INTERNATIONALMONETARYFUND

EXTERNALSECTOR

REPORT

Pandemic,War,and

GlobalImbalances

2022

INTERNATIONALMONETARYFUND

EXTERNAL

SECTOR

REPORT

Pandemic,War,and

GlobalImbalances

2022

?2022InternationalMonetaryFund

Cataloging-in-PublicationData

IMFLibrary

Names:InternationalMonetaryFund,publisher.

Title:Externalsectorreport(InternationalMonetaryFund).

Othertitles:ESR

Description:Washington,D.C.:InternationalMonetaryFund,2012-|Annual|Someissuesalsohavethematictitles.|Beganin2012.|Includesbibliographicalreferences.

Identifiers:ISSN2617-3832(print)|ISSN2617-3840(online)

Subjects:LCSH:Balanceofpayments—Periodicals.|Debts,External—Periodicals.|Investments,Foreign—Periodicals.|Internationalfinance—Periodicals.

Classification:LCCHG3882.I58

ISBN:979-8-40021-494-3(Paper)

979-8-40021-550-6(ePub)

979-8-40021-578-0(PDF)

TheExternalSectorReport(ESR)isasurveybytheIMFstaffpublishedonceayear,inthesummer.TheESRispreparedbytheIMFstaffandhasbenefitedfromcommentsandsuggestionsbyExecutiveDirectorsfollowingtheirdiscussionofthereportonJuly22,2022.Theviewsexpressedinthispub-licationarethoseoftheIMFstaffanddonotnecessarilyrepresenttheviewsoftheIMF’sExecutiveDirectorsortheirnationalauthorities.

Recommendedcitation:InternationalMonetaryFund.2022.ExternalSectorReport:Pandemic,War,andGlobalImbalances.Washington,DC,August.

Publicationordersmaybeplacedonline,byfax,orthroughthemail:

InternationalMonetaryFund,PublicationsServices

P.O.Box92780,Washington,DC20090,USA

Tel.:(202)623-7430Fax:(202)623-7201

E-mail:publications@

CONTENTS

FurtherInformationvii

Prefaceviii

ExecutiveSummaryix

IMFExecutiveBoardDiscussionSummaryxi

Chapter1.ExternalPositionsandPolicies1

WarandLingeringPandemic1

OutlookforCurrentAccountBalancesandRisks14

Box1.1.SavingandWealthDynamicsintheAftermathofCOVID-1919

Box1.2.CurrentAccountRebalancing:AtWhatSpeed?AssessmentofCurrentAccount

GapsHistoricalPersistence23

Box1.3.ExternalSectorImpactofDisasterShocks26

Box1.4.TheWorstofBothWorlds:TradeRestrictionsHurtGrowthwithNoBenefitfor

ExternalPositions28

References38

OnlineAnnex1.1.EBAMethodology2022Refinements

OnlineAnnex1.2.COVID-19–RelatedExternalBalanceAssessmentAdjustments

Chapter2.ClimatePoliciesandExternalAdjustment39

Introduction39

TheApproach:TheModel-BasedMitigationScenario41

ExternalSectorImpact44

AlternativeScenarios50

GlobalImplications53

Conclusion54

Box2.1.OilDiscoveriesandtheExternalSector56

Box2.2.UnderstandingtheCarbonTaxEffectsintheG-CubedModel57

Box2.3.TheGreenEnergyTransitionandItsImpactonMetalMining59

References61

Chapter3.2021IndividualEconomyAssessments63

MethodologyandProcess63

SelectionofEconomies63

Box3.1.AssessingImbalances:TheRoleofPolicies—AnExample64

AbbreviationsandAcronyms65

TechnicalEndnotesbyEconomy96

References99

Figures

Figure1.1.TheCOVID-19CrisisandtheWarinUkraine2

Figure1.2.MovementsinOilTradeBalanceandCurrentAccountforOilExportersandImporters2

