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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