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Repayment of Commonwealth debt in 1989/90



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TREASURER

EMBARGO

STATEMENT BY THE TREASURER, THE HON. P.J. KEATING, MP

REPAYMENT OF COMMONWEALTH DEBT IN 1989/90

In the financial year completed on Friday June 30 the Commonwealth repaid $A3.2 billion of its overseas debt - more than the budget target of $A3 billion - and a quarter of the total stock of its foreign currency debt at the start of

1988-89.

The Commonwealth has repaid debt over the past year by:

. repaying all scheduled maturities and exercising all economically attractive early call options, a total of $1.6 billion;

. undertaking a comprehensive program of market repurchases totalling $1.5 billion; and

. holding a public tender for the 4 3/4 per cent SF300 million 1986-92 issue which resulted in a further $0.1 billion being repaid.

The major difficulty in undertaking our overseas debt retirement program has been the reluctance of foreign investors to sell the Commonwealth's foreign currency bonds. This reflects the high regard they have for the Australian Government's paper. For instance, we were only able to buy back about half of the Swiss Franc issue for which we held a public tender. The remaining investors preferred to hold onto their bonds.

This follows on from repayments of $A1.6 billion in 1987-88. In total, over the past two financial years, the Government has used its budget surpluses to repay almost $A5 billion of the Commonwealth's foreign currency debt. Nearly four-fifths of this debt was repaid ahead of schedule. These

transactions reflect the Commonwealth's very strong financial position. The Government has borrowed no money overseas since March 1987.

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As a result of its debt retirement initiatives, the Commonwealth's foreign currency debt has fallen from a peak of $A15.1 billion at 30 June 1987 to around $A9.3 billion at 30 June 1989. The ratio of Commonwealth Government foreign

currency debt to GDP has also fallen from 5.8 per cent in mid-1987 to 4.3 per cent by mid-1988, and to an estimated 2.8 per cent in mid-1989.

The present Government's repayment of foreign currency debt contrasts with the previous Government's record. Between 1975-76 and 1982-83 total net overseas raisings were $A4.5 billion; between 1983-84 and 1988-89 the present Government will have repaid in net terms a total of

$A1.5 billion.

In addition to retiring foreign debt, the Government repaid $A2.2 billion domestic debt in 1987-88 and has repaid over $2.5 billion in 1988-89. In fact, 1987-88 was the first time in the 35 years for which comparable records have been kept that any Australian Government has repaid both its foreign currency and domestic debt - it was probably the first time

since Federation. Our repayment of both domestic and overseas debt in 1988-89 has extended that record.

Already plans are underway to continue to use the very large prospective Budget surplus in the financial year just begun to repay more of the Commonwealth's external and domestic debt. This will ensure that the Commonwealth's foreign

currency debt will fall for the fourth year in a row as a proportion of GDP, and for the third year in nominal terms.

CANBERRA, ACT 3 July 1989