The spectre of current account deficits, surpluses
Similar to current account deficits, large current account surpluses can also become problematic in certain circumstances
Having a large current account deficit relative to a country’s gross domestic product (GDP) has often been viewed as making it more vulnerable to “sudden stops" or reversals in foreign capital inflows. In 2013, investment bank Morgan Stanley termed Brazil, India, Indonesia, Turkey and South Africa the “Fragile Five", due to their relatively large current account deficits (see Chart 1), which were accompanied by slowing growth in some cases (Brazil, India and Turkey) and high fiscal deficits in others (India and South Africa). The need to finance their current account deficits left these countries exposed when foreign investors panicked after the then US Federal Reserve chairman Ben Bernanke signalled tapering of the Fed’s quantitative easing (QE) programme on 22 May 2013. The Indian rupee suffered the largest decline among the Fragile Five, depreciating by 23.5% to 68.8 against the US dollar by end-August 2013.