How Much Does a Current account deficit affect a Country?

Readers Question: A huge current account deficit can seriously affect the economic well being of any country, big or small. Discuss this statement and offer some policy advises to the governemnts in countries which suffer from this.

Please see: Does a current account deficit matter?

I would add that some countries are better able to finance a current account deficit. E.g. the US could run a current account deficit because Chinese investors were willing to buy US assets. US debt was bought at a relatively low interest rates because of the dollar’s status as the reserve currency.

Some countries like the UK, may be an attractive destination for long term investment (Capital inflows) and this makes a current account deficit easier to finance. So it does depend on the size of the country and also the confidence people have in investing their. E.g. a developing economy may find it more difficult to attract capital flows.

 Policies to Reduce Current account deficit

• Solving UK current account deficit 
• Can government reduce current account deficit 
• Reasons for current account deficit