*The issue note reflects the author’s views and not necessarily the official position of the BOK
SEOUL, October 6 (AJP) — An IMF demographic-model revision lowered South Korea’s estimated current-account norm by 1.10 percentage points, the largest decline among 26 economies, according to a Tuesday issue note from The Bank of Korea (BOK).
Kim Min, an economist at the BOK’s International Department who authored the note, isolated the effect by comparing the revised model with a counterfactual that retained the previous demographic structure.
South Korea’s current-account surplus rose to 6.6 percent of gross domestic product in 2025 from 5.3 percent a year earlier, with semiconductor net exports accounting for much of the increase, according to the International Monetary Fund (IMF).
The IMF’s External Balance Assessment, or EBA, model put Korea’s cyclically adjusted current account at 6.4 percent of GDP against a model-estimated current-account norm of 3.3 percent, producing a gap of 3.1 percent.
The norm refers to the current-account balance the model estimates would be consistent with a country’s medium-term economic fundamentals and desirable policies.
IMF staff then made a separate adjustment for Korea’s unusually rapid population aging, raising the norm to 3.9 percent and bringing the final current-account gap down to 2.5 percent.
The IMF assessed Korea’s 2025 external position as “stronger,” meaning it stood above the level considered consistent with the country’s fundamentals and desirable policies, up from “broadly in line,” which indicates broad consistency with that benchmark.
The EBA model estimates current-account norms using factors including net foreign assets, productivity, demographics and policy settings, with the demographic component reflecting how population age and longevity affect saving.
The latest revision changed how aging enters the calculation, placing greater weight on the current share of elderly people and less on how large that population is expected to become in the future.
The IMF itself has identified Korea as an outlier in the speed of population aging, while Kim found that the revised framework may still fit Korea less well because older Koreans do not necessarily follow the conventional life-cycle pattern in which people save less and draw down assets after retirement.
Households headed by people aged 65 or older had an average saving propensity of 32.2 percent in 2025, compared with 30.9 percent for all households.
Korea’s employment rate for people aged 65 or older stood at 39.5 percent in 2025, the highest among OECD member countries and about 2.8 times the group’s simple average.
Kim found that 1.03 percentage points, or 94 percent, of the 1.10 percentage point widening caused by the demographic revision appeared in the model’s residual — the portion not explained by its economic and policy variables — while just 0.07 percentage point came from the policy gap.
The result pointed to a weaker fit of the revised model for Korea rather than changes in the country’s policy settings, Kim said.
The IMF plans another EBA revision for its 2027 External Sector Report, changing how net foreign assets enter the model, a move Kim estimated could widen Korea’s 2026 current-account gap by another 0.74 percentage point.
The final methodology has yet to be fixed, however, and the estimated impact varies depending on the base year and calculation period.
AJP Takeaways
- The IMF’s demographic-model revision lowered Korea’s estimated current-account norm by 1.10 percentage points, the largest decline among 26 economies examined.
- Korea’s 2025 current-account surplus stood at 6.6 percent of GDP, while the IMF EBA model put its current-account norm at 3.3 percent and the model-based gap at 3.1 percent.
- Kim found that 94 percent of the revision-driven widening appeared in the model’s unexplained residual, suggesting the revised framework may not fully capture Korea’s unusually rapid aging and elderly saving patterns.
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