InternationalMonetaryFund|2022iii

ivInternationalMonetaryFund|2022

2022EXTERNALSECTORREPORT

Figure1.3.CurrentAccountProjectionsfor2022beforeandaftertheWarinUkraine3

Figure1.4.HouseholdConsumptionCompositionShift,AEsandEMDEs,2019–213

Figure1.5.TradeinGoodsandServicesComparedwithPre-pandemicTrends3

Figure1.6.PrivateandPublicSectorSavingRatesinAdvancedEconomies5

Figure1.7.GlobalCurrentAccountBalances,1990–20275

Figure1.8.GlobalCurrentAccountBalancesandCOVID-19Factors7

Figure1.9.FiscalPolicyChanges,2019–20267

Figure1.10.CurrencyMovements7

Figure1.11.EstimatedChangeinForeignExchangeReservesandNominalEffective

ExchangeRateChange8

Figure1.12.CapitalFlowstoEmergingMarketandDevelopingEconomiesandtheVIX8

Figure1.13.NetInternationalInvestmentPositions,1990–20229

Figure1.14.EvolutionoftheGlobalFinancialSafetyNet,1995–202111

Figure1.15.EvolutionofBilateralSwapLineNetworks,202111

Figure1.16.ExternalBalanceAssessmentCurrentAccountNorms,202112

Figure1.17.TheEvolutionofExternalSectorAssessments,2012–2112

Figure1.18.IMFStaffandExternalBalanceAssessmentCurrentAccountand

RealExchangeRateGaps,202113

Figure1.19.EvolutionofHeadlineCurrentAccountBalancesandIMFStaffGaps13

Figure1.20.GlobalSaving-InvestmentBalances,2020–2714

Figure1.21.NewTradeRestrictions,2009–2215

Figure1.22.China:MajorImportSources,2017–2116

Figure1.23.EmergingMarketandDevelopingEconomies:ExternalVulnerabilities17

Figure1.1.1.DecomposingExcessHouseholdSavingandPublicDissavingintheEuropeanUnion19

