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1301.0 - Year Book Australia, 2006  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/01/2006   
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INTERNATIONAL ACCOUNTS

International accounts cover the closely related and integrated balance of payments and international investment position statistics. Diagram 30.1 presents the broad structure and relationship of these statistics.

Australia's balance of payments provides a statistical statement that systematically summarises the economic transactions between residents of Australia and residents of other countries. Residents, who may be people or businesses, need not be Australian nationals. Transactions cover the provision (changes in ownership) of goods, services and income, financial claims on and liabilities to the rest of the world, and transfers without anything provided in exchange (such as gifts).

Australia's international investment position is a balance sheet of the stock of foreign financial assets and liabilities of Australian residents. International investment statistics integrate the balance sheet positions at two points in time with information on increases and decreases in the levels of these assets and liabilities as a result of the changes due to transactions (investment flows, including reinvestment of earnings) as shown in the financial account of the balance of payments, together with the other changes that affect either the value of the stock (price, exchange rate) or the volume of the stock (other adjustments) of financial assets and liabilities.

30.1 RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS
Diagram 30.1: RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS

Source: Balance of Payments and International Investment Position, Australia: Concepts, Sources and Methods (5331.0).


CONCEPTUAL FRAMEWORK

Australia's international accounts statistics, which cover both the balance of payments and the international investment position, are compiled in accordance with international statistical standards as defined in the fifth edition of the International Monetary Fund's Balance of Payments Manual (BPM5). The concepts of residency, transactions, valuation and time of recording are common to the balance of payments and international investment position statistics.

The balance of payments accounts, which present systematically the economic transactions between Australia and the rest of the world, incorporate four types of economic transactions. The first involves the provision of real resources, that is, transactions in goods, services and income. The second involves the provision of financial resources, that is, financial assets and liabilities. The third covers those one-sided transactions of a current nature (described as current transfers) that are offsets to transactions in current real or financial resources undertaken without an exchange. Current resources are not associated with, nor do they finance, fixed assets. For example, famine relief, whether in cash or in kind, would have its offset in current transfers. The fourth type is capital transfers that offset transactions undertaken, without exchange, in fixed assets or in their financing. For example, the provision of foreign aid funds to build roads is classified as a capital transfer.

The first and third of these types of transactions make up the current account, while the second type makes up the financial account. The fourth type (capital transfers), together with a minor item for the acquisition and disposal of non-produced, non-financial assets (such as patents), make up the capital account.

The double entry accounting system is used for recording balance of payments transactions. Under this system, credit entries, which are shown with no arithmetic sign, are used to record the provision of real or financial resources. Credit entries are therefore required for exports of goods and services, and for income earned by residents (a return for providing the use of financial capital to non-residents, or for providing the labour of Australian residents). Credit entries are also required for providing financial resources to the rest of the world, either as new liabilities (such as issuing bonds), or through returning existing foreign assets (such as selling foreign equity securities to non-residents). Therefore, any credit entry in the financial account will reflect either an increase in Australia's foreign liabilities (more foreign debt or foreign ownership), or a decrease in Australia's foreign financial assets (such as a run-down in foreign exchange reserves).

Conversely, debit entries, which are identified by a minus sign (-), are used to record the provision by the rest of the world of real or financial resources to Australia, and are shown against imports of goods and services, income earned from Australia by non-residents, and financial transactions involving either an increase in foreign financial assets or a decrease in foreign liabilities.

Transactions in a double entry accounting system are reflected in pairs of equal credit and debit entries. For example, an export transaction for which payment is received through the banking system involves a credit entry for providing the good to a non-resident and a debit entry for being provided with foreign exchange assets as payment for the export. Any entries for which there is no quid pro quo are matched by special offsetting entries. Such offsetting entries are made in the categories 'current transfers' (when offsetting the provision of current resources such as food for famine relief) and 'capital transfers' (when offsetting the provision of capital resources such as development aid to build a new dam).

In principle, the net sum of all credit and debit entries is zero. In practice, some transactions are not measured accurately (errors), while others are not measured at all (omissions). Equality between the sums of the credit and debit entries is then brought about by the inclusion of a 'net errors and omissions' item which balances the accounts.

Transactions and other changes should be valued in the balance of payments at market prices. However, for practical reasons, transactions are generally valued in the statistics at transaction prices as this basis provides the closest practical approximation to the market price principle.

Transactions and other changes recorded in the balance of payments should be recorded at the time of change of ownership. For current account transactions, this occurs when ownership of goods changes, or services are provided. Investment income is recorded on a full accrual basis, that is, when it is earned. Reinvested earnings are calculated for the earnings of the period of account, using current replacement cost estimates of depreciation and excluding holding gains and losses. Current and capital transfers should be recorded when the goods, services, cash, etc., to which they are offsets, change ownership. Those transfers, such as taxes and fines, which are imposed by one party on another, should ideally be recorded at the time of occurrence of the underlying transactions or other flows or events that give rise to the liability to pay. For financial account transactions, the time of recording is at the change of ownership of the financial claims, which by convention is the time at which transactions are entered in the books of the transactors.

In practice, the nature of the available data sources is such that the time of recording of transactions will often differ from the time of change of ownership. Where practical, timing adjustments are made for transactions to ensure that they are recorded in the time period in which change of ownership occurs.

International investment position statistics are the balance sheet of the levels (stock) of Australia's foreign financial assets and liabilities. The investment position at the end of a specific period reflects the financial transactions (investment flows) and other changes (non-transaction changes) due to exchange rate effects, other price effects and changes in the volume of these assets and liabilities, all of which affect the level of assets and liabilities that occurred during the period.

While the international investment position statistics form an integral part of Australia's balance of payments (diagram 30.1), they are also useful in their own right, for example, in determining the impact of foreign investment policies and the level of Australia's foreign assets and liabilities, including foreign debt. They are also useful when analysing the behaviour of financial markets.

As with the balance of payments, market price is the principal method of valuation in international investment position statistics, and financial assets and liabilities are recognised on a change of ownership basis, that is, at the time when the foreign financial asset or liability is acquired, sold, repaid or otherwise disposed of. By convention, this is generally taken to be the time at which the event is recorded in the books.

