) increases vulnerability to global sentiment swings. - Key statistics (2025, % GDP): NIIP: −18.9; Gross Assets: 38.7; Res. Assets: 10.8; Gross Liab.: 57.6; Debt Liab.: 30.0 - Current Account - Background: CA deficit narrowed to 0.1 percent of GDP in 2025 from 0.6 percent in 2024. Narrowing reflected resilient export demand in major markets. Savings decreased by 0.3 percent of GDP while investment decreased by 0.8 percent of GDP. - Projection: 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. - Assessment: Staff estimates a CA gap of 0.2 percent of GDP for 2025, consistent with a cyclically adjusted CA deficit of −0.2 percent and a norm of −0.4 percent. CA gap range −0.3 to 0.7 percent of GDP. EBA-identified policy gaps estimated at 0.6 percent of GDP, with tighter fiscal stance (0.7) and underspending on health care (0.5) contributing, partly offset by credit gap (−0.5) and reserve accumulation gap (−0.2). - Key statistics (2025, % GDP): 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 - Background: Average REER and NEER depreciated by about 4.9 and 4.8 percent respectively in 2025 compared to 2024. Depreciation reflects heightened external and domestic policy uncertainty affecting capital outflows and easing domestic monetary policy tightening yield differentials. As of March 2026, REER was 2.6 percent below its 2025 average. - Assessment: Staff CA gap estimate of 0.2 percent of GDP implies a REER gap of −1.1 percent (applying an estimated elasticity of 0.16). Staff assess REER gap range −4.4 to 2.2 percent, midpoint −1.1 percent. - Capital and Financial Accounts: Flows and Policy Measures - Background: 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. - Assessment: Continued exposure to portfolio flow volatility warrants attention; progress in FDI and structural reforms important to strengthen resilience. *International Monetary Fund | 2026* ### 2019. Portfolio equity outflow pressures rose in early 2026, including amid calls to enhance market operations and trans ### 2019. Portfolio equity outflow pressures rose in early 2026, including amid calls to enhance market operations and trans ### Portfolio flows, vulnerabilities, and assessment - Finding: Portfolio equity outflow pressures rose in early 2026. - Context: Amid external shocks, financial flows are expected to be somewhat subdued into the medium term, though capital and financial account vulnerabilities are expected to remain contained. - Vulnerability: Reliance on foreign portfolio investment, given still deepening domestic markets, exposes the economy to sharp swings in market sentiment and risk premiums, and to fluctuations in global financial conditions. - Assessment: Continued strong policies, focused on: - safeguarding the fiscal position and long-standing policy frameworks; - advancing financial deepening; and - implementing structural reforms that provide credibility and certainty and enable the business, trade, and investment environment; should help sustain capital inflows in the medium term, particularly in a likely period of prolonged global policy uncertainty and external headwinds to growth. ### FX intervention and reserves level (Indonesia context) - Background: - Since mid-2013, Indonesia has had a more flexible exchange rate policy framework. - 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). - Declines due to FX interventions during stress periods were 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, and should provide a sufficient buffer against external shocks. - Predetermined short-term foreign currency drains have been stable through 2025. - In line with the IPF, the use of FXI is appropriate under certain shocks and circumstances, particularly when shocks trigger spikes in market premiums given shallow FX markets. - Recommendation: Use of FXI should be judicious to preserve buffers in a shock-prone environment. *Italicized line: Source: Excerpt from IMF 2026 External Sector Report chapter content.* ### Italy: economy assessment (selected findings and policy responses) - Overall assessment: The external position in 2025 was moderately weaker than the level implied by medium-term fundamentals and desirable policies. - Current account and components: - CA balance in 2025: 1.1 percent of GDP (broadly unchanged from 2024). - CA averaged a surplus of 1.4 percent of GDP between 2019 and 2024 (surpluses in all years except 2022). - Cyclically adjusted CA for 2025: 1.2 percent of GDP. - EBA estimated CA norm: 2.4 percent of GDP. - EBA gap: −1.2 percent of GDP. - Staff gap: −1.2 percent of GDP (staff adjusted value: 0.0). - Staff-assessed CA gap range: −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 from a fiscal policy gap (reflecting a larger needed fiscal consolidation in the rest of the world relative to Italy, despite a domestic policy gap of −0.5 percent); and - +0.5 percent of GDP from the credit gap (reflecting still-subdued credit extension). - Unexplained residual: −2.3 percent of GDP, suggesting model limitations capturing Italy-specific characteristics. - Foreign asset and liability position (2025 figures): - NIIP: 15.4 percent of GDP. - Gross foreign assets: 193.5 percent of GDP. - Gross foreign liabilities: 178.0 percent of GDP. - 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: around 50 percent of total external liabilities, corresponding to 66 percent of GDP. - Seventy percent of public sector external liabilities are long term. - Real exchange rate: - 2019–25 CPI-based REER appreciation: 1.1 percent. - 2019–25 ULC-based REER appreciation: 0.5 percent. - 2025 CPI-based REER appreciation: 0.6 percent. - As of March 2026, CPI-based REER was 0.2 percent above the 2025 average. - Model-based CA gap implies a REER gap of 4.8 percent in 2025 (elasticity 0.25). - CPI-based REER models suggest overvaluation in 2025 of 2.6 percent and 3.3 percent. - Staff CA gap implies REER gap range: 2.6 to 6.8 percent, midpoint 4.7 percent. - Capital and financial accounts: - Capital account in 2025: around 0.2 (0.0 in 2024). - Financial account net outflows in 2025: 1.2 percent of GDP (from net outflows of 2.3 percent of GDP in 2024). - Drivers: reduction in TARGET2 liabilities and increase in other financial investment inflows. - Assessment: Large refinancing needs of the sovereign and banking sector suggest vulnerability to market volatility; private sector is a net creditor mainly exposed to equity risk-rewards. - Potential policy responses: - Additional comprehensive reforms to boost productivity, competitiveness, and potential growth. - EU single market deepening to raise productivity and resilience through greater scale, internal diversification, and improved risk sharing. - Reforms to boost labor force participation of women and youth. - Strengthening external position requires increase in public sector savings, supported by decisive public