The Balance of Bayments and CAD

Due to Australia's ongoing Current Account deficit, this means that it must be financed by a surplus in the capital and financial account. This is the relationship between Australia's CAD, and net foreign liabilities, in that Australia must borrow substantial amounts of money from overseas to fund the CAD. The net foreign liabilities is denoted by both Net Foreign Debt and Net Foreign Equity. 83% of Australia's borrowings in 2004-2005 were in the form of debt, . However the growth in net foreign liabilities subsequently leading to an increase in net foreign debt, increases the amount of debt to be repaid in the future. Since interest payments represent a current outflow in the BOP, they add to the size of the net income deficit, and the form of the structural base of the ongoing CAD. Australia's net foreign liabilities has increased rapidly from 1993-94 to 2004-05. …