This quick guide looks at the level of Australia’s foreign debt, the interest liability on foreign debt and how these have changed over time. It also looks at foreign debt as a component of net foreign investment, the other component being equity investment. Finally, given that Australia’s gross foreign debt is now bigger than its annual gross domestic product (GDP), the quick guide also considers whether our foreign debt level is too high.

What is foreign debt?

Foreign debt is the amount borrowed from non-residents by residents of Australia. It includes securities such as bonds, as well as loans, advances, deposits, debentures and overdrafts.

Foreign debt is a subset of the financial obligations that make up Australia’s foreign investment position.  It is distinguished from other forms of foreign investment capital inflow such as equity investment (foreign ownership) by the obligation to pay interest and/or repay capital.

Foreign debt is not to be confused with national debt, which is the total government debt. National debt comprises government borrowings from overseas residents and government borrowings from Australian residents and thus excludes overseas borrowings by the private sector.

A distinction is made between gross and net foreign debt. Gross foreign debt is the total amount of borrowing from non-residents. Net foreign debt is equal to gross foreign debt minus the sum of lending by residents of Australia to non-residents and official reserve assets held by the Reserve Bank.