CLASSIFICATIONS

In the following tables, estimates are presented of the current, capital and financial accounts of Australia's balance of payments. Current and capital account transactions are generally recorded gross. This means that, for each item in the current and capital accounts, the credit entries are recorded separately from the debit entries. For example, goods credits are shown separately from goods debits. For each item in the financial account, however, debit and credit transactions are combined to produce a single result for the item which may be either a net credit or a net debit. For example, in a given period, non-resident purchases of shares issued by companies in Australia (credit) are netted against sales of Australian shares to residents by non-residents (debit) and the net result is recorded in the financial account as either a net credit or a net debit.

The current account records transactions between Australian residents and non-residents in goods, services, income and current transfers. Goods are classified into five main components: general merchandise; goods for processing; goods procured in ports by carriers; repairs on goods; and non-monetary gold. Changes of ownership from residents to non-residents are recorded as credits (also referred to as exports), and changes from non-residents to residents are recorded as debits (also referred to as imports). Services, comprising 11 primary components, cover services provided by Australian residents to non-residents (credits) and by non-residents to residents (debits), together with transactions in a few types of goods (e.g. goods purchased by travellers). Income, comprising investment income (e.g. dividends and interest) and compensation of employees (e.g. wages), covers income earned by Australian residents from non-residents (credits) or earned by non-residents from residents (debits). Current transfers cover the offsetting entries required when resources are provided, without something of economic value being received in return. When non-residents provide something to Australian residents, offsetting credits are required; when residents provide resources to non-residents, offsetting debits are required. General government transfers (e.g. official foreign aid) are distinguished from transfers by other sectors.

The capital account covers capital transfers (such as migrants' funds), with general government distinguished from other sectors, and the acquisition/disposal of non-produced, non-financial assets.

The financial account shows transactions in foreign financial assets and liabilities. The primary split is by functional type of capital, (direct investment, portfolio investment, financial derivatives, other investment and reserve assets) further split into assets and liabilities where appropriate. Within the asset and liability categories, details are presented of instruments of investment and resident sectors (for other than direct investment), and in some cases the contractual maturity of the instruments.

The primary distinction used in international investment position statistics is between assets and liabilities. Assets primarily represent Australian investment abroad, and liabilities primarily represent foreign investment in Australia. The difference between the two represents the net international investment position (graph 30.8 and table 30.9). Australian investment abroad refers to the stock of foreign financial assets owned by Australian residents, after netting off any liabilities of Australian direct investors to their direct investment enterprises abroad. Conversely, foreign investment in Australia refers to the stock of financial assets in Australia owned by non-residents, after netting off any claims of Australian direct investment enterprises on their foreign direct investors. The first breakdown below this asset/liability presentation is by functional type of capital, with details of the instruments of investment (table 30.11), the resident sectors and contractual maturities involved.

While many types of instruments of investment can be identified, similar instruments are combined for analytical reasons and ease of reporting. Some of those instruments are:

Equity capital - which includes ordinary and participating preference shares, units in trusts and net equity in branches

Reinvestment of earnings of direct investors - which refers to income retained within the enterprise from after-tax profits that is attributable to direct investors

Debt securities - which include longer term, generally tradeable security instruments such as bonds and debentures, with a contractual maturity of more than one year after issue, together with money market instruments (e.g. bills, commercial finance paper, negotiable certificates of deposit) with a contractual maturity of one year or less

Trade credits - which cover the direct extension of credit by suppliers and buyers for goods and services, including advances for work in progress or to be undertaken

Loans - which cover the direct lending of funds either, without a security evidencing the transaction, or with non-negotiable documentation. They include financial leases

Deposits - which comprise both transferable and other deposits

Other assets and liabilities - which consist of miscellaneous accounts in respect of interest, dividends, etc.

STATISTICAL OVERVIEW

The balance on current account for 2004-05 was a deficit of $57.2 billion (b), an increase of $9.4b (20%) on the previous year (table 30.2). The net income deficit rose $7.5b (32%) with an increase in income debits of $11.2b (28%) partly offset by an increase in income credits of $3.7b (22%). The deficit on goods and services was $25.5b, an increase of $1.8b on the 2003-04 deficit of $23.8b. The net goods deficit rose by $0.1b and the net services deficit rose by $1.7b on the previous year.

The surplus on capital account increased by $0.1b (10%) to $1.2b in 2004-05.

The balance on financial account recorded a net inflow of $55.7b, up $9.8b (21%) on the previous year. Direct investment recorded a net inflow of $56.9b, a $73.0b turnaround on the net outflow of $16.0b in 2003-04. Contributing to the net inflow was a rise in Australian direct investment abroad of $83.0b to $55.4b and a fall of $10.1b in the net inflow of direct investment into Australia. The net inflow on portfolio investment decreased $74.2b, while other investment recorded a turnaround of $12.4b to record a net outflow of $1.8b in 2004-05. Reserve assets rose $3.0b, while financial derivatives recorded a turnaround of $1.6b to be $0.7b in 2004-05.

