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5363.0 - Balance of Payments and International Investment Position, Australia, 1999-2000  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 21/05/2001   
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NOTES


CHANGES IN THIS ISSUE

IMPACT OF THE SYDNEY OLYMPIC AND PARALYMPIC GAMES

While the Olympic and Paralympic games took place in September and October 2000, after the period covered by this publication, economic activity associated with the games began before 30 June 2000 and therefore impacted on the estimates for 1999-2000. The feature articles in the September quarter 1999 and June quarter 2000 issues of Balance of Payments and International Investment Position, Australia (Cat. no. 5302.0) contain details of Olympic and Paralympic impacts on the balance of payments.


REVISIONS

Revisions have decreased the deficit on current account by $205 million in 1998-99. Chain volume measures and associated price measures incorporate a new base year (1998-99), which has resulted in revisions to levels for all periods.

There have been substantial revisions to the financial account and international investment position (IIP) back to the September quarter 1988. The revisions are the result of methodological changes, improved reporting and the identification and correction of errors. These are detailed below:

  • Currency and residual maturity of foreign debt
    (a) A method has been applied for allocating a residual maturity to Commonwealth Government and State and Territory Central Borrowing Authority securities issued in Australia and held by nominees on behalf of non-residents. These $A debt securities were previously classified as unallocated. The new method, applied from 1999-2000, uses the identifying information for each line of stock reported by nominees as held on behalf of non-residents to apply the appropriate residual maturity.
    (b) Financial derivative assets and liabilities have been allocated to currency and residual maturity categories from 1999-2000.
  • Valuation of unlisted equity assets
    The reported valuations for foreign investment in unlisted equities issued in Australia and Australia's direct investment abroad in unlisted equities have been reviewed. While a range of valuation bases are used by investors to report their equity holdings, these are not always a good practical approximation to the market price valuation required in international investment position statistics. Where the reporting basis used is historic acquisition cost, this can diverge significantly from market valuation.
    (a) Foreign investment in Australia (FIA)
    Analysis of company reports and other sources, and contact with the more significant direct investment enterprises in Australia, have resulted in market price valuations now being applied. Coverage problems have also been identified and rectified.
    (b) Australian investment abroad (AIA)
    For a number of unlisted investments abroad the ABS has estimated market valuations based on a variety of indicators obtained from published company accounts and other public sources as well as on information from reporting businesses. The level of direct equity investment abroad and the changes in investment position due to market price changes have been revised from 1993-94.
    The ABS will closely monitor reported values to avoid any future wide divergence from market prices.
    These valuation changes do not affect BOP transactions or any foreign debt measures.
  • Improved use of expanded individual security reporting has led to the identification and correction of errors in the sector classification of the Australian issuers of both debt and listed equity securities. Significant errors in the market price valuation of these securities and coverage deficiencies have been rectified. The analysis also identified some non-resident issues in Australia being reported as Australian liabilities, which overstated Australia's external debt.
  • Ongoing analysis of reported IIP information in the context of the financial accounts of the Australian national accounts has identified reporting errors which have been rectified.
  • Financial derivative asset and liability positions previously reported on a net basis are now reported on a gross basis.


PRESENTATIONAL CHANGES TO THE IIP
  • Financial derivatives
    A new type of capital category, financial derivatives, has been created to present financial derivatives separately from portfolio investment. In addition, net financial derivatives are identified within reserve assets from 1999-2000. These changes, which reflect recent amendments to international standards for BOP and IIP statistics, do not affect the measurement of either transactions or positions in these instruments.
  • Reserve assets
    Commencing with the position at 1999-2000, foreign currency deposits within reserve assets have been split into holdings with non-resident monetary authorities, or the Bank for International Settlements, and holdings with other non-resident banks.
  • Foreign currency facilities
    Both the transactions in, and levels of, Australia's official reserve assets have been revised from 1997-98. The revisions, which at the end of December 1999 lower the level of reserve assets by $1.5 billion, are to exclude certain foreign currency facilities with other central banks. The foreign currency facilities now excluded from reserve assets are reclassified as Reserve Bank loan assets within other investment assets.
  • Australian Treasury Notes
    Non-resident holdings of Australian Treasury Notes, previously included indistinguishably with bonds, are now separately identified in the IIP, and the income accruing on these securities separately presented in table 16.


