Foreign Investment

• Foreign Debt and Equity


  Debt: The amount of money that Australia residents, both public and private own to the rest of the world

  Equity: Represents the extent to which foreign residents own Australian assets.

  Gross Foreign Debt = The total of Australia's overseas borrowing

  Net Foreign Debt = Gross foreign debt - Australian lending to overseas
• Foreign Liabilities and Assets


  Liabilities: Foreign Liabilities are created when Australian residents borrow money from overseas or sell assets such as shares to foreign residents

  Assets: Foreign assets are created when Australian residents lend money to foreign residents or purchase foreign assets
• Foreign Investments

  • Transactions involving changes in the levels of Australian foreign assets and liabilities
  • These are divided into direct, portfolio, financial divinities, reserve assets
  • FI may take the form of borrowing or it may be in the form of equity
  • Portfolio investment is dominant type in Australia being 47% while direct is 26%
• Benefits of Foreign Debt

  • Most debt is private and used to expand Australian industry leading to economic growth, employment and income due to more exports, increased competition
  • This investment allows for greater specialisation giving higher comparative advantage
  • Debt servicing ratio declines - ability to meet our extended obligations
• Costs of High Foreign Debt

  • Australian credit rating downgraded (Future borrowing has higher interest rates
  • Less income due to repayments lowering cost of living
  • Vulnerable to external shocks such as high interest rates and decline in world growth rate
  • Depreciation of Australian dollar revalues debt and interest rates
  • Monetary policy and interest rates increasing to control growth