Figure1.1.2.CumulativeChangeintheCurrentAccount20

Figure1.1.3.ChangeinFinancialWealth20

Figure1.1.4.UnitedStates:ChangeinHouseholdNetWealth,byWealthPercentile,

COVID-19versusNormalTimes21

Figure1.1.5.Europe:UnequalDistributionofSaving,byIncomePercentile22

Figure1.2.1.IMFStaffandEBACAGapsAdjustment:Half-Lives24

Figure1.3.1.EffectsofaDisasterShockontheCurrentAccount26

Figure1.3.2.ImpactofNaturalDisaster27

Figure1.4.1.NontariffBarriersIndex28

Figure1.4.2.EffectofanIncreaseinNTBs29

Figure2.1.StructuralAsymmetries42

Figure2.2.PolicyPackage44

Figure2.3.ImpactofaCoordinatedCarbonTaxontheExternalSector45

Figure2.4.CountryCharacteristicsandExternalSectorImpactoftheCarbonTax47

Figure2.5.ImpactoftheGreenSubsidyontheExternalSector48

Figure2.6.CountryCharacteristicsandExternalSectorImpactoftheGreenSubsidy48

Figure2.7.ImpactofMitigationPolicyPackageontheExternalSector49

Figure2.8.ImpactofPartiallyImplementedMitigationPoliciesontheExternalSector50

Figure2.9.ImpactofLargerEmissionReductionsinAdvancedEconomies52

Figure2.10.MitigationPoliciesandGlobalBalances53

Figure2.11.MitigationPoliciesandCross-BorderCapitalFlows54

Figure2.12.MitigationPoliciesandGlobalInterestRates54

Figure2.1.1.EvolutionoftheCurrentAccountandInvestmentFollowinganOilDiscovery56

Figure2.2.1.TheCarbonTaxImpact—CaseofCoordinatedImplementation57

InternationalMonetaryFund|2022v

Contents

Figure2.2.2.TheCarbonTaxImpact—CaseofPartialImplementation58

Figure2.3.1.ProjectedIncreaseinRevenueforMetalProducers59

Figure2.3.2.ComparisonoftheGeographicConcentrationofProductionand

Reservesfor“Green”MetalsversusCrudeOil60

Tables

Table1.1.SelectedEconomies:CurrentAccountBalance,2019–226

Table1.2.SelectedEconomies:NetInternationalInvestmentPosition,2018–2110

Table1.2.1.EBAGapsAdjustment:ChangesinCABalancesorNormCreeping?25

Table1.2.2.EBAGapsAdjustment:ContributionofPolicyGapsandResiduals25

AnnexTable1.1.1.SelectedEconomies:ForeignReserves,2018–2130

AnnexTable1.1.2.ExternalSectorReportEconomies:SummaryofExternal

AssessmentIndicators,202131

AnnexTable1.1.3.ExternalSectorReportEconomies:SummaryofIMFStaff–Assessed

CurrentAccountGapsandIMFStaffAdjustments,202132

AnnexTable1.1.4.ExternalSectorReportEconomies:SummaryofIMFStaff–Assessed

RealEffectiveExchangeRateandExternalBalanceAssessmentModelGaps,202134

AnnexTable1.1.5.SelectedExternalSectorReportEconomies:ExternalBalance

AssessmentCurrentAccountRegressionPolicyGapContributions,202135

AnnexTable021IndividualEconomyAssessments:SummaryofPolicyRecommendations36

Table2.1.RegionsintheG-CubedModel41

Table2.2.SectorsintheG-CubedModel41

Table3.A.DescriptioninExternalSectorReportOverallAssessment64

Table3.B.EconomiesCoveredintheExternalSectorReport64

Table3.1.Argentina:EconomyAssessment66

Table3.2.Australia:EconomyAssessment67

Table3.3.Belgium:EconomyAssessment68

Table3.4.Brazil:EconomyAssessment69

Table3.5.Canada:EconomyAssessment70

Table3.6.China:EconomyAssessment71

Table3.7.EuroArea:EconomyAssessment72

Table3.8.France:EconomyAssessment73

Table3.9.Germany:EconomyAssessment74

Table3.10.HongKongSAR:EconomyAssessment75

Table3.11.India:EconomyAssessment76

Table3.12.Indonesia:EconomyAssessment77

Table3.13.Italy:EconomyAssessment78

Table3.14.Japan:EconomyAssessment79

Table3.15.Korea:EconomyAssessment80

Table3.16.Malaysia:EconomyAssessment81

Table3.17.Mexico:EconomyAssessment82

Table3.18.TheNetherlands:EconomyAssessment83

Table3.19.Poland:EconomyAssessment84

Table3.20.Russia:EconomyAssessment85

Table3.21.SaudiArabia:EconomyAssessment86

Table3.22.Singapore:EconomyAssessment87

Table3.23.SouthAfrica:EconomyAssessment88

Table3.24.Spain:EconomyAssessment89

viInternationalMonetaryFund|2022

2022EXTERNALSECTORREPORT

Table3.25.Sweden:EconomyAssessment90

Table3.26.Switzerland:EconomyAssessment91

Table3.27.Thailand:EconomyAssessment92

Table3.28.Türkiye:EconomyAssessment93

Table3.29.UnitedKingdom:EconomyAssessment94

Table3.30.UnitedStates:EconomyAssessment95

FURTHERINFORMATION

CorrectionsandRevisions

ThedataandanalysisappearingintheExternalSectorReportarecompiledbytheIMFstaffatthetimeofpub-lication.Everyeffortismadetoensuretheirtimeliness,accuracy,andcompleteness.Whenerrorsarediscovered,correctionsandrevisionsareincorporatedintothedigitaleditionsavailablefromtheIMFwebsiteandontheIMFeLibrary.Allsubstantivechangesarelistedintheonlinetableofcontents.