INTRODUCTION


ABOUT THE PUBLICATION

Balance of Payments and International Investment Position, Australia (Cat. no. 5363.0) is an annual publication presenting statistics on Australia's international accounts: its balance of payments and international investment position statistics. It is primarily a reference document, and more timely estimates are available in various monthly and quarterly publications listed in the Explanatory Notes under Related Products and Services.

Included in the publication is an analysis of the latest annual statistics together with a commentary on trends in the major aggregates, comprehensive tables, as well as some explanatory notes.

The statistics are generally presented as time series for the years 1994-95 to 1999-2000 inclusive, together with more detail for 1999-2000, particularly for country breakdowns.

The statistics in this issue are consistent with those published in the December quarter 2000 issue of Balance of Payments and International Investment Position, Australia (Cat. no. 5302.0).


RELATIONSHIP BETWEEN BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT STATISTICS

Balance of payments statistics and international investment position statistics are closely related.

The Australian balance of payments is a statistical statement designed to provide a systematic record of economic transactions between residents of Australia and residents of other countries (non-residents of Australia). The balance of payments statement is divided into a current account, a capital account and a financial account.

The current account records transactions between Australian residents and residents of other countries in goods, services, income and current transfers.

The capital account covers capital transfers (such as migrants' funds) 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 instrument and, in some cases, sectors.

The international investment position records the levels of Australia's foreign financial assets and liabilities. The investment position at the end of a period reflects the foreign financial asset and liability positions at the start of the period, and the financial transactions, which increase and decrease these assets and liabilities, together with the non-transaction changes due to exchange rate effects, other price effects and changes in the volume of these assets and liabilities that are not due to transactions.

Both balance of payments and international investment position statistics are derived from common data sources and use the same conceptual framework.

Transactions included in international investment position statistics are equivalent to the transactions measured in the financial account of the balance of payments.

As the balance of payments accounts are only concerned with transactions, the levels of foreign financial assets and liabilities and changes in those levels not due to financial transactions are excluded from the scope of these accounts. They are, however, captured in the international investment position summary table, which can be viewed as a reconciliation table, reconciling the changes in the levels of Australia's international assets and liabilities with financial transactions in the balance of payments.

The income accrued on Australia's investment abroad and foreign investment in Australia is recorded in the income item of the current account (credits and debits respectively).


ANALYSIS OF RESULTS

AUSTRALIA'S BALANCE OF PAYMENTS

Current account

The current account deficit for 1999-2000 was $33.7 billion, an increase of $0.3 billion on the deficit in 1998-99. The current account deficit as a percentage of Australia's gross domestic product (GDP) fell from 5.6% in 1998-99 to 5.3% in 1999-2000.

The increase in the current account deficit was the net effect of the following:
  • an increase of $0.3 billion, to $13.0 billion, in the net goods deficit;
  • a decrease of $0.4 billion, to $1.5 billion, in the net services deficit;
  • an increase of $1.2 billion, to $19.3 billion, in the net income deficit; and
  • a turnaround (decrease) of $0.8 billion, to near balance, in net current transfers.

Year to year changes in the current account balance largely reflect fluctuations in the balance on goods and services, particularly the balance on goods. However, as can be seen in the graph below, the level of the net income deficit has had a major impact on the level of the current account deficit, especially since the early 1980s.

Current account, major aggregates



In the 10 years from 1989-90 to 1999-2000, the current account balance has widened by $10.8 billion, from a $23.0 billion deficit to a $33.7 billion deficit. The widening deficit is largely due to the growing net goods deficit, which increased $10.6 billion, and the growing net income deficit which increased $4.1 billion. This was partly offset by a decrease of $4.0 billion in the net services deficit.