30.2 BALANCE OF PAYMENTS, Summary

2000-01
2001-02
2002-03
2003-04
2004-05
$m
$m
$m
$m
$m

Current account
-18,147
-21,057
-41,581
-47,780
-57,170
Goods and services
558
-1,373
-18,876
-23,777
-25,534
Credits
153,763
153,200
148,293
143,484
162,308
Debits
-153,205
-154,573
-167,169
-167,261
-187,842
Goods
-308
-992
-18,478
-23,522
-23,599
Credits
120,216
120,950
115,800
109,504
127,321
Debits
-120,524
-121,942
-134,278
-133,026
-150,920
Services
866
-381
-398
-255
-1,935
Credits
33,547
32,250
32,493
33,980
34,987
Debits
-32,681
-32,631
-32,891
-34,235
-36,922
Income
-18,737
-19,667
-22,491
-23,734
-31,216
Credits
16,278
15,586
15,499
16,786
20,518
Debits
-35,015
-35,253
-37,990
-40,520
-51,734
Current transfers
32
-17
-214
-269
-420
Credits
4,453
4,280
4,233
4,273
4,269
Debits
-4,421
-4,297
-4,447
-4,542
-4,689
Capital and financial account
17,388
20,165
41,285
47,016
56,850
Capital account
1,109
1,016
991
1,095
1,200
Capital transfers
1,182
1,186
1,103
1,167
1,203
Credits
2,442
2,543
2,404
2,571
2,749
Debits
-1,260
-1,357
-1,301
-1,404
-1,546
Net acquisition/disposal of non-produced, non-financial assets
-73
-170
-112
-72
-3
Financial account
16,279
19,149
40,294
45,921
55,650
Direct investment
7,910
1,336
13,626
-16,044
56,922
Abroad
-14,353
-21,775
-7,773
-27,674
55,355
In Australia
22,263
23,111
21,399
11,630
1,568
Portfolio investment
11,067
8,944
17,367
78,599
4,357
Financial derivatives
-538
204
-1,037
-910
701
Other investment
6,720
7,888
15,958
-10,597
1,792
Reserve assets
-8,880
777
-5,620
-5,127
-8,123
Net errors and omissions
759
892
296
764
320

Source: Balance of Payments and International Investment Position, Australia (5302.0).


Graph 30.3 shows the differing influences of the trade balance and the net income deficit on the balance on current account. The net income deficit rose from $12.2b in 1988-89 to $31.2b in 2004-05. The underlying level of net income drives the level and direction of the current account deficit, as Australia continues to service its external liabilities. The trade deficit moved from a deficit of $6.9b in 1988-89 to a deficit of $25.5b in 2004-05 but fluctuated quite significantly over this period.

Graph 30.3: BALANCE ON CURRENT ACCOUNT COMPARED WITH NET INCOME


Table 30.4 describes the annual levels of Australia's official reserve assets and both the end of year and period average exchange rates for the major currencies, special drawing rights, and the trade weighted index.

30.4 RESERVE ASSETS AND EXCHANGE RATES

2000-01
2001-02
2002-03
2003-04
2004-05

RESERVE ASSETS(a) ($m)

Total reserve assets
-37,951
-37,435
-40,760
-50,342
-56,170
Monetary gold
-1,367
-1,445
-1,329
-1,473
-1,468
Special drawing rights
-197
-216
-226
-256
-251
Reserve position in IMF
-2,412
-2,992
-3,185
-2,497
-1,734
Foreign exchange
-33,975
-32,782
-36,020
-46,117
-52,717
Currency and deposits
-11,340
-11,761
-10,254
-23,420
-32,464
Securities
-22,562
-21,137
-25,758
-22,695
-20,222
Financial derivatives (net)
-73
116
-8
-2
-31

EXCHANGE RATES - UNITS OF FOREIGN CURRENCY PER A$

End of period(a)
United States dollar
0.5075
0.5648
0.6674
0.6889
0.7637
United Kingdom pound sterling
0.3603
0.3700
0.4038
0.3815
0.4224
Euro
0.6002
0.5715
0.5840
0.5702
0.6315
Japanese yen
62.94
67.48
79.99
74.82
84.14
Special drawing rights
0.4076
0.4277
0.4761
0.4694
0.5234
Period average(b)
United States dollar
0.5379
0.5239
0.5847
0.7136
0.7529
United Kingdom pound sterling
0.3704
0.3632
0.3685
0.4102
0.4052
Euro
0.6023
0.5850
0.5577
0.5981
0.5918
Japanese yen
61.49
66.10
70.01
78.91
80.45
Special drawing rights
0.4177
0.4135
0.4313
0.4933
0.5024

TRADE-WEIGHTED INDEX OF VALUE OF THE A$(c)

End of period(a)
49.7
52.3
59.4
59.1
64.5
Period average(b)
50.3
50.7
53.5
61.5
62.7

(a) At 30 June.
(b) Exchange rates and the trade-weighted index are provided by the Reserve Bank of Australia in respect of each trading day. Period averages are derived from these rates.
(c) May 1970 = 100.0. The trade-weighted index is reweighted annually and on special occasions as required.

Source: Balance of Payments and International Investment Position, Australia (5302.0).


INTERNATIONAL TRADE IN GOODS AND SERVICES (BALANCE OF PAYMENTS BASIS)

Australia's international trade in goods and services for the six years to 2004-05 is shown in tables 30.5 (exports or credits) and 30.6 (imports or debits). The tables provide both current price and chain volume measures.

The components of goods shown in tables 30.5 and 30.6 are defined in terms of groupings of items in the United Nations Broad Economic Categories (BEC) for credits, and a version of the BEC for balance of payments purposes, modified for debits.

The current price value of a transaction may be expressed as the product of a price and quantity.

Chain volume measures of exports and imports remove the effects of price changes. They provide measures, in dollar values, which indicate changes in the actual volume of exports and imports.

There are, however, many transactions recorded in statistics of international trade in goods and services for which it is not possible to apply such an approach. In such cases it is necessary to make assumptions and approximations (e.g. revaluing by means of the price index which is considered to be most closely related to the commodity involved).

In current price terms, the balance on goods and services recorded a deficit of $25.5b in 2004-05, an increase of $1.8b (7%) on the $23.8b deficit recorded in 2003-04. Between these two years, goods and services credits rose $18.8b (13%) to $162.3b while debits rose $20.6b (12%) to $187.8b.

Over the same period, goods credits rose $17.8b (16%) to $127.3b, with rural goods up $1.1b and non-rural goods up $16.8b. Goods debits rose $17.9b (13%) to $150.9b. Consumption goods rose $4.2b, capital goods rose $3.8b, while intermediate and other goods rose $9.8b. Contributing to the rise in the intermediate and other goods were imports of fuels and lubricants, up $4.8b to $14.8b, and processed industrial supplies, up $2.0b to $14.0b.

More detailed information on exports and imports of goods, on a merchandise trade basis without adjustment to a balance of payments basis, and trade in services, is shown later in this chapter.