PrintandDigitalEditions

Print

PrintcopiesofthisExternalSectorReportcanbeorderedfromtheIMFBookstoreatimfbk.st/520410

Digital

MultipledigitaleditionsoftheExternalSectorReport,includingePub,enhancedPDF,Mobi,andHTML,areavailableontheIMFeLibraryat/ESR22

DownloadafreePDFofthereportanddatasetsforeachofthechartsthereinfromtheIMFwebsiteat/publications/ESRorscantheQRcodebelowtoaccesstheExternalSectorReportwebpagedirectly:

CopyrightandReuse

Informationonthetermsandconditionsforreusingthecontentsofthispublicationisat

/external/terms.htm

InternationalMonetaryFund|2022vii

PREFACE

Producedsince2012,theIMF’sannualExternalSectorReportanalyzesglobalexternaldevelopmentsandpro-videsmultilaterallyconsistentassessmentsofexternalpositions,includingcurrentaccounts,realexchangerates,externalbalancesheets,capitalflows,andinternationalreserves,oftheworld’slargesteconomies,representingmorethan90percentofglobalGDP.TogetherwiththeWorldEconomicOutlookandArticleIVconsultations,thisreportispartofacontinuousefforttoassessandaddressthepossibleeffectsofspilloversfrommembers’policiesonglobalstabilityandtomonitorthestabilityofmembers’externalpositionsinacomprehensivemanner.

Chapter1,“ExternalPositionsandPolicies,”discussestheevolutionofglobalexternalpositionsin2021,externaldevelopmentsthroughoutthelingeringCOVID-19pandemicandthewarinUkraine,andpolicyprioritiesforreducingexcessimbalancesoverthemediumterm.Chapter2,“ClimatePoliciesandExternalAdjustment,”analyzestheeconomiceffectsofclimatemitigationpoliciesonexternalpositions.Itfindsthattheexternalsectoreffectsdependcruciallyoncountrycharacteristics,suchasinitialcarbonintensityandnetfossilexports,onthedegreeofinternationalpolicycoordination,andoncredibility.Chapter3,“2021IndividualEconomyAssessments,”providesdetailsonvariousaspectsoftheoverallexternalassessmentandassociatedpolicyrecommendationsfor30economies.Thisyear’sreportandassociatedexternalassessmentsarebasedonthelatestversionoftheIMF’sExternalBalanceAssessment(EBA)methodologyandondataandIMFstaffprojectionsasofJune30,2022.

ThisreportwaspreparedundertheoverallguidanceofPierre-OlivierGourinchas,IMFEconomicCounsellorandDirectorofResearch,andunderthedirectionoftheExternalSectorCoordinatingGroup,comprising

stafffromtheIMF’sareadepartments(African,AsiaandPacific,European,MiddleEastandCentralAsia,andWesternHemisphere),aswellastheFiscalAffairsDepartment;theStatisticsDepartment;theStrategy,Policy,andReviewDepartment;theMonetaryandCapitalMarketsDepartment;andtheResearchDepartment—namely,AliAl-Eyd,VivekArora,SerkanArslanalp,MariaBorga,NigelChalk,AnaLuciaCoronel,BorysCotto,AlfredoCuevas,J?rgDecressin,ChrisErceg,RaphaelEspinoza,GastonGelos,SonaliJain-Chandra,MartinD.Kaufman,VitaliyKramarenko,JaewooLee(Chair),DanielLeigh(formerChair),AmineMati,PaoloMauro,PauloMedas,LevRatnovski,CarlosSánchez-Mu?oz,NiamhSheridan,PiyapornSodsriwiboon,MartinSommer,AntonioSpilimbergo,andJerominZettelmeyer.

RudolfsBemsandPauRabanalledthepreparationofthereport,whichdrawsoncontributionsfromZamidAligishiev,CianAllen,MahirBinici,CamilaCasas,JuliaEstefania-Flores,GiovanniGanelli,AdamJakubik,LucianaJuvenal,SiddharthKothari,WeifengLiu(externalconsultant),WarwickMcKibbin(externalconsultant),RachaMoussa,CyrilRebillard,CianRuane,NiamhSheridan,andJo?oTovarJalles(externalconsultant).Impor-tantinputwasprovidedbycountryteamsaswellasbyRussellGreen,YukoHashimoto,ParisaKamali,RobinKoepke,DimitreMilkov,MarcoRodriguezWaldo,SilviaSgherri,andHuiTong.ExcellentresearchandeditorialassistancewereprovidedbyRachelleBlasco,LuisaCalixto,MarielaCaychoArce,JaneHaizel,EduardLaurito,CristinaQuintos,JairRodriguez,XiaohanShao,andRongjinZhang.

