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... This growing level of foreign debt will continue to add to Australias CAD
Several factors have helped shape Australia’s Current account deficit. ... The rate of inflation, relative to other trading nations, will exert significant influence on the size of the CAD. ... Consequently, relatively high rates of inflation can cause the CAD to deteriorate. The degree of protectionist measures has also affected the CAD, over the years, world markets are being deregulated or freed up and opened up. ... The value of the $AUD and level of world demand influences the size of Australias CAD is very dependent of commodity prices and if the $AUD falls the CAD is effected. ... Australias persistent CAD has continued to be financed through the capital inflow of funds. Consequently a persistent and growing CAD results not only in an increase in Australias level of foreign debt but also in an escalation of our debt servicing requirements. That is, the servicing of our foreign debt commitment adds to the size of the CAD, which then, in tum, may require further overseas borrowing. ... A persistent CAD, accompanied with rising levels of foreign debt, can result in reduced levels of foreign Investment In flow, especially in areas of portfolio investment. ... Persistent CAD problem and high debt-servicing requirements can exert upward pressure on domestic interest rates and this will slow grow in Australia. To finance Australias persistent CAD, relatively higher interest rates may be necessary to attract this required capital inflow. The capital inflow of funds required to finance a persistent CAD or service foreign debt can bring about higher levels of direct foreign investment within Australia.
Approximate Word count = 1675
Approximate Pages = 6.7
(250 words per page double spaced)
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