6.5.2—Policies for current account imbalances

Policies for a current-account deficit can include demand management, supply-side improvements, exchange-rate adjustment, trade diversification and measures that change saving or investment.

Contractionary demand policy may reduce imports but at the cost of output and employment. Supply-side and competitiveness policies take longer; depreciation may help exports but can raise imported inflation and debt costs. A surplus may call for stronger domestic demand rather than export restraint.

If a deficit comes from an overheating consumption boom, tighter fiscal policy may help. If it comes from weak productivity, training and infrastructure address the mechanism more directly.

There is no universal “deficit policy”; match the instrument to the cause and evaluate side effects, timing and who bears them.