Amid expectations of a massive current account surplus this year driven by robust semiconductor exports, it is projected that South Korea's current account gap evaluation level released by the IMF will rise to "significantly above" next year.

Kim Min, a manager at the International Finance Research Team of the Bank of Korea’s International Department, stated in a report released on the 6th titled "The Impact of the IMF EBA (External Balance Assessment) Model Revision on South Korea's Current Account Evaluation," "In next year's evaluation, South Korea's current account is expected to be assessed as 'significantly exceeding' the appropriate level calculated by the IMF."

The IMF publishes its External Balance Assessment (EBA) report annually to evaluate member countries' current account balances (as a percentage of GDP) from the previous year, estimate the appropriate current account matching each country's medium-term equilibrium level, and calculate the current account gap, which represents the excess current account balance.

In this year's evaluation, South Korea was assessed as "exceeding" the medium-term equilibrium level. This represents a two-step upward revision from the previous "broadly in line" level.

Manager Kim explained that South Korea’s unique characteristics, such as a rapidly aging population, have worked to its disadvantage in the current account evaluation.

South Korea's current account gap increased by 2.3 percentage points compared to 2024. About 60% of this increase was attributable to a decline in the appropriate current account level (-1.4 percentage points), the vast majority of which stemmed from revisions to the demographic model (-1.1 percentage points).

In the model introduced for this year's evaluation, the IMF changed the denominator for calculating population share from the working-age population to the total population, and changed the future aging population share to the current aging population share. South Korea was found to be the most affected by these model revisions among the 26 analyzed countries.

Manager Kim observed that in next year's evaluation as well, the introduction of the new concept of "excess-adjusted net foreign assets" (NFA) into the model will lower South Korea's appropriate current account level, working unfavorably for the current account assessment.

Excess-adjusted net foreign assets strip out the accumulated excess current account balances (surpluses and deficits) over a past certain period from actual net foreign assets. Since South Korea is a net foreign asset country and has a history of accumulated positive current account gaps, this revision has the effect of widening the current account gap.

Projecting South Korea's current account gap (based on 2026) under three scenarios (optimistic at 23.3% of GDP, baseline at 20.0%, and pessimistic at 16.0% — Note: figures reflect the report's scenario parameters), the appropriate current account decreased by 1.1 percentage points due to the model revision effect (0.74 percentage points) across all three scenarios.

Consequently, the resulting current account gaps are 21.1% (optimistic), 17.8% (baseline), and 13.8% (pessimistic) [Note: figures cited as percentage differentials/gap metrics in the text], raising the strong possibility that the evaluation grade will be upgraded by one more step to "significantly above" the IMF's appropriate level across all scenarios.

An official from the Bank of Korea stated, "The EBA model has limitations in capturing unique characteristics such as rapid aging and the semiconductor boom. We will explain South Korea's unique circumstances to the IMF, such as whether the surge in the current account will persist over the long term or is merely a cyclical economic factor."

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