Global imbalances are at the core of today’s trade tensions, but official current account statistics may not be sufficient to assess the external positions of financially integrated economies. For instance, balance of payments accounting standards do not prescribe the recording of retained earnings on portfolio equity investment in the current account. This column argues that adjustments in income flows in equity investment therefore remain concealed in official current account statistics. In today’s financially integrated world with existing accounting standards, external adjustment mechanisms should be considered more broadly than just as an evolution of trade balance and exchange rate movements. 

Policymakers use a well established traditional accounting method to analyse past paths and predict future paths of debt ratios. But the traditional accounting exercises underemphasise the role of economic growth. This column proposes a simple, extended accounting framework to recognise the importance of growth more fully and explicitly. It quantifies the role of economic growth in debt-to-GDP measurement for Ireland and Italy, who were similarly placed in 2012 but whose paths diverged significantly in subsequent years.