debt reduction. - Industrial policies: deploy cautiously, targeted to specific objectives, coordinated at the EU level, minimize trade and investment distortions. ### Japan: economy assessment (selected findings and policy responses) - Overall assessment: The external position in 2025 was moderately stronger than level implied by medium-term fundamentals and desirable policies. - Current account and components: - CA surplus in 2025: 4.9 percent of GDP (up from 4.6 in 2024). - Income balance in 2025: 6.3 percent of GDP (6.4 in 2024). - Goods trade deficit in 2025: −0.1 percent of GDP. - Medium-term projected CA balance: 4.1 percent of GDP. - From savings-investment perspective, change between 2025 and 2024 attributable to an increase in public savings. - 2025 cyclically adjusted CA: 4.9 percent of GDP. - EBA-implied cyclically adjusted CA norm: 3.6 percent of GDP (range 2.6 to 4.6 percent). - CA gap midpoint: 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 net foreign assets. - Foreign asset and liability position (2025:Q4 figures): - NIIP: 86 percent of GDP. - Gross foreign assets: 272 percent of GDP. - Gross foreign liabilities: 187 percent of GDP. - Debt assets: 90 percent of GDP. - Debt liabilities: 108 percent of GDP. - Japan’s large net foreign asset stock valued at $3.7 trillion in 2025:Q4. - Composition of gross foreign assets as of 2025:Q4: - Portfolio investment: about 43 percent of total. - FDI: 22 percent of total. - Of portfolio investment, about 18 percent was yen denominated and 60 percent was dollar denominated. - NIIP estimated net annual investment income return in 2025: about 7.6 percent (pre-pandemic 2016–19 average: 6.2 percent). - Assessment: Foreign asset holdings well diversified; vulnerabilities from liabilities contained (equity and direct investment ~38 percent of gross foreign liabilities). - Risk: Large yen appreciation against the dollar poses risk of negative valuation effects and could affect income from large net foreign asset position. - Long-term expectation: Gradual decumulation of assets accumulated for old-age consumption. - Real exchange rate: - REER appreciation started in second half of 2024 and continued into first half of 2025; depreciation followed in second half of 2025. - Staff CA gap implies a REER gap of −7.2 percent in 2025 (elasticity 0.18). - EBA REER index and level model gaps: −37.3 and −38.7 percent, respectively. - Staff-assessed REER gap range: −12.6 to −1.8 percent, midpoint −7.2 percent. - Capital and financial accounts: - Financial account recorded net outflows in 2025 and increased to 4.5 percent of GDP in 2025 (mirroring the CA surplus). *Italicized line: Source: Excerpt from IMF 2026 External Sector Report chapter content.* ### 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: Economy Assessment ### Overall assessment and policy recommendations - Overall Assessment: The external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies. This position was largely driven by record-high external demand for semiconductors, in support of the global artificial intelligence (AI) transformation, which 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). - Projection: In the medium term, the surplus is expected to be around 5.5 percent of GDP by 2031. - Potential Policy Responses: - Continue soft-landing measures for the financing of real estate. - Implement structural reforms aimed at facilitating the AI transition to support recovery of private investment in the near term. - Over the medium term, adopt policies to enhance social protection and encourage the orderly deleveraging of household debt to reduce household life cycle saving and support household consumption. - Maintain exchange rate flexibility as the first line of defense against external shocks; limit foreign exchange intervention to preventing disorderly market conditions. - Pursue structural reforms to boost innovation and diversify trade destinations and supply chains to sustain export competitiveness and reduce exposure to external shocks. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. - Keep industrial policies narrowly targeted to specific objectives and minimize trade and investment distortions. ### Current Account - 2025 CA: 6.6 percent of GDP (2024: 5.3 percent of GDP). - Semiconductor contribution: record-high semiconductor net exports accounted for 1.2 percent of GDP relative to 2024; semiconductor exports rose by 22 percent (y/y) in 2025. - Drivers: Higher CA surplus driven by a significant drop in domestic investment (largely due to a downturn in construction only partially offset by higher facilities investment) and a moderate increase in the domestic saving rate. - Medium-term projection: CA projected to be around 5.5 percent of GDP by 2031, partly reflecting precautionary savings needs from rapid population aging. - EBA and staff metrics: - Cycl. Adj. CA: 6.4 percent of GDP - EBA Norm: 3.3 percent of GDP - EBA Gap: 3.1 percent of GDP - An adjustor of 0.6 percentage point of GDP is applied for accelerating population aging, bringing the staff-adjusted CA norm to 3.9 percent of GDP. - Staff 2025 CA gap midpoint: 2.5 percent of GDP (range: 1.9 to 3.1 percent of GDP). - Net contribution of the 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. - Assessment note: The unexplained residual could partly reflect high household saving due to lower coverage and amounts of social protection relative to peers, rapid aging, and cyclical semiconductor price effects. ### Foreign Asset and Liability Position and Trajectory - Background: - NIIP nominal value in 2025: $886 billion. - NIIP-to-GDP ratio in 2025: 47.3 percent (decreased sharply relative to 2024). - Decrease due to 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 the back of 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) indicators: - NIIP: 47.3 - Gross Assets: 153.2 - Debt Assets: 61.1 - Gross Liab.: 105.9 - Debt Liab.: 41.1 ### Real Exchange Rate (REER) - Background: - REER depreciated by 4.6 percent in 2025 on average relative to 2024. - Depreciation driven by won depreciation against major trading partner currencies, especially the United States, and a sharp increase in net portfolio outflows (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 and valuation gaps: - EBA CA gap implies a REER undervaluation of 7.5 percent (with an estimated elasticity of 0.33 applied). - EBA REER index model estimates an undervaluation of 5.8 percent. - EBA REER level model estimates a 9.8 percent undervaluation. - Staff assess the REER gap range: −9.2 to −5.8 percent, with a midpoint of about −7.5 percent. ### Capital and Financial Accounts: Flows and Policy Measures - Background (flows): - Net capital outflows: 6.4 percent of GDP in 2025 (2024: 5.2 percent of GDP). - Net FDI outflows declined by 0.6 percent of GDP in 2025. - Net portfolio outflows picked up by 