Effects Of Rising Foreign Debt On Australia

1237 WordsAug 27, 20155 Pages
3.0 Positive and negative: While rising foreign debt is widely viewed as a concern, Glenn Stevens (2009) argues that it is not an issue since the imported capital is being used productively. This may be true to some extent however Australia has been in a significant amount of debt for a while. Although the investment benefits are substantial in Australia and we would be no where without the ability to borrow and accumulate debt, there are is much longer list of negatives linked to foreign debt. 3.1 Positives: i) Investments If foreign debt is accumulated through borrowing funds used to increase the development of industries or productive capacity it is considered a positive thing for the Australian economy, helping grow Australian…show more content…
In paying off debt the government has to raise revenue to service their public debt, this is usually done in increasing taxes which is why so many governments are hesitant to peruse this difficult issue. Or provided the return is high enough the profits from the investment should be enough to deliver to the shareholders. (Adkins, 2015) On the other hand the private sector must also repay investors or loans through maximising profits to service their liabilities, this is sometimes done by pushing the burden onto the customer or by cutting costs (job cuts). If that is not possible businesses or individuals go bankrupt are forced into liquidation. It is much more difficult for the government or entire country to go bankrupt, as government could just sell more bonds or their citizens would have their standard of living decreased through tax increases until enough revenue was raised to pay back the debt, Australia is a long way from this ever happening. (Lavelle, 2012) iii) Impacts exchanges rates The impact of foreign debt on Australia’s exchange rate is damaging for both imports and exports as it causes the AUS dollar to depreciate. With a high foreign debt it causes the currency to weaken as countries become more risky to trade with as debt encourages inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper real dollars in the
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