Assessing Prudent NIIP and Current Account Positions

This chapter presents prudential benchmarks or reference values for the net international investment position (NIIP) in order to help assess external sustainability. The results suggest that while stock imbalances persist in some EU countries, external sustainability risks continue to abate. The empirical findings also demonstrate that the NIIP outperforms other stock indicators for assessing external sustainability. Moreover, the results suggest that low-income countries face external sustainability risks at ‘less negative’ NIIP levels than richer countries. An application to EU countries illustrates the resulting country-specific prudential benchmarks for the headline NIIP and its debt component, which can complement the Commission's macroeconomic surveillance toolbox. In the EU, several net debtor countries still have legacy NIIPs that surpass prudential benchmarks. But the balanced current accounts in most of these çountries imply that they are on track to return their NIIPs to prudent levels by the mid-2020s. In contrast, EU creditor countries do not run external sustainability risks. Yet they continue to run current account surpluses that exceed the level required to stabilise their NIIPs at current levels.