2.3 percent of GDP, reflecting a sharp increase in residents’ outbound investment, particularly equity (3.9 percent of GDP), that outpaced foreigners’ inbound investment, mostly debt (2.1 percent of GDP). - Assessment: - Korea demonstrated resilience amid multiple global shocks. - Corporate governance reforms adopted in 2025 expected to make the domestic equity market more attractive, contributing 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, mirroring projected NIIP increases from sustained CA surpluses. ### FX Intervention and Reserves Level - Background (reserves and intervention): - Reserves stood at $1.4 trillion, or about 32 percent of GDP, in Q4–2025 (reflecting legacy accumulation); little changed since end-2024. - Exchange rate regime: free floating; FX interventions did not occur in 2025 (first mention). - Alternative reporting for 2025 (staff estimates and published data): 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) in 2025, mostly in Q4 during heightened exchange rate volatility. - Reserves as of end-2025 (alternate figures): US$428 billion, higher than US$416 billion as of end-2024. - Assessment: - Exchange rate volatility generally does not pose significant economic challenges due to limited currency mismatches and manageable pass-through to consumer prices. - FX market depth higher than most emerging markets but still lags advanced economy peers. - In periods of high global financial uncertainty and rapid expectation shifts, temporarily shallow markets could produce herding behavior, sharp FX movements, and impaired market functioning. - FX interventions should be isolated and limited to addressing disorderly market conditions. - Ongoing FX market reforms have started to deepen FX markets, improving efficiency and resilience. - As of end-2025, reserves (alternate metrics) were about 23 percent of GDP, 2.4 times short-term debt, 6.1 months of imports, or 15 percent of M2. - Systemwide stress tests show reserves provide sufficient FX liquidity buffers under a wide range of plausible shocks. *Italic: Source: Excerpt from 2026 EXTERNAL SECTOR REPORT — Korea economy assessment (text provided).* ### 0.2 percent of GDP. ### 0.2 percent of GDP. ### Assessment (sovereign debt, banking, corporate FX risks) - The long maturity of sovereign debt and the 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, using FX intervention only in limited occasions of extreme volatility. - End-2025 gross international reserves: $256 billion (14 percent of GDP), up from $232 billion at end-2024, mainly reflecting returns on reserves holdings and valuation changes. - In 2025, no FX intervention was conducted. - Assessment: - Mexico’s foreign currency reserves at end-2025: 130.5 percent of the ARA metric and 303.5 percent of short-term debt (at remaining maturity) — assessed as adequate. - The Flexible Credit Line arrangement provides an additional buffer. ### Overall Assessment and Policy Responses (The Netherlands) - Overall Assessment: - External position in 2025 stronger than level implied by medium-term fundamentals and desirable policies. - Complicating factors: role as global trading hub, financial center, host to MNCs; sizable and volatile primary income flows; measurement bias of portfolio equity retained earnings. - 2025 CA surplus: 7.9 percent of GDP (down from 9.1 percent in 2024). - Medium-term outlook: surplus expected to narrow but remain elevated due to still-lower-than-desirable investment and structurally high private saving. - Potential Policy Responses: - Raise public investment and foster private investment, notably in infrastructure and housing. - Ease electricity grid and nitrogen-related growth bottlenecks. - New coalition government plans to increase R&D spending, advance the climate transition, and substantially expand residential investment are aligned with reducing external imbalances. - Deploy industrial policies cautiously, targeted to market failures and minimizing trade and investment distortions. - Work with EU partners to deepen the single market and further the savings and investments union. ### Foreign Asset and Liability Position and Trajectory (The Netherlands) - Background: - 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 driven by large negative exchange rate and price effects. - FDI remains largest component of IIP, accounting for more than half of external assets and liabilities. - FDI stock: 72 percent of GDP in 2025 (same as 2024). - Net derivatives position deteriorated by nearly 4 pp. - Net other investment and reserve assets stocks rose by 1.6 and 1.8 pp respectively. - Assessment: - Netherlands’ safe-haven status and sizable foreign assets limit risks from large foreign liabilities. - Key 2025 statistics (% GDP): - NIIP: 45.5 - Gross Assets: 878.1 - Debt Assets: 221.2 - Gross Liab.: 832.6 - Debt Liab.: 242.3 ### Current Account (The Netherlands) - Background: - 2025 CA surplus: 7.9 percent of GDP (8.0 percent cyclically adjusted), down from 9.1 percent in 2024. - Goods and services balance widened by 0.2 pp to 7.4 percent of GDP. - Primary income and secondary income declined by 1.2 and 0.3 pp respectively due to lower investment income and official current transfers. - Public net saving declined by 1.0 pp reflecting expansionary fiscal stance. - Private net saving remained robust; higher household saving largely compensated for decline in financial corporate saving. - CA projected at 7.4 percent of GDP in 2026. - Assessment and model estimates: - EBA CA model norm: 2.9 percent of GDP; cyclically adjusted CA surplus: 8.0 percent of GDP in 2025 => EBA CA gap: 5.2 percent of GDP. - Portfolio retained earnings bias for 2025 estimated at −1.6 percent of GDP. - Staff assess CA gap in range 3.1 to 4.1 percent of GDP, midpoint 3.6 percent of GDP. - Up to about 2 pp of the gap reflect strong saving from second-pillar occupational pension scheme. - Key 2025 statistics (% 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 ### Real Exchange Rate (The Netherlands) - Background: - Average CPI- and ULC-based REERs appreciated in 2025 by 2.2 and 1.2 percent respectively, driven by higher inflation and wage increases than trading partners, and currency appreciation. - As of March 2026 (February 2026), CPI-based REER (ULC-based REER) was 0.5 percent (0.6 percent) above its 2025 average. - Assessment: - Using a semi-elasticity of the CA balance to the REER of 0.64, the staff CA gap of 3.6 percent of GDP implies a REER undervaluation in range 4.8 to 6.4 percent, midpoint 5.6 percent. - EBA REER model estimates for 2025 indicate overvaluation in range 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. ### Capital and Financial Accounts (The Netherlands) - Background: - In 2025, 22 and 23 percent of gross foreign assets and liabilities respectively were attributable to special-purpose entities. - Notable part