30.5 GOODS AND SERVICES CREDITS

2000-01
2001-02
2002-03
2003-04
2004-05
$m
$m
$m
$m
$m

AT CURRENT PRICES

Goods and services credits
153,763
153,200
148,293
143,484
162,308
Goods credits
120,216
120,950
115,800
109,504
127,321
General merchandise
112,806
113,331
107,108
101,530
119,472
Rural goods
29,164
30,085
25,484
24,560
25,668
Meat and meat preparations
5,796
6,246
5,655
5,758
6,944
Cereal grains and cereal preparations
5,937
6,481
4,487
5,094
5,157
Wool and sheepskins
3,897
3,687
3,545
2,778
2,838
Other rural
13,534
13,671
11,797
10,930
10,729
Non-rural goods
83,642
83,246
81,624
76,970
93,804
Metal ores and minerals
15,205
14,774
14,523
14,888
19,730
Coal, coke and briquettes
10,844
13,430
11,987
11,001
17,063
Other mineral fuels
13,464
10,940
11,049
8,766
11,121
Metals (excl. non-monetary gold)
10,146
9,650
8,711
7,759
8,675
Machinery
8,797
7,999
7,362
6,839
7,497
Transport equipment
5,041
5,686
6,273
5,155
4,942
Other manufactures
13,530
13,758
13,485
13,276
14,057
Other non-rural (incl. sugar)
6,615
7,009
8,234
9,286
10,719
Beverages
1,931
2,287
2,605
2,620
2,836
Sugar, sugar preparations and honey
1,330
1,610
1,363
1,123
n.p.
Other
3,354
3,112
4,266
5,543
n.p.
Other goods
7,410
7,619
8,692
7,974
7,849
Services credits
33,547
32,250
32,493
33,980
34,987

CHAIN VOLUME MEASURES(a)(b)

Goods and services credits
144,234
142,169
141,211
143,484
147,067
Goods credits
108,137
108,439
108,141
109,504
113,122
General merchandise
100,233
100,758
99,771
101,530
105,676
Rural goods
27,909
26,965
23,517
24,559
25,618
Meat and meat preparations
6,200
5,942
6,010
5,758
6,409
Cereal grains and cereal preparations
5,426
5,520
3,754
5,094
5,502
Wool and sheepskins
3,918
3,416
2,735
2,778
3,161
Other rural
12,517
12,195
11,203
10,930
10,548
Non-rural goods
72,469
73,835
76,261
76,971
80,056
Metal ores and minerals
12,973
13,469
14,238
14,887
16,135
Coal, coke and briquettes
9,730
9,970
10,438
11,001
11,649
Other mineral fuels
11,005
10,818
10,129
8,765
8,917
Metals (excl. non-monetary gold)
9,170
9,816
9,131
7,759
7,441
Machinery
7,388
6,847
6,680
6,838
7,637
Transport equipment
4,599
4,905
5,577
5,156
4,964
Other manufactures
12,061
12,234
12,540
13,276
13,507
Other non-rural (incl. sugar)
5,845
6,159
7,656
9,286
9,805
Beverages
1,691
1,995
2,394
2,619
n.p.
Sugar, sugar preparations and honey
933
1,058
1,123
1,123
n.p.
Other
3,154
2,997
4,098
5,542
2,698
Other goods
7,886
7,618
8,389
7,973
7,448
Services credits
36,097
33,730
33,070
33,980
33,945

(a) Reference year is 2003-04.
(b) Chain volume measures for years other than 2003-04 and 2004-05 are not additive.

Source: Balance of Payments and International Investment Position, Australia (5302.0).


30.6 GOODS AND SERVICES DEBITS

2000-01
2001-02
2002-03
2003-04
2004-05
$m
$m
$m
$m
$m

AT CURRENT PRICES

Goods and services debits
-153,205
-154,573
-167,169
-167,261
-187,842
Goods debits
-120,524
-121,942
-134,278
-133,026
-150,920
General merchandise
-116,165
-116,802
-128,645
-127,900
-145,798
Consumption goods
-35,775
-37,422
-41,228
-42,916
-47,147
Food and beverages, mainly for consumption
-4,483
-4,687
-5,067
-5,167
-5,768
Household electrical items
-3,000
-3,166
-3,657
-3,793
-4,019
Non-industrial transport equipment
-9,627
-9,930
-11,302
-12,326
-13,005
Textiles, clothing and footwear
-4,811
-4,849
-5,237
-5,078
-5,813
Toys, books and leisure goods
-3,359
-3,494
-3,740
-3,593
-3,744
Consumption goods n.e.s.
-10,495
-11,296
-12,225
-12,959
-14,798
Capital goods
-25,739
-27,208
-31,554
-32,118
-35,961
Machinery and industrial equipment
-8,876
-9,502
-11,007
-11,064
-13,408
ADP equipment
-5,260
-5,055
-4,908
-5,138
-5,761
Telecommunications equipment
-4,379
-3,643
-3,619
-4,105
-4,567
Civil aircraft
-609
-1,513
-3,887
-3,061
-2,496
Industrial transport equipment n.e.s.
-2,940
-3,613
-3,881
-4,144
-4,978
Capital goods n.e.s.
-3,675
-3,882
-4,252
-4,606
-4,751
Intermediate and other merchandise goods
-54,651
-52,172
-55,863
-52,866
-62,690
Food and beverages, mainly for industry
-592
-577
-736
-625
-659
Primary industrial supplies n.e.s.
-1,133
-1,117
-1,220
-1,079
-1,052
Fuels and lubricants
-10,358
-8,823
-10,393
-9,917
-14,764
Parts for transport equipment
-7,089
-6,827
-7,258
-6,548
-7,012
Parts for ADP equipment
-2,255
-2,159
-2,011
-1,812
-1,788
Other parts for capital goods
-9,072
-8,216
-8,605
-8,553
-9,490
Organic and inorganic chemicals
-3,777
-3,447
-3,089
-3,048
-3,623
Paper and paperboard
-2,311
-2,225
-2,326
-2,242
-2,313
Textile yarn and fabrics
-1,863
-1,830
-1,839
-1,576
-1,453
Iron and steel
-1,437
-1,765
-1,960
-2,026
-3,010
Plastics
-2,193
-2,182
-2,478
-2,177
-2,429
Processed industrial supplies n.e.s.
-11,251
-11,441
-12,238
-12,029
-14,043
Other merchandise goods
-1,320
-1,563
-1,710
-1,234
-1,054
Other goods
-4,359
-5,140
-5,633
-5,126
-5,122
Services debits
-32,681
-32,631
-32,891
-34,235
-36,922