When analysed by country, Australia's largest current account surpluses in 1999-2000 were with Japan ($4.3 billion), New Zealand ($4.0 billion), Republic of Korea ($3.7 billion), and Taiwan ($1.7 billion). Its largest current account deficits were with USA ($19.6 billion), UK ($6.2 billion), Germany ($5.2 billion), People's Republic of China ($2.5 billion) and France ($2.0 billion). A deficit was also recorded with International capital markets ($4.1 billion), being net interest accruing on securities issued on these markets for which country details are not available.

Goods and services

Goods and services for 1999-2000 recorded a deficit of $14.4 billion, a decrease of $0.1 billion on the $14.5 billion deficit recorded in 1998-99.

In the 10 years from 1989-90 to 1999-2000, the balance on goods and services has generally been in deficit, reaching a record deficit of $14.5 billion in 1998-99. There have been surpluses only in 1991-92 ($0.8 billion), resulting from a goods surplus, and 1996-97 ($1.6 billion) when both goods and services were in surplus.

Goods and services


Goods and services credits (exports) rose $13.9 billion (12%) in 1999-2000, to $125.9 billion. Goods credits rose $11.9 billion (14%), while services credits rose $2.1 billion (8%).

The main destinations for goods credits in 1999-2000 were: Japan (19%), USA (10%), Republic of Korea (8%), New Zealand (7%) and People's Republic of China (5%). The main destinations for services credits were: USA (16%), Japan (12%), UK (11%), New Zealand (7%) and Singapore (6%).

Goods and services debits (imports) rose $13.9 billion (11%) in 1999-2000, to $140.3 billion. Goods debits rose $12.2 billion (12%), while services debits rose $1.7 billion (6%).

The main source countries for goods debits in 1999-2000 were: USA (21%), Japan (13%), People's Republic of China (7%), UK (6%) and Germany (5%). The main source countries for services debits were: USA (21%), UK (12%), Japan (7%), Singapore (7%), New Zealand (5%) and Hong Kong (SAR of China) (4%).

Income

The net income deficit rose $1.2 billion (6%) in 1999-2000 to $19.3 billion. Income credits and income debits rose $2.5 billion (25%) and $3.7 billion (13%) respectively.

In the 10 years from 1989-90 to 1999-2000, the net income deficit has increased $4.1 billion, from $15.2 billion to $19.3 billion. Income credits have risen $8.4 billion, while income debits have risen $12.5 billion.

The main countries from which income credits accrued in 1999-2000 were: USA (36%), UK (20%) and New Zealand (13%).

The main countries to which income debits accrued in 1999-2000 were: USA (29%), UK (20%) and Japan (7%). Income debits also accrued to International capital markets (13%) for which country details are not available.

Current transfers

Net current transfers recorded a surplus of $58 million, a turnaround of $836 million on 1998-99. Current transfers credits rose marginally to $4.7 billion, while current transfers debits fell $0.8 billion (15%), to $4.6 billion.

Capital account

The balance on capital account for 1999-2000 recorded a surplus of $1.1 billion, down $0.2 billion on 1998-99. Capital transfers credits remained steady, while capital transfers debits rose $0.2 billion.

Financial account

The balance on financial account for 1999-2000 recorded a net inflow (surplus) of $33.1 billion, with a net inflow for debt ($35.3 billion) and a net outflow for equity ($2.2 billion). The result was up $4.6 billion on the net inflow recorded in 1998-99, with an increase in the net inflow of debt of $28.2 billion, and a turnaround from a net inflow to a net outflow, of $23.5 billion in equity.

Financial account, major aggregates



Direct investment net inflow rose $2.0 billion in 1999-2000 to $11.0 billion. The net outflow on Australian direct investment abroad fell $0.9 billion (39%) to $1.5 billion, while the net inflow of direct investment in Australia rose $1.1 billion (9%) to $12.5 billion.

