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Trade payment restrictions can strengthen countries’ current account positions, while capital controls influence exchange rate movements differently depending on whether they target capital inflows or outflows, according to a new IMF paper.
The findings are contained in a paper titled “The Impact of Trade Payment Restrictions and Capital Controls on External Sector Balances,” prepared by Adam Jakubik, Effie Karfaki, Tobias Krahnke, Wenjie Li, Anita Tuladhar and Chenyu Xu.
The paper examines how policy restrictions on international transactions affect current accounts and real exchange rates, an area the authors said has received relatively limited empirical attention compared with macroeconomic fundamentals, structural factors and conventional policy measures.
What the study is saying
The authors introduced new indicators measuring trade payment restrictions (MATR) and financial openness and capital controls (FinOpen) to assess how different policy measures affect external balances.
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- “Our findings suggest that trade payment restrictions and capital controls influence the current account significantly,” the paper noted.
Capital controls also produced different effects depending on their direction. Controls on capital inflows were positively associated with current account positions, while restrictions on capital outflows tended to weaken the current account by keeping capital within the domestic economy.
The study also found evidence of a transmission mechanism through exchange rates. Inflow controls were associated with real currency depreciation, while outflow controls were linked to real appreciation. Trade payment restrictions were likewise associated with real appreciation.
The authors cautioned that the results should not be interpreted as universal effects because the analysis relies on panel regressions that estimate average relationships across countries and over time.
They noted that trade payment restrictions and capital controls are frequently introduced during periods of economic stress.
They argued that incorporating these policy variables into external balance analysis could therefore improve macroeconomic surveillance and inform policy design.
Get up to speed
The Central Bank of Nigeria (CBN) has projected that Nigeria’s current account balance will strengthen further in 2026, with the surplus expected to rise to $18.81 billion, representing 11.16% of GDP.
- The apex bank’s projections suggest that while external balances will benefit from stronger exports and transfers, pressures from higher imports, services payments, and investment income outflows are expected to persist.
- Nairametrics reported that Nigeria’s current account surplus rose by 255.71% to $4.98 billion in the first quarter of 2026, from $1.40 billion in the fourth quarter of 2025.
- Nairametrics also reported that Nigeria’s current account surplus declined sharply by 65.52% to $1.4 billion in the fourth quarter (Q4) of 2025, down from $4.06 billion recorded in the third quarter (Q3).
- Several groups, including the Centre for the Promotion of Private Enterprise (CPPE), have warned against the use of legislative trade restrictions to compel domestic value addition in Nigeria.
In 2025, President Bola Tinubu announced that the Federal Government will bar all Ministries, Departments, and Agencies (MDAs) from procuring foreign goods and services where local alternatives exist.
What you should know
In March, the United States opened a trade investigation into Nigeria and 59 other economies over concerns that their trade practices may allow the importation of goods produced with forced labour.
In 2022, the World Bank warned that import restrictions and the Central Bank of Nigeria’s foreign exchange policies are the main drivers of food inflation in Nigeria.
In 2025, the U.S. President Donald Trump announced a baseline 10% tariff on all U.S. imports alongside sharper, country-specific reciprocal tariffs aimed at nations that impose steeper duties on American goods.
