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Foreign Debt

It may undermine Australia's international credit rating (which reflects the confidence that world financial markets have in Australia's ability to repay its loans). A downgrading in Australia's credit rating would make it more expensive to borrow funds internationally as lenders demand a higher interest rate because of the increased risk associated with the loan.
             The Appendix shows that Australia's net foreign debt to GDP ratio seems to have recently experienced a sharp rise after much slower growth in recent years. This reflects the fact that large changes in the value of the Australian dollar have a significant effect on the size of the net foreign debt. Because most of the debt is borrowed in foreign currencies, when the Australian dollar fell sharply in the 1990's, foreign debt jumped by around 10% of GDP. In contrast, during the early 1990's, there was a shift from debt financing to equity financing in the Capital and Financial Account, with the majority of capital inflow coming in the form of equity, therefore slowing the growth of foreign debt at this time.
             One of the major economic measures of a country's capacity to service its foreign debt is the debt servicing ratio. This figure indicates the proportion of export revenue that must be spent on interest payments on foreign debt. A country is better able to service its foreign debt when it has a high volume of exports and is therefore earning a substantial amount of foreign currency. The debt servicing ratio in Australia peaked at just under 20% in the late 1980's, but has since fallen back due to lower worldwide interest rates and Australia's continued export growth. In recent years the debt servicing ratio has been below 10% reflecting the fact that the rising foreign debt has been matched by increasing export income.
             In future years Australia must pay interest on its foreign debt and returns on foreign equity, both of which constitute an outflow of funds on the net income category of the Current Account.


Essays Related to Foreign Debt

1. Debt

The federal debt of $5.7 Trillion, or $21,000 per child. This chapter covers all U.S. debt, called National Debt (national debt is here defined as the sum of all recognized debt of federal, state & local governments, international, private households, business and domestic financial sectors, including federal debt to trust funds - but excludes the huge un-funded contingent liabilities of social security, government pensions and medicare). ... National debt is here defined as all U.S. debt (sum debt of federal and state & local governments, international, and private debt, incl. hou...

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2. Foreign debt in Australia

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3. Foriegn Debt

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4. The American National Debt Crisis

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5. United States Foreign Investments

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6. Future Prospect of Hong Kong debt market

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7. National Debt

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8. European Debt - Financial Crisis

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9. Debt Crisis

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