Australia’s debt to GDP ratio remains among the lowest in the developed world despite Federal Government debt skyrocketing by $AU211 billion in 2020.
The increase saw Australia move two levels higher to 13th on the global public debt ranking in investment management firm Janus Henderson’s Sovereign Debt Index.
Australia now owes AU$40,068 per person, which is half the amount owed by US citizens, and one-third that of British citizens.
Australia’s total debt is now a record high of AU$1,021 billion.
Janus Henderson highlighted how the interest bill has dropped 56% from 1995, and with rates set to remain ultra-low, it is expected to drop a further 45% by 2025
Globally, government debts jumped by 17.4% in 2020, rising by US$9.3 trillion (AU$12 trillion), taking on eight years’ worth of borrowing to fight Covid-19.
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“While growing its national debt at the same rate as the UK over the last 25 years, the 257% expansion of Australia’s economy during that time – almost three times faster than the UK – has ensured its debt to GDP level is just half of the UK’s at 55%, and 30 percentage points below the world average (at 84%),” a statement by Janus Henderson said.
“The figure is among the lowest in the world, and places Australia in the company of its Asian neighbours South Korea and Hong Kong.
Head of Australian Fixed Interest at Janus Henderson Jay Sivapalan said bond markets were a huge machine for judging the creditworthiness and economic performance of each country.
“They determine how much a government can borrow and what rate they must pay,” he said.
“In a sense, they are both the engine and the oil of financial markets. They are not only important for bond investors. The interest rates set in the bond markets affect the value of every asset, from peoples’ homes to stock markets.
“One way or another, everyone has a stake in the bond markets. People can own bonds in their own right, or they can choose to own them via fixed-income investment funds. Bonds help fund retirement incomes for superannuation funds.
“Insurance companies use them to manage risks and fund payouts. The banking system, mortgages and savings rates all depend on the bond markets. Without the bond markets modern economies simply could not function.
“Investors have enjoyed superb returns from bonds in recent years, with Australian government bonds particularly strong performers.
“However, record breaking lows in bond yields within the context of 400+ years of bond market history are now behind us.
“Risk free rates will begin to trend upwards gradually over the coming decade as central banks and governments err on the side of creating a slightly higher level of inflation than perhaps they’ve targeted in the past.
“At times, the moves in bond yields can be brisk as we have observed this year. Stronger economies tend to be bad news for bond prices and as such it’s prudent for investors to actively manage interest rate risk over the years ahead.”