Portfolio investment net inflow rose $4.7 billion (65%) to an inflow of $11.8 billion in 1999-2000. Financial derivatives net inflow fell $2.3 billion to $0.4 billion, while other investment net inflow rose $2.5 billion to an inflow of $12.5 billion in 1999-2000. Reserve assets recorded a net outflow of $2.6 billion, up $2.2 billion on the outflow recorded in 1998-99.

The largest net outflows of Australian investment abroad in 1999-2000 were to Japan ($2.8 billion), Singapore ($2.7 billion) and New Zealand ($2.5 billion). The largest net withdrawal of Australian investment was from Hong Kong ($1.0 billion).

The largest net inflows of foreign investment in Australia in 1999-2000 came from UK ($15.0 billion), USA ($9.8 billion) and Hong Kong (SAR of China) ($5.7 billion). The largest withdrawal of investment (net outflow) was recorded for Germany ($1.5 billion).


INTERNATIONAL INVESTMENT POSITION

Net international investment position

Australia's net international investment position at 30 June 2000 was a net foreign liability of $341 billion. In the past decade, Australia's net foreign liabilities have risen by $168 billion, from $173 billion at 30 June 1990.

Net foreign debt

At 30 June 2000, Australia's net foreign debt was $270 billion (or 79% of net foreign liabilities) compared with $131 billion (or 76%) recorded a decade earlier.

The public sector was still a net debtor to the rest of world, with a net debt of $21.1 billion, at 30 June 2000. The public sector net foreign debt was down $16.3 billion on 1998-99, with $11.2 billion of their liabilities to the rest of world being repaid (or traded back to Australian resident holders) and net new credit of $5.0 billion being advanced by the public sector to the rest of world. The public sector net foreign debt has now fallen $49.0 billion on its level of $70.2 billion 4 years earlier at 30 June 1996.

The private sector's level of net foreign debt was $249.3 billion, up $61.4 billion (33%) on 1998-99 and up $152.5 billion on the level a decade earlier.

Net foreign equity

Australia's net equity liabilities were $70.7 billion (or 21% of net foreign liabilities) at 30 June 2000, compared to $42.0 billion (24%) recorded a decade earlier.

International investment position, by instrument of investment



Ratio of net international investment position to GDP

The ratio of net international investment position to GDP was 54% at 30 June 2000, while the corresponding ratios for net foreign debt and net foreign equity were 43% and 11% respectively. A decade earlier, at 30 June 1990, these ratios stood at 45%, 34% and 11% respectively.

Ratio of net international investment position to GDP



Level of Australian investment abroad

The level of Australian investment abroad reached $375.9 billion at 30 June 2000. Direct investment abroad accounted for $174.0 billion (46%), portfolio investment for $99.4 billion (26%), financial derivatives for $18.8 billion (5%), other investment for $55.7 billion (15%) and reserve assets for $27.9 billion (7%).

Australian investment abroad, levels by type of investment



Equity has been the main form of Australian investment abroad during the past decade and, at $257 billion, represented 68% of the total level of investment at 30 June 2000.

Australian investment abroad by country is mainly in USA ($156.7 billion or 42%), UK ($65.0 billion or 17%), Japan ($22.8 billion or 6%), New Zealand ($19.8 billion or 5%), and Singapore ($9.7 billion or 3%).

Level of foreign investment in Australia

The level of foreign investment in Australia reached $717 billion at 30 June 2000. Portfolio investment ($391 billion) was the main form of foreign investment in Australia, accounting for 55% of the total level of investment at 30 June 2000, while direct investment in Australia ($201 billion) accounted for a further 28%.

Of the portfolio investment liabilities, debt securities accounted for $240 billion (61%), while equity securities accounted for $151 billion (39%).

The leading investor countries at 30 June 2000 were: USA with $215.0 billion (30%), UK with $177.9 billion (25%) and Japan with $49.4 billion (7%). The level of borrowing raised on international capital markets (e.g. Eurobonds) was $79.0 billion at 30 June 2000.

Foreign investment in Australia, levels by type of investment




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