What is Foreign Debt?
Foreign Debt is Australia's level of borrowings from overseas residents. For example, if an Australian company, such as Telstra, takes a loan from a foreign bank, such as HSBC, this would be classified as a foreign debt transaction.
Trends in Foreign Debt
Image Source: Reserve Bank of Australia The above chart shows the trends in long-term and short-term foreign debt between 2000 to 2021.
Trends in Long-Term Foreign Debt
Long-term debt has been considerably favourable in comparison of short term debt, with long-term debt growing from around 30% in 2005 to around 50% in 2021. One cause of this could be the fall in foreign equity, which is generally long-term in nature, has been displaced by long-term debt instead. Furthermore, tightening restrictions around foreign equity has potentially led to a higher volume of long-term foreign investment in the form of debt instead.
Trends in Short-Term Foreign Debt
Short-term debt (debt owed within 1 year), has been falling from around 15% in 2005 to around 7% in 2021. It's worth noting that during the GFC, short term debt rose to 26% as more investors wanted certainty in their repayments and their repayments to be made faster.
Trends in Overall Foreign Debt
Net foreign debt makes up around 113% of net foreign liabilities, displacing net foreign equity, making up -13% of net foreign liabilities. The increase in foreign debt could be due to changing behaviour towards foreign ownership in the form of foreign equity, tighter FIRB restrictions and increased diligence of global investors wanting certainty of their repayments.