Australia's Foreign Debt
Foreign Debt
Good morning ladies and gentlemen. Today I will be speaking to you on a topic that many Australians believe the government should start taking a lot more seriously. Our foreign debt.
Australia’s level of foreign debt is a key economic indicator and one which is widely quoted in the media today. But before we get into what the problems dealing with this issue we must first define exactly what it is, and how it is calculated.
Foreign debt or commonly referred to as external debt can in simple terms be described as the amount of money owed to overseas countries by groups in an economy. There are three main ways of measuring a countries foreign debt. Gross foreign debt is the total amount owed by Australians to overseas lenders. Net foreign debt is equal to gross foreign debt minus amounts of money that overseas investors owe Australia. This figure gives a better indication of Australia’s debt situation as it takes in account what we are owed ourselves. The last, and probably most accurate measure, can be calculated my taking the Net Foreign Debt as a percentage of our Gross Domestic Product.
According to the Australian Bureau of Statistics latest figures, Australia’s net foreign debt for the September quarter stood at $300.7b or 45.6% of the Gross Domestic Product, up nearly 16%, on the same time the previous year. This is the equivalent of about $16,000 for every man, woman and child in the country. In comparison to other countries, foreign debt in the US represents only around 20 per cent of GDP. Australia’s level of debt has grown at a steady rate since the early 1990’s. However a slump in business investment in this last quarter, a fall of 5.2% in private capital expenditure, a key factor in calculating economic growth, and a falling exchange rate, has set economic alarm bells ringing.
The main cause of Australia’s foreign debt is the large Current Account deficits we ring up each year. In the 1980’s, when our foreign debt increased seven-fold our current account deficits were largely cause by out excessive levels of spending on imports. But main cause of Australia’s Current Account deficits in the 1990’s have been the huge amount of interest to be paid on the foreign debt that already exists. Australia had to borrow more money from overseas just to keep up with these interest payments. This has created a vicious circle of debt that we are now trapped in.
Most of Australia’s foreign debt is owed by companies and governments, and they are responsible for paying it off. We as consumers owe very little of the foreign debt, but even so, it dramatically affects every one of us. In the late 1980’s and early 1990’s Australians had their first taste of the serious effects of foreign debt. In the late 1980’s our Current Account deficit was rising so quickly that the government decided that it was imperative that they take action. The method chosen by the government to use was [next page]