Balance of payments of Australia

Balance Of Payments Of Australia

Balance of payments of Australia

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<!---->In trade terms, the Australian economy has had persistently large current account deficits for more than 50 years. Economist.com, 29 March 2007 One single factor that undermines balance of payments is Australia's narrow export base.

Dependent upon commodities, the Australian government has endeavoured to redevelop the Australian manufacturing sector. This initiative, also known as microeconomic reform, has helped Australian manufacturing to grow from 10.1% in 1983-1984 to 17.8% in 2003-2004.Leading Edge, R: "Australia in the Global Economy", Tim Dixon and John O'Mahomy, page 133 .

There are other factors that have contributed to the extremely high current account deficit that Australia has today. Lack of international competitiveness and heavy reliance on capital goods from overseas might increase Australia's current account deficit in the future.

Low levels of national savings also contribute to high current account deficits. This is because excessive expenditure will force a lot of businesses to seek funds overseas. At the same time, when governments run constant budget deficits, they meet their monetary requirements by borrowing from the domestic sector. Economists refer to the ‘crowding out effect’ to explain this economic situation. When governments borrow from the domestic sector, they force the private sector to ‘crowd out’.

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