of capital outflows represents channeling of corporate profits by MNCs abroad as FDI. - Assessment: - Strong external position limits vulnerabilities to capital outflows. - Financial account deficit likely to remain as it is primarily flip side of sustained structural CA surpluses. ### FX Intervention and Reserves Level (Euro area / Netherlands) - Background: - The euro has status of a global reserve currency. - Assessment: - Reserves held by euro area typically low relative to standard metrics, but the currency floats freely. ### Poland: Key Findings and Policy Recommendations - Overall Assessment: - External position in 2025 broadly in line with level implied by medium-term fundamentals and desirable policies. - 2025 CA: −0.9 percent of GDP (from 0.3 percent in 2024) driven by robust domestic demand for imports. - CA projected to decline slightly to −1.1 percent of GDP in 2026; medium-term CA projected broadly stable at about −1 percent of GDP. - Potential Policy Responses: - Significantly increase public savings and private investment to balance savings-investment. - Recommend 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 medium term. - Ease regulatory hurdles to private sector participation and advance EU’s Savings and Investment Union. - Deploy industrial policies cautiously and coordinated at EU level. - Foreign Asset and Liability Position: - NIIP increased from about −60 percent of GDP in 2015 to about −30 percent of GDP in 2025. - NIIP declined to −31.0 percent of GDP in 2025 from −27.5 in 2024. - Gross external debt: 52.6 percent of GDP in 2025 (from 50.3 percent in 2024). - NIIP projected to converge to −23 percent of GDP medium term. - Assessment: NIIP sustainable; rollover risk mitigated by large share of long-term debt (about 70 percent) and intercompany lending (about 30 percent). - Gross reserves at 171 percent of short-term debt — level adequate. - Current Account (Poland): - 5-year average CA: −0.5 percent of GDP. - 2025 CA: −0.9 percent of GDP. - 2026 projection: −1.1 percent of GDP. - EBA CA model norm: −0.4 percent of GDP; cyclically adjusted CA: −0.8 percent of GDP => EBA model CA gap midpoint −0.4 percent of GDP. - Policy gaps identified: −0.2 percent of GDP; unexplained residual −0.2 percent of GDP. - Key 2025 statistics (% GDP): CA: -0.9; Cycl. Adj. CA: -0.8; EBA Norm: -0.4; EBA Gap: -0.4; Staff Adj.: 0.0; Staff Gap: -0.4 - Real Exchange Rate (Poland): - REER appreciated about 25 percent over last 5 years. - NEER annual average appreciated by 3.0 percent in 2025 vs 2024 average; CPI-based REER appreciated by 3.8 percent. - As of March 2026, REER was 0.2 percent below 2025 average. - Assessment: Staff assess REER gap in range 0.2 to 2.0 percent, midpoint 1.1 percent, using elasticity 0.38. - Capital and Financial Accounts (Poland): - Capital account balance: 0.8 percent of GDP in 2025 (from 0.3 percent in 2024), supported by EU funds; projected 1.6 percent in 2026. - Financial account net inflow: 1.7 percent of GDP in 2025 (from 4.0 percent in 2024). - Inward FDI broadly unchanged; outward FDI declined slightly; net inflow 1.2 percent of GDP in 2025 (from 1.1 percent in 2024). - Assessment: Capital account projected to remain significant source of funding; vulnerability to capital outflows contained. - FX Intervention and Reserves Level (Poland): - FX reserves increased to US$272 billion (26 percent of GDP) in 2025 from US$223 billion (24 percent of GDP) in 2024. - Net reserves: US$257 billion (25 percent of GDP) in 2025 from US$197 billion (21 percent of GDP) in 2024. - Central bank briefly intervened in March 2022; no FX intervention since 2023. - Zloty considered free floating. - Assessment: Gross reserves about 161.3 percent of IMF reserve adequacy metric — adequate. ### Russia: Key Findings - Overall Assessment: - External position in 2025 moderately weaker than level implied by medium-term fundamentals and desirable policies per EBA model; models do not fully account for idiosyncrasies and data uncertainties. - Foreign Asset and Liability Position: - NIIP: 43.3 percent of GDP in 2025 (broadly stable). - Gross assets: 69.8 percent of GDP (declined by 1.0 pp from 2024). - Gross liabilities: 26.5 percent of GDP (down from 27.3 in 2024). - Share of total external debt in domestic currency: 43.4 percent in 2025 (up from 36.6 percent in 2024). - Share of non-resident holdings of domestic government debt: 3 percent by end-2025. - NIIP 8.5 pp higher than in 2020. - Assessment: Positive but declining CA surpluses insufficient to continue bolstering NIIP; part of international reserves immobilized due to sanctions; reserves management hampered. - Key 2025 statistics (% GDP): - NIIP: 43.3 - Gross Assets: 69.8 - Reserve Assets: 29.3 - Gross Liab.: 26.5 - Debt Liab.: 13.0 - Current Account (Russia): - 2025 CA surplus: 1.7 percent of GDP (declined almost one-third in 2025). - Trade and fiscal factors: lower oil and gas export revenues; fiscal deficit widened to 2.6 percent of GDP. - Projection: CA projected to rebound to 2.9 percent of GDP in 2026, but subject to high geopolitical and data uncertainty. - Assessment: EBA cyclically adjusted CA surplus 2.3 percent; EBA norm 3.4 percent => CA gap midpoint −1.1 percent of GDP; identified policy gaps 0.0 pp; unexplained residual −1.1 pp. - Real Exchange Rate (Russia): - Ruble nominal effective appreciation: 16.7 percent in 2025. - BoR policy rate: 16 percent as of end-2025. - REER appreciated by 14.5 percent in 2025. - As of March February 2026, REER 1.7 percent above 2025 average. - Assessment: EBA REER index model suggests undervaluation 2.4 percent; EBA REER level model suggests undervaluation 29.8 percent for 2025. - Staff assess REER gap range 2.2 to 11.8 percent, midpoint 7.0 percent (overvalued), assuming elasticity 0.15; models do not fully account for idiosyncrasies. - Capital and Financial Accounts (Russia): - Capital control measures introduced in 2022 subsequently relaxed; restrictions on FX repatriation and surrender eliminated in 2025; limits on cross-border transfers lifted for residents and friendly-country residents. - 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 help absorb shocks; remaining restrictions on cross-border transfers curtailed capital outflows and helped preserve buffers. - FX Intervention and Reserves Level (Russia): - Official reserves reported increased by $145.7 billion to $754.8 billion in 2025 (about $300 billion remain immobilized), due mainly to revaluation effects. - BoR frames all FX operations in 2025 as fiscal-rule (National Wealth Fund) mirroring and not discretionary intervention. - From January 2025 onward BoR resumed regular FX sales and purchases linked to budget rule. - By December 2025 BoR lifted measures on FX transfers abroad for residents and non-residents from friendly jurisdictions. - Assessment: End-2025 international reserves