CHAIN VOLUME MEASURES(a)(b)

Goods and services debits
-129,406
-131,728
-148,756
-167,262
-186,927
Goods debits
-99,491
-102,731
-119,134
-133,027
-150,332
General merchandise
-95,250
-97,959
-113,902
-127,900
-145,443
Consumption goods
-31,895
-32,941
-37,797
-42,917
-48,365
Food and beverages, mainly for consumption
-4,284
-4,465
-4,760
-5,167
-5,724
Household electrical items
-2,365
-2,532
-3,201
-3,793
-4,441
Non-industrial transport equipment
-9,326
-9,201
-10,747
-12,326
-13,370
Textiles, clothing and footwear
-3,978
-3,844
-4,447
-5,079
-6,055
Toys, books and leisure goods
-2,705
-2,817
-3,258
-3,593
-3,840
Consumption goods n.e.s.
-9,315
-10,137
-11,388
-12,958
-14,936
Capital goods
-19,279
-21,075
-26,851
-32,119
-38,236
Machinery and industrial equipment
-7,498
-7,945
-9,850
-11,064
-13,488
ADP equipment
-2,457
-2,868
-3,567
-5,138
-6,725
Telecommunications equipment
-3,051
-2,596
-2,848
-4,105
-5,454
Civil aircraft
-532
-1,263
-3,445
-3,061
-2,481
Industrial transport equipment n.e.s.
-2,688
-3,273
-3,588
-4,144
-5,036
Capital goods n.e.s.
-3,125
-3,267
-3,798
-4,607
-5,051
Intermediate and other merchandise goods
-44,407
-44,190
-49,305
-52,866
-58,842
Food and beverages, mainly for industry
-640
-616
-647
-626
-649
Primary industrial supplies n.e.s.
-1,034
-1,034
-1,127
-1,080
-1,031
Fuels and lubricants
-8,767
-8,928
-9,450
-9,917
-11,241
Parts for transport equipment
-6,045
-5,681
-6,380
-6,548
-7,211
Parts for ADP equipment
-1,067
-1,238
-1,466
-1,812
-2,078
Other parts for capital goods
-6,895
-6,352
-7,213
-8,553
-9,835
Organic and inorganic chemicals
-3,200
-2,891
-2,920
-3,048
-3,417
Paper and paperboard
-1,941
-1,852
-2,076
-2,241
-2,498
Textile yarn and fabrics
-1,538
-1,519
-1,600
-1,576
-1,346
Iron and steel
-1,426
-1,783
-1,944
-2,025
-2,517
Plastics
-1,833
-1,795
-2,166
-2,177
-2,298
Processed industrial supplies n.e.s.
-9,239
-9,464
-10,917
-12,029
-13,669
Other merchandise goods
-1,069
-1,273
-1,495
-1,234
-1,053
Other goods
-4,235
-4,838
-5,263
-5,126
-4,890
Services debits
-29,915
-28,997
-29,622
-34,235
-36,595

(a) Reference year for chain volume measures is 2003-04.
(b) Chain volume measures for years other than 2003-04 and 2004-05 are not additive.

Source: Balance of Payments and International Investment Position, Australia (5302.0).


Table 30.7 presents various price indexes for Australia's trade in goods and services. The implicit price deflators (IPDs) are derived by dividing the current price measures by the corresponding chain volume measures. These IPDs reflect not only price change, but compositional effects from year to year.


Unlike IPDs, chain price indexes measure only the impact of a price change. The chain Laspeyres price index for goods and services credits rose 10.7% in 2004-05 to 110.7. The chain Laspeyres price index for goods and services debits rose 0.7% to 100.7.

Australia's terms of trade (derived by dividing the IPD for credits by the IPD for debits) rose by 9.8% in 2004-05, resulting from a 10.4% rise in the IPD for goods and services credits and a 0.5% rise in the IPD for goods and services debits (table 30.7).

30.7 IMPLICIT PRICE DEFLATORS, Price indexes and terms of trade(a)

2000-01
2001-02
2002-03
2003-04
2004-05

Implicit price deflators(b)
Goods and services credits
106.9
107.8
105.0
100.0
110.4
Goods credits
111.2
111.5
107.1
100.0
112.6
Services credits
92.9
95.6
98.3
100.0
103.1
Goods and services debits
118.6
117.5
112.4
100.0
100.5
Goods debits
121.1
118.7
112.7
100.0
100.4
Services debits
109.2
112.5
111.0
100.0
100.9
Chain Laspeyres price indexes
Goods and services credits
105.6
106.7
104.5
100.0
110.7
Goods credits
109.6
110.2
106.4
100.0
113.0
Services credits
92.8
95.5
98.2
100.0
103.2
Goods and services debits
117.3
116.5
112.0
100.0
100.7
Goods debits
119.7
117.6
112.2
100.0
100.7
Services debits
108.9
112.4
111.0
100.0
100.9
Terms of trade(c)
Goods and services
90.1
91.8
93.4
100.0
109.8
Goods
91.8
94.0
95.0
100.0
112.1
Services
85.1
85.0
88.5
100.0
102.2

(a) Reference year for price and terms of trade indexes is 2003-04.
(b) Derived by dividing the estimates at current prices in tables 30.5 and 30.6 by the chain volume measures in those tables.
(c) Derived by dividing the IPDs for credits by the IPDs for debits.

Source: Balance of Payments and International Investment Position, Australia (5302.0).


INTERNATIONAL INVESTMENT POSITION

Australia's net international investment position is the difference between the levels of Australia's foreign financial liabilities and the levels of its foreign financial assets. Historically, Australia has had a net liability position with the rest of the world.

Australia's net international investment position at 30 June 2005 was a net foreign financial liability of $516.8b. This was up $46.3b (9.8%) on the position a year earlier and resulted from net increases of $11.1b in the level of foreign equity and $35.3b in the level of foreign debt.

