When is a Current Account Deficit Bad?
A current account deficit is sustainable when its underlying drivers support a smooth correction in the future. It is unsustainable when symptomatic of macroeconomic imbalances that would eventually trigger disruptive adjustments. Although a curren...
| Main Authors: | , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/507731538487989157/When-is-a-Current-Account-Deficit-Bad http://hdl.handle.net/10986/30506 |
| Summary: | A current account deficit is sustainable
when its underlying drivers support a smooth correction in
the future. It is unsustainable when symptomatic of
macroeconomic imbalances that would eventually trigger
disruptive adjustments. Although a current account deficit
in itself is neither good nor bad, it is likely to be
unsustainable and lead to harmful consequences when it is
persistently large, fuels consumption rather than
investment, occurs alongside excessive domestic credit
growth, follows an overvalued exchange rate, or accompanies
unrestrained fiscal deficits. Even though a current account
deficit is often paralleled by deteriorating net foreign
assets, it may not be as informative about immediate-term
financial vulnerabilities as the size, maturity, and
currency composition of gross financial stocks. |
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