Foreign Debt


Monthly Statistical Bulletin Feature Articles

Concepts and Definitions

Each quarter the Australian Bureau of Statistics (ABS) publishes comprehensive details of Australia's international accounts-balance of payments and international investment position statistics. A key indicator and one which is widely quoted in the media is Australia's level of foreign debt.

Foreign debt is referred to also as external debt. Foreign debt is distinguished from other kinds of foreign investment capital inflow such as foreign ownership, because it carries with it the obligation to pay interest or to repay principal.

It should be noted that foreign debt does not equal national debt. The latter is the total government debt and comprises government borrowings from Australian residents and government borrowings from overseas residents-it therefore excludes overseas borrowings by the private sector.

There are two ways of looking at debt. One is simply to add up all non-equity liabilities. This is gross foreign debt, the major component of which is the total amount of borrowings from non-residents by residents of Australia. Net foreign debt is equal to gross foreign debt less non-equity assets such as foreign reserves held by the Reserve Bank and lending by residents of Australia to non-residents.

Changes to Foreign Debt Series

In the September quarter 1997 the ABS began publishing Australia's balance of payments and international investment statistics on a new basis, consistent with the most recent international standards for these statistics. The main reason for this change was to improve the international comparability of Australia's statistics.

A consequence of the above initiative however, was a change in the definition of foreign debt. Whereas previously, gross foreign debt was defined simply as the amount borrowed from non-residents by residents of Australia, the revised definition includes financial derivatives (not previously collected) and has been widened to include all non-equity liabilities. The result was an increase of $50 billion in gross debt in 1996-97. For purposes of symmetry with the concept of gross foreign debt, the definition of net foreign debt has been similarly widened to comprise all non-equity liabilities less all non-equity assets. The result was an increase of $4 billion in net foreign debt in 1996-97. ABS foreign debt figures on the new basis have been calculated back to June quarter 1982

Characteristics of Foreign Debt

  •  The public share of foreign debt in Australia is relatively small. In 1996-97, the public sector accounted for just a third of Australia's total debt. It is this low level of public debt that distinguishes Australia from developing country debtors.
  •  The maturity structure of debt shows that the average period of a loan has shortened considerably over the past couple of decades. The proportion of total debt outstanding which was due in less than one year rose from 11 per cent in 1980-81 to 44 per cent in 1995-96.

  •  The currency denomination of debt has also shifted over the past couple of decades to a greater proportion of Australian denominated liabilities. In 1980-81, around 15 per cent of outstanding debt was denominated in Australian dollars rising to 47 per cent in 1995-96. The currency in which the debt is expressed is important in analysing the effects of exchange rate movements on the level of foreign debt. The higher the proportion of foreign debt that is denominated in Australian dollars, the less significant will be the impact of exchange rate movements on the level of that debt.

  •  The composition of foreign debt by country shows that the most important creditor countries for Australia in terms of total debt are Japan, the United States and the United Kingdom, representing 18, 16 and 9 per cent respectively of gross foreign debt in 1995-96.

Historical Data

Foreign debt is often expressed as a percentage of gross domestic product (GDP) in order to show its relative significance. This allows for more appropriate comparisons to be made over time and reflects to a degree the economy's capacity to repay the debt.

Net Foregn Debt

The figure above plots the movement in Australia's net foreign debt as a percentage of GDP since 1968-69. It shows that net foreign debt remained quite low during the 1970s, but then increased rapidly in the 1980s. In the 16 years to 1996-97, net foreign debt increased almost seven-fold from 6 to 41 per cent of GDP. The most rapid growth occurred in the period from 1980-81 to 1985-86.

This feature was prepared by Tony Kryger.

 

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