The International Monetary Fund (IMF) released its annual External Sector Report noting that the global current account deficits and surplus has narrowed in 2019, and the global pandemic could tighten the imbalances further in 2020. In 2019, the absolute sum of surpluses and deficits in the global current account balance declined by 0.2% of world GDP to 2.9%. Current account balances showing larger-than-warranted figures were located majority in the euro area, induced by Netherlands and Germany, while lower-than-warranted balances in current account found in Canada, Britain and the U.S. China’s stances in 2019 remained as in 2018, in assessed external position, as the country broadly in line with the fundamentals and desirable policies.
At a global level, the latest IMF forecasts for 2020 signifying “a modest narrowing” around current account deficits and surpluses by 0.3% of world GDP even though the projection is still posing high uncertainties. The IMF highlighted that for economies reliant on severely affected sectors like tourism and oil, or relied on remittances, the pandemic impact has been worse and excruciating, with negative effects on external current account balance is expected to surpass 2% of GDP that will require economic adjustments. The outlook for external positions are still uncertain and poses significant risks, and the further worsening in risk sentiment further increasing the risks of an external crisis, especially in economies with precedented vulnerabilities, inclusive of economies with limited international reserves and high share of foreign currency debt.
The crisis will spiral into a second wave, with a further tightening in global financial conditions, narrowing the scope for developing economies and emerging markets to run current accounts in deficits, reducing the commodity exporters current account balance, deepening the global trade decline.
The IMF advised policymakers to remain focused in providing relief and promoting recovery economically in the near term, emphasizing that tariff/non-tariff trade barriers should be avoided, particularly in medical supplies and equipment. Economic and policy distortions over the medium term that previously exist before the crisis may still persist or worsen, signifying the needs for reforms.
Where 2019 current account deficits excessed partly in larger-than-preferable fiscal deficits and disproportions showed beyond the scope of crisis, the consolidation in fiscal over the medium term would promote debt sustainability, facilitating a higher international reserves, and reducing current account gap. While in economies where excess current account surpluses existed before the crisis still remains after the crisis, the priority should be reforms that encourage investment and discourage excessive private saving.