stood at 379 percent of IMF’s reserve adequacy metric and 229 percent of the ARA metric excluding immobilized reserves. ### Saudi Arabia: Key Findings (excerpt) - Overall Assessment: - External position in 2025 moderately weaker than level implied by medium-term fundamentals and desirable policies. - Current account shifted to larger deficit of 2.6 percent of GDP. - Reserves remain adequate according to standard IMF metrics, though public saving insufficient from intergenerational equity perspective. - 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. - Pegged exchange rate continues to provide credible policy anchor. - 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. - Industrial policies should remain narrowly targeted; promote transparent, predictable, mutually beneficial trade policy frameworks. - Foreign Asset and Liability Position: - NIIP decreased to 56.6 percent of GDP at end-2025 from 62.3 percent of GDP in 2024, mainly driven by increased external inflows to finance widening current account deficit. *International Monetary Fund | 2026 EXTERNAL SECTOR REPORT (content excerpt).* ### 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 ### 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; NIIP trajectory - 2025 NIIP: 56.6 percent of GDP. - 2025 Gross Assets: 126.2 percent of GDP. - 2025 Reserve Assets: 36.1 percent of GDP. - 2025 Gross Liabilities: 69.6 percent of GDP. - 2025 Debt Liabilities: 19.2 percent of GDP. - Composition of external assets (current): portfolio and other investments: 55.2 percent; reserves: 28.6 percent; FDI: 16.1 percent. - Medium-term NIIP projection: decline to about 38 percent of GDP by 2031, reflecting sustained external funding needs to support the economic transformation under Vision 2030. - Assessment finding: Despite the projected decline in the NIIP, the external balance sheet remains strong; substantial accumulated assets provide protection against oil price volatility and act as a store of exhaustible resource revenues for future generations. ### Current account: recent developments, drivers, and projections - 2025 Current account (CA) deficit: −2.6 percent of GDP (up from −1.3 percent in 2024). - Drivers of the 2025 CA deterioration: - Lower oil export revenue as average oil export price declined to $70.4/bbl. - Crude oil production averaged 9.5 million barrels per day in 2025. - Oil exports in 2025 declined to USD 213.7 billion. - Higher goods imports due to continued investment and consumption growth. - Partly offset by a 17 percent surge in non-oil exports. - Current account forecast: - 2026: deficit projected to narrow to −0.3 percent of GDP as higher oil prices more than offset lower export volumes. - By 2031: projected to widen to around 3 percent of GDP reflecting the medium-term oil price outlook and sustained investment-driven imports. - Macroeconomic dynamics: Private investment expected to grow with domestic reforms; private saving expected to moderate as consumption picks up. - Model-based assessments: - Staff estimate CA gap (EBA-Lite CA model): −1.11 percent of GDP. - Cyclically adjusted CA: −1.91 percent of GDP. - CA norm: −0.80 percent of GDP. - EBA-lite commodity module results (Consumption Allocation Rules): - 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 CA gap of −3.65 percent of GDP. - Estimated range for the −1.11 percent CA gap: from −3.11 to 0.89 percent of GDP (range calculated using standard error of Norway (2 percent) as a comparable oil-rich economy in the EBA sample). - 2025 (% GDP) CA statistics summary: - CA: −2.6 - Cycl. Adj. CA: −1.91 - EBA Norm: — - EBA Gap: — - Staff Adj.: — - Staff Gap: −1.11 ### Real exchange rate (REER) and exchange-rate regime - Exchange rate regime: riyal pegged to the US dollar at 3.75 since 1986. - 2025 REER movement: real effective exchange rate depreciated by about 0.7 percent in 2025, mainly due to inflation differentials with trading partners. - As of March 2026: REER remained close to its 2025 year-end level. - Model-based REER gap assessments: - EBA-lite CA model implies an overvaluation of 6.7 percent. - EBA-lite REER model suggests an overvaluation of 18.3 percent. - Assessment: Exchange rate movements have limited short-term impact on competitiveness because most exports are oil or oil-related and dollar-denominated; limited substitutability between imports and domestically produced products due to imported labor and intermediate-input content. ### Capital and financial accounts; flows and policy implications - Financial account net inflows in 2025: $71 billion (compared with net inflows of $29.3 billion in 2024). - Drivers of financial inflows: rise in external financing—growing portfolio and other investment inflows and net incurrence of other liabilities—to support domestic investment and consumption. - Complementary factors: 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: Lack of detailed information on financial flow composition complicates analysis; strong reserve position and sizable PIF assets limit risks and vulnerabilities associated with capital flows. ### FX intervention and reserves level; adequacy and role - Central bank official net foreign assets at end-2025: $436.6 billion, 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). - Official reserve assets (broader): reached $460 billion by year-end 2025. - Role of reserves: dual — precautionary saving and saving for future generations. - Assessment of adequacy: - Reserves are adequate for precautionary purposes as measured by IMF metrics. - Significant additional buffers available through external assets held by the PIF and Aramco. - Policy implication: Fiscal consolidation is needed over the medium term to strengthen the current account and increase saving for future generations. - Expectation: Central bank reserves expected to stabilize at above 13 months of imports over the medium term; PIF holds significant foreign assets abroad. ### Key assessments and policy-relevant takeaways - External balance sheet strength: substantial accumulated assets provide protection against oil price volatility and preserve resource revenues for future generations. - Current account and saving: persistent external financing needs driven by investment-led import demand imply a declining NIIP over the medium term; strengthening public saving via fiscal consolidation would support external positions and intergenerational saving. - Data and analysis constraints: limited granularity on the composition of financial flows limits precision of external sector vulnerability assessment; model uncertainty is significant given Saudi Arabia’s idiosyncratic, oil-dependent economy. *Source: Excerpt from IMF External Sector Report country assessments (text provided).* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS — Spain: Economy Assessment ### Overall assessment - Overall Assessment: The external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policies. - NIIP trajectory: After shrinking for over a decade, the large negative NIIP deteriorated moderately in 2025 as negative valuation effects more than offset the CA surplus. - Projection: Further improving the NIIP will require sustaining CA surpluses in the coming years, warranted by the large negative NIIP. - Drivers of medium-term CA path: The CA balance will exceed the norm in the near term but is projected to shrink in the medium term as tourism inflows continue to slow and a reduction in the household saving rate sustains consumption and non-energy imports. - NGEU impact: Positive—though temporary—impact of Next Generation EU (NGEU) funds disbursements on the capital account until 2026 supports NIIP improvement in the medium term. ### Foreign asset and liability position and trajectory - Background developments: - 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 Liabilities: 254.3 percent of GDP by end-2025. - Debt Liabilities: 64.3 percent of GDP. - Nearly 64 percent of gross liabilities correspond to external debt. - TARGET2 liabilities amounting to 24.5 percent of GDP by December 2025. - Assessment: - Large negative NIIP entails external vulnerabilities, including large gross financing needs and risks of adverse valuation effects. - Mitigating factors: rather long maturity of outstanding sovereign debt (averaging almost eight years) and limited share of debt denominated in foreign currency (11.0 percent of total external debt). ### Current account - Background developments: - CA declined from 3.2 percent of GDP in 2024 to 2.9 percent of GDP in 2025, as acceleration of domestic consumption and investment weakened the saving-investment balance. - Trade surplus weakened due to slowing exports and stronger imports reflecting import-intensive domestic demand. - Medium-term projection: CA surplus projected to gradually shrink as tourism inflows slow and non-energy imports grow with domestic-demand-led growth. - Assessment and metrics (2025, % GDP): - CA: 2.9 - Cycl. Adj. CA: 3.2 - EBA Norm: 0.8 - EBA Gap: 2.4 - Staff Adj.: 0.0 - Staff Gap: 2.4 - Drivers of CA gap: - Overall estimated contribution of identified policy gaps: 0.8 percent of GDP. - Large positive contribution from low credit growth relative to the rest of the world: 1.0 percent of GDP. - Remaining positive residual may reflect subdued firm investment from elevated policy uncertainty and a structural shift in global demand toward services benefiting Spain’s tourism and non-tourism services sectors. ### Real exchange rate (REER) - Background developments: - In 2025, Spain’s CPI- and ULC-based REER appreciated vis-à-vis their 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 applied). - EBA REER index and level models suggest overvaluation of 4.7 percent and 19.7 percent for 2025, respectively, driven by large unexplained residuals. - Staff assess the REER to be moderately undervalued, with a midpoint of 8.7 percent and a range of uncertainty of ±2.1 percent. ### Capital and financial accounts: flows and risks - Background developments: - Capital account surplus has remained high due to flows associated with NGEU funds. - Financial account surplus declined to 4.0 percent of GDP in 2025 from 5.3 percent of GDP 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 and structural reforms - Fiscal and saving-investment balance: - Sustained fiscal consolidation efforts would rebuild fiscal space and raise public saving, thus increasing the CA and the NIIP. - A better policy mix could keep the saving-investment balance and the projected CA path broadly unchanged while better supporting domestic growth and fiscal sustainability. - Structural reforms and measures recommended by staff: - Complete the single Spanish market (in addition to the single EU market) for goods and services. - Facilitate firms’ access to financing through 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. - Any industrial policy initiative should: - Address market failures that might prevent effective market solutions. - Be coordinated at the EU level. - Minimize trade and investment distortions. *Source: CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS — Spain, text - CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS (IMF), https://www.imf.org/-/media/files/publications/esr/2026/english/text.pdf* ### 0.5 percent of GDP. During 2014–24, net private inflows averaged −1.1 percent of GDP, while the average annual increase ### 0.5 percent of GDP. During 2014–24, net private inflows averaged −1.1 percent of GDP, while the average annual increase in SNB reserves was 4.5 percent of GDP. ### Switzerland — FX Intervention and Reserves Level - 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. - Purpose of FXIs: to dampen appreciation pressures on the Swiss franc related to safe-haven flows, thereby contributing to ensuring monetary conditions and turning inflation within the price stability range. - Assessment: - Reserves are large relative to GDP, but more moderate in comparison with short-term foreign liabilities. - Considering the reserve currency status of the franc, the adequacy of FX reserves is not a pressing concern for Switzerland. - 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. *International Monetary Fund | 2026 EXtERNAl SECtoR REPoRt* ### Thailand — Overall Assessment and Policy Recommendations - Overall Assessment: - The external position in 2025 was stronger than the level implied by fundamentals and desirable policies, with the CA and REER gaps modestly widening. - The CA surplus increased to 2.8 percent of GDP in 2025 from 2.2 percent in 2024. - Over the medium term, the CA surplus is projected to moderate to around 2.7 percent of GDP. - Potential Policy Responses (selected): - Promote productive investment, further liberalize the services sector, and reduce tax incentives and subsidies that distort competition. - Preserve monetary and fiscal space and smooth adjustment amid a challenging external backdrop of higher commodity prices and increased trade restrictions. - Maintain prudent fiscal policy given elevated public debt; focus spending on targeted social transfers and growth-enhancing investment. - Gradual expansion in private consumption and stronger private investment to support external adjustment. - Revenue-driven medium-term fiscal consolidation to help rebuild fiscal buffers. - Deploy industrial policies cautiously, targeted to specific objectives, minimizing trade and investment distortions. - Promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Thailand — Foreign Asset and Liability Position and Trajectory - Background: - 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). - Gross liabilities increased to 115.1 percent of GDP (from 113.7 percent). - Gross assets primarily consist