The Outer Wealth of Nations: September 2021 Update
During 2020, characterized by the deepest, albeit brief, peacetime recession on record, most creditor countries continued to post current account surpluses and most debtor countries current account deficits. Beyond the depth of the recession, two major shocks affected current account balances: the fall in the price of oil and the collapse of international travel. As a result, exporters of oil and tourism services have typically experienced deterioration in their current account balances, with importers of these services on the other side of the ledger.
Everything else being constant, a decline in GDP tends to increase the size of credit and debit positions as a percentage of GDP. Credit and debit positions also change for two additional reasons: (1) new net loans or borrowings that economies take during the year (for which the current account balance is usually a good approximation, and (2) fluctuations in asset prices (such as interest rates, stock prices and interest rates) that change the value of outstanding receivables and liabilities.
The most striking feature of the evolution of asset prices in 2020 has been the skyrocketing world stock prices (14% between the end of 2019 and the end of 2020, according to the Morgan Stanley Capital International world stock index) and in particular the American stock prices (19% for the MSCI middle and large cap index). The rise in world stock prices improves the net external positions of “long” countries in equity instruments (portfolio investments in equities as well as FDI, if the latter are measured at market prices). Good examples are countries with very large sovereign wealth funds: for example Norway, whose net holdings of equity instruments abroad exceeded $ 800 billion in 2019 (over 200% of GDP) saw these net holdings increase by an additional $ 140 billion in 2020, providing another substantial boost to its net PII. The same goes for Gulf states like Kuwait and the United Arab Emirates. As a result, the net position of countries that are “short” equity instruments would deteriorate. This point is clearly illustrated by Figure 1, which shows, for countries with a GDP greater than $ 300 billion, how changes in credit and debit positions in 2020 relate to the net position of the previous year.
While current account imbalances have narrowed over the past decade, global credit and debit positions have continued to increase, reflecting the fact that major creditor countries (such as Germany and Japan) have continued to grow. to post sizable current account surpluses while large debtor countries (such as the United States) continued to post current account deficits. Figure 2 provides a visual summary of the development of credit and debt positions for major countries and regions over the past decade. The United States is by far the largest net debtor in absolute terms, accounting for well over half of global net debt positions at the end of 2020. Other debtor regions include some advanced European economies (a group including France, Greece, Italy, Portugal and Spain) as well as emerging market regions, such as emerging Asia (excluding China), Latin America and emerging Europe (excluding Russia).
The main creditors are a group of advanced European economies, including Germany, the Netherlands, Norway and Switzerland, among others; major oil exporters (Middle East and Russia); Japan; other advanced Asian economies (Hong Kong, Korea, Macao, Singapore and Taiwan) and China. While the overall size of credit and debit positions has grown over the past decade, the increase in 2020 is particularly significant. This was due to three factors noted previously: the decline in global GDP, current account imbalances and the considerable valuation gains recorded by countries with large net holdings abroad (which include major oil exporters, European advanced creditor countries and advanced Asian economies), with corresponding valuation losses for debtor countries experiencing rapid acceleration in domestic stock prices, such as the United States.
 The countries for which 2020 data is missing are mainly found in Africa and the Middle East, as well as in small offshore centers and the Pacific Islands. The most important are Oman and Venezuela.
 The market value of external assets and liabilities is also affected by changes in interest rates and exchange rates.
 Rising valuations of domestic stocks implies an increase in the value of domestic financial wealth – the deterioration in the net international investment position only reflects that part of the gains go to non-residents holding domestic stocks.
 For the United States, a country where the net position in equity instruments was close to breakeven at the end of 2019, the much larger rise in domestic stock prices relative to stock prices elsewhere led to a significant deterioration in equity. the external position of the United States, as shown by Milesi Ferretti, 2021.
 For a discussion of global imbalances and the evolution of net external positions in 2020 for major economies, see IMF External Sector Report 2021.
Lane, Philip R. and Gian Maria Milesi-Ferretti, 2001, “The External Wealth of Nations: Measures of Foreign Assets and Liabilities for Industrial and Developing Countries», Journal of International Economics 55 (2), 263-294.
Lane, Philip R. and Gian Maria Milesi-Ferretti, 2007, “The External Wealth of Mark II Nations: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004», Journal of International Economics 73 (2), 223-250.
Lane, Philip R. and Gian Maria Milesi-Ferretti, 2018, “The foreign wealth of nations revisited: international financial integration in the aftermath of the global financial crisisIMF Economic Review 66, 189-222.