CherylToksozandGemmaRoseDiazfromtheCommunicationsDepartmentledtheeditorialteamforthereport,withproductionandeditorialsupportfromDavidEinhorn,SueKovach,HaroldMedina(andteam),LucyScottMorales,JoeProcopio,andtheGrauelGroup.

TheanalysisbenefitedfromcommentsandsuggestionsbystaffmembersfromotherIMFdepartments,aswellasbytheIMF’sExecutiveDirectorsfollowingtheirdiscussionofthereportonJuly22,2022.However,bothpro-jectionsandpolicyconsiderationsarethoseoftheIMFstaffandshouldnotbeattributedtoExecutiveDirectorsortotheirnationalauthorities.

viiiInternationalMonetaryFund|2022

EXECUTIVESUMMARY

T

heExternalSectorReportpresentsaholisticassessmentofexternalpositionsin30oftheworld’slargeeconomies,carriedoutbytheIMFstaff.Whiletheassessmentiscenteredonthecomparisonofcurrentaccountbalanceswiththeirnorms(levelsimpliedbyfundamentalsanddesir-ablepolicysettings),italsoconsidersothervariablessuchastheexchangerate,reserves,capitalflows,andinternationalinvestmentpositions.Thereportalsodiscussesrecenttrends,outlook,andrisksforglobalcurrentaccountbalances,definedasthesumoftheabsolutevaluesofcurrentaccountdeficitsandsur-pluses,andpoliciestopromoteexternalrebalancing.

Globalcurrentaccountbalancesincreasedin2020and2021andareprojectedtowidenfurtherin2022.TheyhadbeenonadecliningtrendforseveralyearsbeforewideningbecauseoftheCOVID-19pandemicin2020.Thewideningofbalancesin2021waslargelydrivenbythepandemic’scontinuedimpactandtheincreaseincommoditypricesthataccompaniedtheeconomicrecovery.In2022,thewarinUkrainecreatedahumanitariancrisisandissettingbacktheglobalrecoverywhileincreasinguncertaintyandtheriskofgeoeconomicfragmentation.Falloutsfromthewarandthestill-lingeringpandemicareprojectedtowidenglobalcurrentaccountbalancesfurtherin2022.Whilethewideninginglobalcurrentaccountbalancesisnotnecessarilyanegativedevelopment,excessiveglobalimbalancescanfueltradetensionsandprotectionistmeasuresorincreasetheriskofdisruptivecurrencyandcapitalflowmovements.

Thepandemichascontinuedtoaffecteconomies’currentaccountbalancesthroughafallintravelservices,anincreaseddemandformedicalproducts,andashiftinhouseholdconsumptiontowardgoodsratherthanservices.Transportationcostsemergedasanotherimpor-tantchannelin2021becauseofthecombinationofhighdemandfortradablegoodsandsupplybottlenecksassociatedwiththepandemic.EnergyandcommoditypricesrecoveredfromtheCOVID-19shockandstartedrisingin2021,atrendthatthewarisexacerbatingin2022,withoppositeeffectsontheexternalpositionsofexportersandimporters.Creditoranddebtorstock

positionsremainedelevatedattheendof2021,though

havingmoderatedfromtheir2020peaks,andtheglobal

financialsafetynetremainedcloseto20percentof

worldGDP.

Currencymovementsduring2021wererelatively

limited,despiteconsiderabledepreciationinseveral

emergingmarketcurrenciesvis-à-visabroadsetof

tradingpartners.Monetarypolicytighteningisdriving

currencymovementsin2022asrisinginflationislead-

ingmanycentralbankstoacceleratethewithdrawal

ofmonetarystimulus.Therevisedexpectationonthe

pac