Graph 30.8 shows the components of Australia's international investment position between 30 June 1994 and 30 June 2005. It shows that the increase in net foreign liabilities primarily reflects increase in net foreign debt liabilities.

Graph 30.8: NET INTERNATIONAL INVESTMENT POSITION - 30 June


Table 30.9 provides a reconciliation between opening and closing levels for foreign financial assets, foreign financial liabilities and Australia's net international investment position. Increases or decreases in these assets and liabilities are due to financial transactions (investment flows), price changes, exchange rate changes and other adjustments.

30.9 INTERNATIONAL INVESTMENT POSITION

Changes in position reflecting

Position at
beginning
of period
Transactions
Price
changes
Exchange
rate
changes
Other
adjustments
Position at
end of
period
$m
$m
$m
$m
$m
$m

NET INTERNATIONAL INVESTMENT POSITION

Total
2002-03
365,181
40,296
7,122
15,161
367
428,127
2003-04
428,127
45,920
2,144
-6,550
851
470,491
2004-05
470,491
55,651
-12,643
3,968
-638
516,827
Equity
2002-03
41,034
-5,604
5,253
29,791
-195
70,279
2003-04
70,279
-5,889
11,721
150
-450
75,811
2004-05
75,811
2,048
-13,068
22,278
-207
86,863
Debt
2002-03
324,147
45,899
1,870
-14,631
562
357,848
2003-04
357,848
51,809
-9,577
-6,700
1,301
394,680
2004-05
394,680
53,601
426
-18,310
-432
429,964

FOREIGN ASSETS(a)

Total
2002-03
-518,514
-34,964
3,287
31,063
-789
-519,917
2003-04
-519,917
-48,580
-40,036
-15,204
362
-623,375
2004-05
-623,375
40,511
-53,848
14,612
285
-621,817
Equity
2002-03
-309,245
-24,518
9,306
29,791
-114
-294,777
2003-04
-294,777
-34,811
-28,389
150
-127
-357,955
2004-05
-357,955
42,996
-50,685
22,278
784
-342,584
Debt
2002-03
-209,269
-10,449
-6,020
1,273
-675
-225,140
2003-04
-225,140
-13,768
-11,647
-15,354
489
-265,420
2004-05
-265,420
-2,484
-3,163
-7,666
-500
-279,234

FOREIGN LIABILITIES(b)

Total
2002-03
883,695
75,261
3,836
-15,902
1,155
948,043
2003-04
948,043
94,500
42,181
8,653
488
1,093,866
2004-05
1,093,866
15,140
41,204
-10,644
-922
1,138,645
Equity
2002-03
350,279
18,913
-4,054
-
-81
365,056
2003-04
365,056
28,924
40,111
-
-324
433,766
2004-05
433,766
-40,945
37,617
-
-990
429,447
Debt
2002-03
533,416
56,346
7,891
-15,902
1,237
582,988
2003-04
582,988
65,576
2,070
8,653
811
660,100
2004-05
660,100
56,086
3,587
-10,644
68
709,198

(a) Assets include claims of Australian direct investment enterprises on direct investors abroad, which are classified as part of direct investment in Australia.
(b) Liabilities include liabilities of Australian direct investors to direct investment enterprises abroad, which are classified as part of direct investment abroad.

Source: Balance of Payments and International Investment Position, Australia (5302.0).


FOREIGN DEBT

Foreign debt is a subset of the financial obligations that make up a country's international investment position. It includes all the non-equity components of the net international investment position, that is, all recorded assets and liabilities other than equity securities and direct investment equity capital, including reinvested earnings.

The level of borrowing and other non-equity liabilities of Australian residents at a particular date make up Australia's foreign debt liabilities. The level of Australian lending abroad and other non-equity assets at the same date are deducted from the level of borrowing to arrive at Australia's net foreign debt.

The level of net foreign debt at 30 June 2005 was $430.0b, up $35.3b (8.9%) on 30 June 2004. The increase during 2004-05 resulted from a $49.1b (7.4%) increase in foreign debt liabilities partly offset by an increase of $13.8b (5.2%) in foreign debt assets (table 30.10).

At 30 June 2005 the net foreign debt of the public sector (general government plus public financial and non-financial corporations) was $7.3b, which accounted for 1.7% of total net foreign debt. Net foreign debt levels of private financial corporations and private non-financial corporations were $334.7b (77.8% of total net foreign debt) and $87.9b (20.5%) respectively (table 30.10).

30.10 LEVELS OF FOREIGN DEBT - 30 June

2001
2002
2003
2004
2005
$m
$m
$m
$m
$m

Foreign debt assets(a)
-193,840
-209,269
-225,140
-265,420
-279,234
Public sector
-63,432
-56,049
-55,337
-66,394
-73,198
General government
-10,338
-10,869
-10,757
-10,119
-9,611
Financial corporations
-46,151
-42,832
-43,377
-55,681
-62,487
Central Bank
-37,040
-35,053
-37,641
-47,845
-54,436
Central borrowing authorities
-1,426
-998
-568
-548
-419
Other financial corporations
-7,685
-6,781
-5,168
-7,287
-7,632
Non-financial corporations
-6,943
-2,348
-1,203
-594
-1,100
Private sector
-130,408
-153,220
-169,803
-199,027
-206,035
Financial corporations
-99,504
-121,185
-133,366
-160,168
-168,685
Non-financial corporations
-30,904
-32,036
-36,437
-38,858
-37,351
Foreign debt liabilities(a)
496,307
533,416
582,988
660,100
709,198
Public sector
69,150
67,310
63,587
71,474
80,522
General government
23,995
25,040
24,016
29,163
32,233
Debt domiciled abroad
1,453
1,686
1,523
1,187
1,158
Debt domiciled in Australia
22,542
23,354
22,494
27,976
31,075
Financial corporations
32,649
28,926
27,319
31,064
35,607
Central bank
366
43
150
124
173
Debt domiciled abroad
317
-
-
-
-
Debt domiciled in Australia
49
43
150
124
173
Central borrowing authorities
27,622
24,906
23,955
27,428
32,725
Debt domiciled abroad
24,596
22,319
21,091
24,572
26,477
Debt domiciled in Australia
3,027
2,588
2,864
2,855
6,248
Other financial corporations
4,661
3,976
3,214
3,512
2,708
Debt domiciled abroad
4,492
3,976
3,214
3,428
2,669
Debt domiciled in Australia
169
-
-
84
40
Non-financial corporations
12,506
13,344
12,251
11,247
12,682
Debt domiciled abroad
12,012
12,806
11,816
10,416
11,321
Debt domiciled in Australia
494
538
436
831
1,361
Private sector
427,157
466,106
519,401
588,626
628,676
Financial corporations
328,001
365,419
408,215
470,780
503,386
Non-financial corporations
99,157
100,687
111,186
117,846
125,290
Net foreign debt
302,467
324,147
357,848
394,680
429,964
Public sector
5,718
11,261
8,249
5,080
7,323
General government
13,656
14,171
13,259
19,044
22,622
Financial corporations
-13,502
-13,906
-16,058
-24,617
-26,880
Central Bank
-36,674
-35,010
-37,491
-47,721
-54,263
Central borrowing authorities
26,196
23,908
23,387
26,880
32,306
Other financial corporations
-3,024
-2,805
-1,955
-3,775
-4,924
Non-financial corporations
5,563
10,996
11,048
10,653
11,582
Private sector
296,750
312,886
349,598
389,599
422,641
Financial corporations
228,497
244,234
274,849
310,612
334,701
Non-financial corporations
68,253
68,652
74,749
78,988
87,940