of gross reserve assets (48.9 percent of GDP) and direct investment (39.4 percent of GDP). - Gross liabilities mainly comprise direct (68.5 percent of GDP), portfolio (23.6 percent of GDP) and other investments (22.1 percent of GDP). - Assessment: - NIIP is projected to remain in a small creditor position over the medium term given CA surpluses. - External debt is expected to decline to 36.2 percent of GDP in 2025 from 36.9 percent in 2024, with short-term debt at about 15.3 percent of GDP. - Risks to external debt stability and liquidity are limited. - Key 2025 statistics: - NIIP: 15.9 (% GDP) - Gross Assets: 131.0 (% GDP) - Debt Assets: 40.5 (% GDP) - Gross Liab.: 115.1 (% GDP) - Debt Liab.: 36.2 (% GDP) ### Thailand — Current Account - Background: - CA surplus rose to 2.8 percent of GDP in 2025, reflecting a narrower primary income deficit and continued recovery in services, partly offset by weaker secondary income. - Trade surplus held at 4.0 percent of GDP, even as both imports and exports expanded by about 13 percent. - Post-pandemic recovery in tourism and transport improved the services balance by 0.2 percentage points of GDP. - From a saving–investment perspective, the higher CA surplus reflects a rise in private saving that more than offsets increased public and private investment and lower public saving. - CA balance is expected to stabilize at about 2.7 percent of GDP. - Assessment: - EBA CA 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 the CA gap to be in the range of 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 0.4 percent unexplained residual. - Positive policy gap contributions: change in reserves (0.8 percentage points) and fiscal balance (0.8 percentage points). - Domestic health expenditure gap: 0.1 percent of GDP, suggesting scope to strengthen social safety nets. - Preliminary staff estimates suggest 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. - Key 2025 statistics: - CA: 2.8 (% GDP) - Cycl. Adj. CA: 2.7 (% GDP) - EBA Norm: 0.6 (% GDP) - EBA Gap: 2.0 (% GDP) - Staff Adj.: 0.0 (% GDP) - Staff Gap: 2.0 (% GDP) ### Thailand — Real Exchange Rate - Background: - The baht has followed a gradual real appreciation trend since the mid-2000s, despite occasional bouts of volatility. - In 2025, the REER appreciated by 4.4 percent relative to 2024, following the strengthening of the current account balance. - As of March 2026, the REER was 0.2 percent below its 2025 average. - Assessment: - Based on an elasticity of 0.5 and the staff CA gap, staff assess the 2025 REER to be undervalued in the range of 2.8–5.2 percent, with a midpoint of 4.0 percent. - The EBA index REER gap in 2025 is estimated at 11.5 percent, and the EBA level REER gap is estimated at −3.5 percent. ### Thailand — Capital and Financial Accounts: Flows and Policy Measures - Background: - 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 a decrease in financial derivatives (by 0.1 percentage points). - Assessment and recommendations: - Strong external buffers and fundamentals helped Thailand weather episodes of volatility. - Staff welcomes authorities’ efforts to further liberalize the financial account, including expanding the scope of the Non-Resident Qualified Company program. - Notes recent measures to facilitate FX outflows—permitting additional purposes without prior approval, raising transfer limits, and removing documentation requirements for non-resident transactions. - Recommends reversing the 2021 reduction in the limit on Thai baht lending from domestic financial institutions to non-residents without underlying document submission. - Recommends phasing out CFM measures on nonresident baht accounts, in line with past advice. ### Thailand — FX Intervention and Reserves Level - Background: - Exchange rate regime: classified as (de jure and de facto) floating. - Gross international reserves increased to 48.9 percent of GDP in 2025 from 44.8 percent of GDP in 2024. - Reserves equivalent: about 2.6 times short-term debt, 10 months of imports, and 231.3 percent of the IMF’s standard ARA metric. - Exchange rate allowed to adjust, with some two-sided FX interventions in periods of large volatility. - Assessment: - Reserves are higher than the range of the IMF’s reserve adequacy metrics; no need to build up reserves for precautionary purposes. - Exchange rate should move flexibly to function as a shock absorber. - FX intervention could be used to address disorderly market conditions and mitigate policy trade-offs when the FX market becomes dysfunctional and deviations in hedging and financing premiums become excessive due to large non-fundamental shocks. *CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS* ### Türkiye — Overall Assessment and Policy Responses - Overall Assessment: - The external position in 2025 was weaker than the level implied by medium-term fundamentals and desirable policies, driven by the negative CA gap. - 2025 CA deficit widened to 1.9 percent of GDP—after narrowing to 1 percent of GDP in 2024. - External financing needs fell somewhat (as percent of GDP) but remain sizeable; NIIP became less negative. - Macro policies remain insufficiently tight to bring down inflation sustainably to the central bank’s inflation target and anchor inflation expectations. - External vulnerabilities have recently increased following the war in the Middle East. - Potential Policy Responses: - Tighten monetary and fiscal policy stance to contain demand, raise savings, and help strengthen the current account balance. - A disinflation program anchored by a credible monetary policy framework and tight fiscal policy can help redress the CA gap. - Tightening policies would improve confidence, sustain capital inflows, and allow accumulation of international reserves. - Deploy industrial policies cautiously; promote transparent, predictable, and mutually beneficial trade policy frameworks. ### Türkiye — Foreign Asset and Liability Position and Trajectory - Background: - 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, including euro appreciation vs USD and gold price increases. - External debt declined from 33.9 percent of GDP at end-2024 to 32.6 percent of GDP 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. - Assessment: - Given the size and composition of gross external liabilities, Türkiye is vulnerable to liquidity shocks, sudden shifts in investor sentiment, and global upswings in interest rates. - Reserves improved substantially during 2025, but the war in the Middle East and gold price swings have significantly increased volatility. - 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 is expected to decline over the next three years due to larger current account deficits driven by higher oil prices, then stabilize around −26 percent of GDP as the CA deficit stabilizes below 2 percent of GDP. - Further reversal of 2025 valuation