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Over the last 10 years Australia's net foreign debt has more than doubled from $130.8b at 30 June 1990 to $329.8b at 30 June 2002. The ratio of net foreign debt to GDP was 47.0% at 30 June 2002, up on the results of recent years. Net interest income payable on net foreign debt as a percentage of goods and services credits was 9.2% in 2001-2002, a slight decrease on previous years.
Foreign debt is the amount borrowed from non-residents by residents of a country. It is distinguished from equity investment by the obligation to pay interest and/or repay principal.
Gross foreign debt is the total amount borrowed from non-residents. Net foreign debt is equal to gross foreign debt minus lending by residents of Australia to non-residents, including reserve assets.
The level of debt is often expressed as a percentage of Gross Domestic Product (GDP). This is done to place the extent of foreign debt in context and to enable valid comparisons over time and between countries. Movements in this ratio are an indication of the changing significance of foreign debt.
An economy's capacity to pay the costs associated with debt are portrayed by its debt service ratio. The debt service ratio shows the percentage of goods and services credits (export earnings) being used to meet interest obligations on debt.
There are two important relationships between the level of foreign debt and the balance of payments. First, the financial account entries reflect how much Australia has had to borrow to finance the net acquisition of real resources (goods, services and income) and other financial resources (net equity). Secondly, the interest obligations on debt owing to non-residents add directly to the current account deficit.
While foreign debt is an important indicator in its own right, a comprehensive analysis of Australia's economic situation should also take account of equity assets and liabilities, as well as non-financial assets. All of Australia's assets and liabilities are recorded in the national balance sheet.