(a) Foreign debt levels between direct investors and direct investment enterprises are recorded on a gross basis for assets and liabilities.

Source: Balance of Payments and International Investment Position, Australia (5302.0).


LEVELS OF FOREIGN INVESTMENT IN AUSTRALIA AND AUSTRALIAN INVESTMENT ABROAD

In table 30.11, levels of investment are categorised by direction (Australian investment abroad and foreign investment in Australia), type of investment (direct, portfolio, financial derivatives, other and reserve assets) and instrument.

Direct investment is a category of international investment that reflects the objective of obtaining a lasting interest by a resident in one economy in an enterprise in another economy, and implies a significant degree of influence by the investor in the management of the enterprise. A foreign direct investment relationship is established when an investor, who is a resident in one economy, holds 10% or more of the ordinary shares or voting stock of an enterprise (direct investment enterprise) in another economy. The portfolio investment category covers investment in equity and debt securities other than direct investment, financial derivative assets, other investment assets and reserve assets.

The items 'Australian investment abroad' and 'Foreign investment in Australia' in table 30.11 do not equate with foreign assets and liabilities respectively in table 30.9. The difference is due to netting of assets and liabilities in regard to direct investment, both abroad and in Australia. Debt claims by direct investment enterprises on their direct investors, separately identified in table 30.11, are netted off in that table against liabilities to direct investors. These items are not netted off in table 30.9.

At 30 June 2005 Australian investment abroad totalled $590.4b, down $2.2b (0.4%) on the level a year earlier. This fall was the net effect of a $29.1b decrease in direct investment abroad, a $24.5b increase in portfolio investment assets, a $4.0b decrease in financial derivative assets, a $0.5b increase in other investment assets and a $5.8b increase in reserve assets. The item 'Australian investment abroad in portfolio investment assets; debt securities' includes investment by residents of Australia in Kangaroo bonds (see article Kangaroo bonds in this chapter).

Foreign investment in Australia totalled $1,107.2b at 30 June 2005, up $44.1b (4.2%) on June 2004. This rise was due to a $3.1b increase in direct investment in Australia, a $40.7b increase in portfolio investment liabilities, a $4.3b increase in financial derivative liabilities and a $3.9b decrease in other investment liabilities.

30.11 LEVELS OF AUSTRALIAN INVESTMENT ABROAD AND FOREIGN INVESTMENT IN AUSTRALIA - 30 June

2001
2002
2003
2004
2005
$m
$m
$m
$m
$m

Levels of Australian investment abroad
-466,710
-496,182
-490,462
-592,575
-590,365
Direct investment abroad(a)
-187,177
-193,084
-178,078
-216,454
-187,351
Equity capital and reinvested earnings
-182,367
-193,338
-182,357
-219,887
-191,012
Other capital
-4,809
255
4,278
3,433
3,661
Claims on affiliated enterprises
-14,470
-9,635
-12,630
-13,466
-13,688
Liabilities to affiliated enterprises
9,660
9,889
16,908
16,899
17,349
Portfolio investment assets
-148,854
-161,069
-159,772
-199,038
-223,556
Equity securities
-111,936
-115,906
-112,420
-138,068
-151,572
Debt securities
-36,918
-45,162
-47,352
-60,970
-71,984
Financial derivative assets
-23,804
-30,250
-40,703
-42,058
-38,067
Other investment assets
-68,924
-74,345
-71,150
-84,683
-85,222
Trade credits
-9,393
-9,624
-9,744
-9,552
-9,912
Loans and other assets
-49,162
-52,541
-48,468
-59,624
-61,033
Currency and deposits
-10,369
-12,180
-12,938
-15,507
-14,276
Reserve assets
-37,951
-37,435
-40,760
-50,342
-56,170
Levels of foreign investment in Australia
832,267
861,363
918,589
1,063,066
1,107,192
Direct investment in Australia(b)
215,187
225,581
252,435
272,351
275,403
Equity capital and reinvested earnings
184,215
187,945
209,849
230,704
231,328
Other capital
30,972
37,636
42,586
41,647
44,075
Claims on direct investors
-11,774
-12,442
-12,546
-13,901
-14,104
Liabilities to direct investors
42,746
50,078
55,132
55,549
58,179
Portfolio investment liabilities
472,640
474,766
480,934
609,103
649,774
Equity securities
173,179
162,334
155,207
203,063
198,119
Debt securities
299,461
312,432
325,727
406,040
451,655
Financial derivative liabilities
23,593
32,096
45,251
37,683
41,973
Other investment liabilities
120,847
128,920
139,969
143,929
140,043
Trade credits
3,297
3,157
3,786
3,056
2,981
Loans
56,041
64,605
67,445
58,682
67,749
Currency and deposits
56,756
57,703
65,391
78,802
64,383
Other liabilities
4,753
3,455
3,347
3,390
4,929

(a) Net direct investment abroad, after deduction of liabilities to direct investment enterprises abroad.
(b) Net direct investment in Australia, after deduction of claims of Australian direct investment enterprises on direct investors.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Ratios

Table 30.12 and graph 30.13 show that the ratio of the current account deficit to gross domestic product (GDP) was 6.7% in 2004-05, an increase on the previous year, and above the average for the past ten years (4.7%).