effects (for example, in the gold market) could negatively affect the NIIP trajectory. - External debt is sustainable over the medium term but subject to risks from a large REER depreciation and rollover risk due to high share of short-term debt. - Key 2025 statistics: - NIIP: −20.3 (% GDP) - Gross Assets: 25.9 (% GDP) - Debt Assets: 9.8 (% GDP) - Gross Liab.: 46.2 (% GDP) - Ext. Debt.: 32.6 (% GDP) ### Türkiye — Current Account - Background: - 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 the non-oil trade balance driven by strong imports, and a methodological change to the primary income account. - Deterioration mainly reflects a widening of the private sector S-I balance, only partly offset by public sector savings as fiscal policy was tightened. - Over the medium term, the current account is expected to improve to around 1.5 percent of GDP on the back of subdued energy imports and robust exports. - Assessment: - EBA CA model estimates: cyclically adjusted CA balance of −1.6 percent of GDP and a CA norm of 1.3 percent of GDP in 2025. - Overall CA gap assessed in the range of −3.4 to −2.4 percent of GDP, with a midpoint of −2.9 percent of GDP. - CA gap decomposition: contribution of identified policy gaps is 0.5 percent of GDP; Türkiye’s CA residual is −3.4 percent of GDP. - Residual could reflect impact of persistently elevated inflation and inflation expectations on private saving, combined with positive wealth effect from higher gold prices. - A disinflation program anchored by credible monetary policy framework and tight fiscal policy can help redress the situation. - Key 2025 statistics: - CA: −1.9 (% GDP) - Cycl. Adj. CA: −1.6 (% GDP) - EBA Norm: 1.3 (% GDP) - EBA Gap: −2.9 (% GDP) - Staff Adj.: 0.0 (% GDP) - Staff Gap: −2.9 (% GDP) ### Türkiye — Real Exchange Rate - Background: - 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. - Average 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 the staff CA gap, staff assess the REER to be overvalued by 12.1 percent. The range goes from 9.8 percent to *International Monetary Fund | 2026* ### 14.4 percent overvaluation (applying an estimated REER elasticity of 0.24). ### 14.4 percent overvaluation (applying an estimated REER elasticity of 0.24). ### Capital and Financial Accounts: Flows and Policy Measures (Türkiye) - 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 and vulnerabilities: - Annual gross external financing needs remain relatively high—at about 18 percent of GDP on average over 2026–31. - Türkiye remains vulnerable to adverse shifts in global investor sentiment. - Policy normalization efforts since May 2023 contributed to a rebound in capital flows. - Episodes in March 2025 and the war in the Middle East illustrated the need for further strengthening of policy credibility and carefully reducing market distortions to sustain capital inflows, including into lira-denominated assets. - CFMs on capital outflows should be phased out as CFMs do not substitute for warranted macroeconomic adjustment. ### FX Intervention and Reserves Level (Türkiye) - Background: - De jure exchange rate: free floating; de facto classification (as of the 2025 Article IV consultation): crawl-like arrangement. - Gross international reserves: US$186 billion at end-2025, up from $156 billion at end-2024; bulk of the increase came 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 accumulation should be opportunistic given the uncertain market environment. *Italic: Source — text - 14.4 percent overvaluation (applying an estimated REER elasticity of 0.24).* ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### CHAPTER 2 2025 INdIvIduAl ECoNoMy ASSESSMENtS ### EBA methodology and Saudi Arabia - The EBA models do not include Saudi Arabia. - IMF staff considered two approaches under the EBA-Lite methodology: the EBA-Lite CA model and the EBA-Lite commodity module. - The EBA-Lite commodity module incorporates intertemporal considerations important for economies with large nonrenewable resource 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, reflecting lower rates of return on its foreign assets relative to returns on its foreign liabilities; composition of assets is tilted toward safer assets with lower returns. - Income outflows are also associated with 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. - Applying EBA estimated coefficients to Singapore yields a CA norm estimated to be about 14.1 percent of GDP in 2025 (including the multilateral consistency adjustor), but this approach understates the CA gap. - Two Singapore-specific adjustments to the EBA-based norm: - Downward adjustment of 1.4 percentage point to EBA’s implied contribution of public health expenditures to the norm, reflecting high efficiency of Singapore’s health expenditure despite lower public health expenditure relative to other EBA countries. - Downward adjustment of 3.2 percentage points to better account for the effect of NFA composition and component-specific return differentials on the CA. - After adjustments, the 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 - Uncertainty treatment: - The maximum range of ±2.0 percent in the EBA sample is applied for the CA gap reflecting uncertainty around Singapore’s assessment. - Reserves and sovereign asset holdings: - The reserves-to-GDP ratio is larger than in most other financial centers, which may reflect that most other financial centers are in reserve-currency countries or currency unions. - External assets managed by the government’s wealth fund, Temasek, amounted to 53.7 percent of GDP in 2025. ### Spain - TARGET2 (T2) is the settlement system run by the Eurosystem; it settles payments related to the Eurosystem’s monetary policy operations, as well as 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 had 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 - The upper and lower bounds are derived by adding/subtracting the standard deviation (6.4 percent) from the average outcome (midpoint) to reflect uncertainty around the EBA estimated norm. ### Switzerland - Valuation changes reflect fluctuations of exchange rates (ERs) and prices of securities and precious metals interacting 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 the 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 BoE’s December 2022 Financial Stability Report estimates that official statistics may understate the UK’s NIIP position, as 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 contribute to measurement effects. - Inflation differential between the UK and the rest of the world can generate depreciation pressures of 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 the quarterly annualized GDP measure is used for the ratio. *International Monetary Fund | EXTERNAL SECTOR REPORT 2026* --- _Source: https://www.imf.org/-/media/files/publications/esr/2026/english/text.pdf_