The current account deficit (CAD) is recorded when the debits in the current account (imports and income payments to oerseas) argon greater than the credits (exports and income payments from overseas) Australia has a particularly high CAD, Australias current account has been in deficit for most of its history, and systematically over the past three decades The deficit widened from the early 1980s, averaging rough 4 per cent of GDP over this halt, compared to an average of 1½ per cent of GDP over the preceding two decades. The CAD has widened further since the start of the resources boom, averaging 5¼ per cent of GDP over the past five years, and this has divided many economists. There are clear risks associated with a sustained high CAD, and these include exotic liabilities, run costs, exchange rates, economic growth, contractionary economic policy and a sudden loss of international investor confidence.
Over a period of time a high CAD lead ease up to an increased level of foreign liabilities.
A deficit on the CA presupposes financial flows inflow on the capital and financial account in the form of foreign debt (borrowings from overseas) and foreign faithfulness (selling equity in the form of property and companies). This means lenders will be reluctant to lend or invest in AUS. Also, because Australia finances a large proportion of its CAD by borrowing from overseas, this ensures that Australias foreign debt will continue to grow.
impertinent debt grew steadily in the 2000s, with rising CADs reflecting increased levels of foreign borrowing. The gradual growth in debt and overall liabilities in the past a couple of(prenominal) years reflect the lower CADs of recent years.
Increased servicing costs associated with high levels of foreign liabilities lead to larger outflows on primary income account, worsening CAD. High levels of foreign debt can pull up stakes in foreign lenders...If you want to get a dependable essay, order it on our website: Ordercustompaper.com
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