Countries Should Take Action to Reduce External Imbalances

More progress still needed on reducing global imbalances

Lower oil prices, divergent monetary policies are shaping the current picture

Both surplus and deficit economies need to take steps to reduce excess imbalances

The 2015 External Sector Report (ESR), released today, analyzes recent developments and provides updated staff assessments of economies’ external positions, including current account balances, real exchange rates, external balance sheets, capital flows, and international reserves.

The ESR, which covers 28 of the world’s largest economies plus the euro area, comprises two papers:

• An overview paper that emphasizes multilateral issues, showing how individual economies fit into the global picture and the need for policies to reduce global imbalances; and

• A set of individual external assessments, one for each economy.

Speaking with the IMF Survey, IMF First Deputy Managing Director David Lipton discussed the findings of this year’s ESR, noting that the policy agenda to reduce excess imbalances remains unfinished. Steady, appropriate action on the part of both excess surplus and excess deficit economies is needed, he stressed.

IMF Survey : How have global imbalances been evolving, and what progress has there been in reducing excess imbalances?

Lipton: If we look back to the situation of around 2006-08, imbalances today are much reduced. Still, the ESR finds that imbalances overall are still too large. In too many economies, current account surpluses and deficits exceed their staff-assessed norms.

In general, the last few years have seen little progress in reducing such excess imbalances. To be clear, at the level of individual economies, there has been some progress but also some setbacks. For example, the too-large deficit of the United States has narrowed, but that of the United Kingdom and some emerging markets have widened. From a global perspective, such a “rotation” of deficits replaces one problem with another.

What we need to see instead is a matched narrowing of excess imbalances on both sides, with further progress on both excess surpluses and excess deficits.

IMF Survey : How are recent currency movements likely to affect the picture? Are these movements beneficial, or do they exacerbate existing problems?

Lipton: The ESR emphasizes the need to evaluate the recent exchange rate shifts in light of other important recent developments. Much of the sizable currency movements we’ve seen since are natural...