Foreign Debt
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.
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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