The International Monetary Fund's revised External Balance Assessment model will lower South Korea's estimated norm for its current account surplus, widening the gap between the actual and the norm, according to a Bank of Korea report. The report said the revised model fails to capture Korea's rapid population aging and its semiconductor export boom. A wider current account gap can trigger sharp currency swings and trade friction, the report said, arguing the IMF should take Korea's specific circumstances into account.
Kim Min, a manager on the international finance research team at the Bank of Korea's International Department, made the assessment in a report released on the 6th titled "The Impact of the IMF's EBA Model Revision on the Assessment of Korea's Current Account."
The IMF publishes an annual External Sector Report that reviews member countries' current account balances as a share of gross domestic product for the previous year. It also estimates a norm consistent with each country's medium-term equilibrium and calculates the current account gap, which represents the excess over that norm.
According to the central bank, the IMF this year changed the denominator used to calculate population ratios from the working-age population to the total population, and replaced the projected share of the elderly population with the current share. Under the revised model, the current account gap for 2025 comes to 3.1%, 2.3 percentage points wider than in 2024. About 60% of that widening stems from a decline in the estimated norm, of 1.4 percentage points, and most of that decline is attributable to the IMF's revision of the population component, at 1.1 percentage points.
Kim also said the introduction next year of a concept known as excess-adjusted net foreign assets would further lower Korea's estimated norm, working against the country in the current account assessment.
The excess-adjusted measure strips out the accumulated excess current account balances, both surpluses and deficits, over a set past period from actual net foreign assets. Because Korea is a net creditor nation and has accumulated positive current account gaps in past periods, this revision has the effect of widening the gap.
Projections of Korea's current account gap for 2026 under three scenarios — a current account surplus equal to 23.3% of GDP in the optimistic case, 20.0% in the baseline case and 16.0% in the pessimistic case — showed the estimated norm falling by 1.1 percentage points in all three, reflecting a 0.74 percentage point impact from the model revision.
"The EBA model has limitations in capturing specific circumstances such as rapid population aging and the semiconductor boom," a Bank of Korea official said. "We will explain Korea's particular situation to the IMF, including the point that it is not clear whether the surge in the current account surplus will persist over the long term or is a cyclical factor."
