World Economy

Australia Loaded Up on Debt

Australia Loaded Up on DebtAustralia Loaded Up on Debt

Australian governments have added more to their debt over the past five years than almost any other advanced country, but market analysts say the borrowing peak has passed.

The OECD’s annual review of sovereign borrowing shows that new debt contracted by federal and state governments since 2012 has been equal to 12% of GDP. The only advanced countries to have raised more in that period are Spain, Slovenia and Latvia, APP reported.

The OECD warns that countries should be using the current economic strength to improve their debt position. “Public finances need to be managed prudently during more favorable times to ensure that there is sufficient room for fiscal maneuver when needed, without putting public finances on an unsustainable path,’’ it said.

“This is particularly relevant given the rise in the stock of debt in recent years as high levels of outstanding government debt raises the sensitivity of future debt interest cost to changes in interest rates.”

The OECD’s report contrasts Australia with New Zealand, which has cut its debt by 9% of GDP after reporting repeated budget surpluses. It has achieved the third best performance in the OECD.

“While some countries successfully managed to put their debt ­trajectory back on a sustainable path, others were still on an expansionary fiscal path,” it said, naming Australia among the latter group.

Many advanced countries experienced big debt blowouts between 2007 and 2012 in the aftermath of the global financial crisis. Iceland, Japan and Britain all added debts equivalent to 40% of GDP, while Spain, Ireland and the US added the equivalent to more than 30%.

However, most advanced countries have restrained their borrowing since then. More than half have been able to reduce debt while only 10 have raised debt by more than 6% of GDP.

Commonwealth Bank senior fixed interest strategist Philip Brown said Australia’s experience had been different to the rest of the advanced world. “Most other countries have a similar timeline. Things started going poorly in 2007-8 with big deficits in 2008-9 for obvious ­reasons.

“Australia, because we did comparatively well during the crisis but had a far greater exposure to commodities, had a weaker period from 2012-13. The last five years is capturing a weak period for Australia that isn’t the same for other countries,’’ he said.

Over the past decade, Australia’s debt-to-GDP ratio has risen by 24 percentage points, which is the 11th biggest rise among the 35 advanced nations.

Add new comment

Read our comment policy before posting your viewpoints