IMF says Covid-19 spending pushes current account imbalances higher

The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington April 8, 2019. — Reuters pic
The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington April 8, 2019. — Reuters pic

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WASHINGTON, Aug 2 — The Covid-19 pandemic reversed a steady decline in global current account imbalances in 2020 as massive deficit aid spending in advanced countries combined with wider trade gaps for medical supplies and plunging demand for oil and travel, the International Monetary Fund said today.

The IMF’s annual External Sector Report showed that the combined current account deficits and surpluses widened to 3.2 per cent of global economic output in 2020 from 2.8 per cent in 2019.

These gaps are set to widen further in 2021 to nearly 3.4 per cent of global GDP before narrowing to about 2.5 per cent as budget deficits in the United States and other rich nations decline and trade normalizes.

Reserve currencies appreciated at the onset of the pandemic in early 2020, but have depreciated since mid-March 2020 amid exceptional policy support and positive news on vaccine distribution, the IMF said.

Nonetheless, the report showed an IMF staff assessment that the dollar was about 8.2 per cent overvalued based on US economic fundamentals, the midpoint of a real effective exchange rate range between 5.2 per cent and 11.2 per cent undervalued. In 2019, the midpoint of that same IMF assessment range was an overvaluation of about 11 per cent. — Reuters

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