Graph 30.14 shows the ratio of Australia's net foreign liabilities (Australia's net international investment position) to GDP has risen for most years since 1994 and reached its highest level of 60.8% at 30 June 2005. The ratio of net foreign debt to GDP was 50.6% at 30 June 2005, an increase over the 48.5% recorded the previous year. The ratio of net foreign equity to GDP was 10.2% at 30 June 2005, up on the ratio at 30 June 2004 and below the average for the last ten years (11.2%).

Table 30.12 shows the net investment income payable on net foreign debt as a percentage of goods and services credits was 9.5% in 2004-05. The ratio of net investment income payable on equity to goods and services credits was 9.4% in 2004-05, up from 7.3% the previous year.

30.12 RATIOS

2000-01
2001-02
2002-03
2003-04
2004-05
%
%
%
%
%

To GDP
Current account
-2.7
-3.0
-5.5
-5.9
-6.7
Goods and services
0.1
-0.2
-2.5
-2.9
-3.0
Credits
23.0
21.5
19.6
17.6
19.1
Debits
-22.9
-21.7
-22.0
-20.6
-22.1
Income
-2.8
-2.8
-3.0
-2.9
-3.7
Net international investment position(a)
54.7
51.2
56.5
57.8
60.8
Net foreign equity
9.4
5.8
9.3
9.3
10.2
Net foreign debt
45.3
45.4
47.2
48.5
50.6
To goods and services credits
Net investment income
-12.1
-12.6
-14.9
-16.1
-18.8
Net foreign equity
-2.6
-3.7
-6.9
-7.3
-9.4
Net foreign debt
-9.5
-8.9
-8.0
-8.8
-9.5

(a) These ratios are derived by expressing net foreign liabilities at end of year as a percentage of GDP at current prices for that year.

Source: Australian National Accounts: National Income, Expenditure and Product (5206.0); Balance of Payments and International Investment Position, Australia (5302.0).


Graph 30.13: RATIO OF BALANCE ON CURRENT ACCOUNT TO GDP


Graph 30.14: RATIOS(a) OF NET INTERNATIONAL INVESTMENT POSITION TO GDP


FOREIGN OWNERSHIP OF EQUITY IN AUSTRALIA

The total value of equity on issue by Australian enterprise groups at 30 June 2005 stood at $1,538b (table 30.15). Of this total, 63% related to shares or equivalent equity instruments issued by non-financial corporations. Banks accounted for a further 15% of total equity issued, and other financial enterprises, including life offices and superannuation funds (but excluding non-bank deposit taking institutions and the central bank), accounted for 19%. Lesser amounts were issued by non-bank deposit taking institutions (3% of the total) and the central bank (1%).

Of the total equity on issue by Australian enterprise groups at 30 June 2005, non-residents held equity valued at $429b (29%), while residents held $1,108b (71%).

Although the proportion of equity held by non-residents remained relatively stable, the total value of equity on issue increased by 28%, from $1,205b to $1,538b, over the period from 30 June 2001 to 30 June 2005.

Analysed by sector, the value of equity on issue by non-financial corporations rose 21% to $971b over the period 30 June 2001 to 30 June 2005, while the proportion held by non-residents decreased slightly from 33% to 32%.

The amount issued by banks increased by 27% between 30 June 2001 and 30 June 2005, while the proportion of non-resident holdings of the total equity issued by banks decreased from 27% to 25% over the same period.

The value of equity issued by life offices, superannuation funds and other financial enterprises increased by 54% over the period from 30 June 2001 to 30 June 2005, with foreign ownership of this equity falling from 19% to 17% over the same period.

30.15 FOREIGN OWNERSHIP OF EQUITY(a), By sectoral components - 30 June

Units
2001
2002
2003
2004
2005

Non-financial corporations(b)
Amount issued(c)
$b
804.9
764.8
767.5
920.5
971.4
Amount held by rest of world
$b
268.0
255.1
277.0
331.9
311.2
Proportion of foreign ownership
%
33.3
33.3
36.1
36.1
32.0
Banks
Amount issued(c)
$b
178.1
189.9
180.9
189.1
225.4
Amount held by rest of world
$b
48.5
53.4
46.8
48.6
56.9
Proportion of foreign ownership
%
27.2
28.1
25.9
25.7
25.3
Non-bank deposit taking institutions
Amount issued(c)
$b
20.1
25.4
33.9
36.8
38.7
Amount held by rest of world
$b
4.2
4.9
7.4
12.5
13.3
Proportion of foreign ownership
%
20.9
19.4
21.9
33.8
34.4
Other financial enterprises(d)
Amount issued(c)
$b
189.1
194.5
200.2
243.7
290.4
Amount held by rest of world
$b
36.7
36.9
33.8
40.9
48.0
Proportion of foreign ownership
%
19.4
19.0
16.9
16.8
16.5
Central Bank
Amount issued(e)(f)
$b
12.3
11.4
11.7
12.5
11.2
Total amount issued
$b
1,204.7
1,186.4
1,194.5
1,402.9
1,537.5
Total amount held by rest of world
$b
357.4
350.3
365.1
433.8
429.4
Proportion of foreign ownership
%
29.7
29.5
30.6
30.9
27.9

(a) Equity includes units in trusts.
(b) Includes private non-financial corporations, and Commonwealth, state and local public non-financial corporations.
(c) These estimated market values are considered to be of poor quality. They should be used cautiously.
(d) Includes life offices and superannuation funds, central borrowing authorities, and other financial enterprises.
(e) Net asset values.
(f) There is no foreign ownership in this component.

Source: Australian National Accounts: Financial Accounts (5232.0); Balance of Payments and International Investment Position, Australia (5302.0).


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