The release of the national accounts reveals that net foreign debt reached 54.0% of GDP in the September quarter. This is the second highest level on record for the foreign debt to GDP ratio (the peak was 55.6% of GDP in the December quarter 2008). It doesn’t seem to be phasing anyone, which is probably the correct approach, but it is a biggish level.
Ratings agency Fitch noted in November 2011 that “The country’s net external debt … made Australia relatively sensitive to external financing shocks, compared with its peers”. At that time, net foreign debt was 53.2%.
Moody’s noted earlier this year that “the most important risk remains the economy’s reliance on external capital inflows” and that “the country has consistently run current account deficits and built up one of the largest negative net international investment positions among the advanced economies”. Importantly, Moody’s “outlook is for Australia’s reliance on foreign funds to decrease”.
This isn’t happening.
A negative watch or downgrade for Australia seems a remote possibility, but many of the things that supported the triple-A rating with stable outlook are starting to turn the wrong way.
SK: 4 December 2013
From yesterday… 3 December 2013
One of the least reported bits of news in today’s economic data and policy flurry will be the lift in net foreign debt to $829.1 billion in the September quarter. This is approximately 54.5% of GDP (the September quarter GDP data are not released until tomorrow).
Net foreign debt rose about $37 billion in the quarter to be $83 billion higher than the level a year ago. It is certainly a record in dollar terms and as a share of GDP, it is close to a record high.
I generally don’t get too fussed about net foreign debt when the overwhelming majority of it is driven by the private sector, as Australia’s foreign debt currently is. But it can be a different story for the credit ratings agencies and some global investors.
In the olden days, a lift in net foreign debt of the scale seen in the September quarter would have sparked concern in markets – the Australian dollar would have been sold and there would be all sorts of pontificating about Australia living beyond its means and being in hock to the rest of the world.
Thankfully that lame debate does not happen now. At least I don’t think it does.
Maybe the ratings agencies, already antsy about the government’s debt ceiling issue, may look to foreign debt as a further factor to give is concern about the outlook for Australia. Maybe foreign investors, already lightening their holdings of Australia will continue to do so and the Aussie dollar will fall sharply.
Foreign debt could well come back onto the radar as an important issue if it keeps rising at the pace seen over the past year or so.