External Sector Report

External Sector Report, 2023

External Rebalancing in Turbulent Times

July 2023


Global current account balances—the overall size of headline current account deficits and surpluses—widened for a third consecutive year in 2022. The main drivers were Russia’s invasion of Ukraine, the uneven recovery from the pandemic, and the rapid tightening of US monetary policy. Concurrently, the US dollar appreciated substantially, and the uphill capital flow reappeared.

IMF’s external sector assessments suggest that the overall size of excess current account deficits and surpluses has remained unchanged since 2021, after declining for several years. This highlights the importance of efforts in both excess surplus and deficit economies to promote external rebalancing.

The US dollar appreciation under the “global dollar cycle,” which is driven primarily by global financial risks, has negative spillovers, especially for economic activity and imports, that fall hardest on emerging market economies. More flexible exchange rates and better anchored inflation expectations can mitigate these negative spillovers.

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External Sector Assessments

Chapters in the Report

Chapter 1: External Positions and Policies

Global current account balances increased for the third consecutive year in 2022 and are projected to narrow in 2023. This widening over the three years reflects several factors, including the unequal impact of the COVID-19 crisis in 2020–21 and the increase in commodity prices fueled by the economic recovery in 2021 and later by supply concerns following Russia’s invasion of Ukraine in 2022.

Chapter 2: External Sector Implications of the Global Dollar Cycle

This chapter investigates implications of the “global dollar cycle” for the current account balance and other external sector indicators. It finds that negative real sector spillovers from US dollar appreciations fall disproportionately on emerging markets.

Chapter 3: 2022 Individual Economy Assessments

The individual economy assessments use a wide range of methods to form an integrated and multilaterally consistent view of economies’ external sector positions.