## Global Imbalances: Avoiding a Tragedy of the Commons _IMF Blog, July 28, 2017_ ## Source details **Canonical URL:** [Global Imbalances: Avoiding a Tragedy of the Commons](https://www.imf.org/en/blogs/articles/2017/07/28/global-imbalances-avoiding-a-tragedy-of-the-commons) ## Other formats - [Markdown version](/en/blogs/articles/2017/07/28/global-imbalances-avoiding-a-tragedy-of-the-commons/index.md) - [Structured JSON version](/en/blogs/articles/2017/07/28/global-imbalances-avoiding-a-tragedy-of-the-commons/index.json) - [Bundle manifest](/en/blogs/articles/2017/07/28/global-imbalances-avoiding-a-tragedy-of-the-commons/bundle-manifest.json) ## Bibliographic details - Authors: Gustavo Adler, Luis Cubeddu - Published: July 28, 2017 --- ### Overview - Authors: Gustavo Adler, Luis Cubeddu - Date: July 28, 2017 - The IMF released assessments of external positions for the 29 largest economies. - Excess current account imbalances in 2016 were broadly unchanged and "represented about one-third of total actual surpluses and deficits, with only small shifts in 2016." - Since 2013 there has been a rotation of excess imbalances toward advanced economies. ### Key findings - Excess imbalances: - Were broadly unchanged in 2016. - Represented about one-third of total actual surpluses and deficits. - Have rotated since 2013 toward advanced economies, creating new risks and policy challenges. - Emerging market developments: - Excess imbalances narrowed in key emerging market economies. - Narrowing was led by a smaller excess surplus in China and smaller excess deficits in Brazil, Indonesia, South Africa, and Turkey. - Adjustment in these emerging markets was supported as prospects of U.S. monetary policy normalization became more evident and external financing conditions tightened. - Advanced economy developments: - Excess imbalances widened in several advanced economies. - Large and persistent excess surpluses continued in Germany, Korea, the Netherlands, Singapore, and Sweden. - Historical analysis indicates these large and persistent surpluses (outside oil-exporting countries and financial centers) are a fairly recent phenomenon; when reversals occurred, policy actions on multiple fronts played a role. - Risks from current constellation: - Weak automatic adjustment mechanisms: prices and saving and investment decisions are not adjusting fast enough. - Rigid currency arrangements and structural features (for example, inadequate social safety nets and barriers to investment) contribute to undesirable saving and investment levels. - Concentration of excess deficits in a few advanced economies (mainly the United States and United Kingdom) could: - Reduce deficit-financing risks in the near term. - Raise the likelihood of protectionist measures. - Risk derailing the global recovery if continued reliance on debtor-country demand persists, increasing the chances of a disruptive adjustment later. ### Policy implications and recommendations - Shared responsibility: Addressing external imbalances in a way that supports global growth requires recalibration of the policy mix in both deficit and surplus economies. - For excess deficit countries: - Move forward with fiscal consolidation. - Gradually normalize monetary policy in tandem with inflation developments. - Implement policies directed at improving external competitiveness and overall saving. - Emphasize reforms that boost education outcomes and strengthen the business climate. - For excess surplus countries: - If there is fiscal space, reduce reliance on easy monetary policy and allow for greater fiscal stimulus. - Focus structural policies on lifting distortions that constrain domestic demand or limit trade competition and investment. - For countries where monetary policy is constrained (for example, individual euro area members): - Use fiscal and structural policies to facilitate relative price adjustments. - Exchange rate policy: - Allow exchange rates to move in line with fundamental levels. - Limit interventions to addressing disorderly market conditions (consistent with recent practice for most countries). - Structural policy emphasis: - Excess surplus countries: lift distortions that constrain domestic demand or limit trade competition. - Excess deficit countries: improve external competitiveness and overall saving, with emphasis on education and the business climate. - Protectionism: - Protectionist policies should be avoided because they are unlikely to meaningfully address external imbalances and would be detrimental to domestic and global growth. ### Purpose and mandate - Assessing countries’ external positions is a core IMF mandate. - These assessments are an analytical tool to determine, on a multilaterally-consistent basis, when external imbalances are appropriate or signal risks. - Imbalances can be appropriate: developing economies that need to invest should generally run deficits; aging countries (for example, Japan and Germany) may need to run surpluses to meet future obligations. - The focus of the exercise is identifying the undesirable portion of imbalances and discussing policies to address them. - Goal: avoid a tragedy of the commons in which countries acting independently in their own self-interest undermine the common good of supporting global growth and stability. *IMF Blog — "Global Imbalances: Avoiding a Tragedy of the Commons", Gustavo Adler and Luis Cubeddu, July 28, 2017.* --- ## References - [https://www.imf.org/wp-content/uploads/2017/07/BLOG-1024x600-GERMANY-ESR-cranes-over-trailors-Caro-Oberhaeuser-Newscom-carophotos138589.jpg](https://www.imf.org/wp-content/uploads/2017/07/BLOG-1024x600-GERMANY-ESR-cranes-over-trailors-Caro-Oberhaeuser-Newscom-carophotos138589.jpg) - [External Sector Report](http://www.imf.org/en/Publications/Policy-Papers/Issues/2017/07/27/2017-external-sector-report) - [https://www.imf.org/wp-content/uploads/2017/07/ENG_Jul_27_ESR_1-4-002.jpg](https://www.imf.org/wp-content/uploads/2017/07/ENG_Jul_27_ESR_1-4-002.jpg) - [https://www.imf.org/wp-content/uploads/2017/07/ENG_Jul_27_ESR_2-6-002.jpg](https://www.imf.org/wp-content/uploads/2017/07/ENG_Jul_27_ESR_2-6-002.jpg) - [assessments are an analytical tool](https://blogs.imf.org/2017/06/26/assessing-global-imbalances-the-nuts-and-bolts/) _Source: https://www.imf.org/en/blogs/articles/2017/07/28/global-imbalances-avoiding-a-tragedy-of-the-commons_