## _cr05331 ## Source details **Canonical URL:** [_cr05331](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05331.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05331.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05331.pdf.json) --- ### Executive Summary — Economic background and outlook - Economic activity slowed during 2004 as domestic demand growth eased owing to a welcomed cooling of the housing market. The appreciation of the exchange rate in recent years also contributed to the slowing by boosting imports. - While the current account deficit widened, unemployment reached a 28-year low of 5 percent, inflation remained subdued, and strong revenues lifted the fiscal surplus. - Prospects: - Growth is expected to rise from 2¼ percent in 2005 to about 3½ percent in the medium term as high investment boosts capacity, particularly in the export sector. - Domestic demand growth will remain moderate as stimulus from the housing market fades. - Large terms of trade gains also lead to a declining current account deficit. - Underlying inflation may edge up in the near term, but upside risks have diminished. ### Policy issues — macroeconomic stance and risks - Monetary and fiscal stance: - Monetary policy: RBA raised target cash rate by 25 basis points to 5½ percent in March 2005; broadly neutral/wait-and-see stance thereafter. - Fiscal policy: 2005 Budget projects underlying cash balance of 1.1 percent of GDP in 2004/05 (up from 0.3 percent projected in 2004 Budget); budget described as mildly expansionary. - Risks and policy flexibility: - Risk of a hard landing in the housing market appears to have eased. - Terms of trade gains could be reversed rapidly if global growth slowed. - Exchange rate flexibility and fiscal automatic stabilizers play key roles in dampening shocks. - Policy priorities: - Reforms of labor markets, welfare policies, and infrastructure to boost employment and productivity. - Moderate growth in health spending and strengthen incentives for cost effectiveness. - Follow best practices in asset management and transparency for the proposed Future Fund. - Ongoing refinement of financial regulation to address nonstandard household lending. ### I. Reforms and macroeconomic outcomes - Structural reform outcomes (selected): - Since 1992, Australia’s real GDP has grown at an average annual rate of 3¾ percent. - Per capita incomes lifted to almost 10 percent above the OECD average by 2003. - Unemployment fell by 6 percentage points since 1992. - Productivity and price changes in key infrastructure sectors in the 1990s to which the NCP contributed are estimated to have raised GDP by 2½ percent. - Standard deviation in the annual rate of GDP growth was 0.9 percent in 1992–2004 (previous three decades: 2.3 percent). - CPI inflation averaged 2½ percent since 1993 (inflation target: 2 to 3 percent). - Fiscal surpluses in six of the past seven years; government net worth rose by 9 percentage points of GDP; net debt expected to be less than 1 percent of GDP by end-2005/06. - External current account deficit averaged 4½ percent of GDP since 1990; net external debt rose from 35 percent of GDP to 50 percent by end-2004. - Almost all net external debt—97 percent—is owed by the private sector, with four-fifths intermediated by financial institutions. - Private sector net wealth rose from 400 percent of GDP in 1990 to over 600 percent of GDP in 2004. ### II. Why did the economy slow recently? - Growth performance: - Growth averaged 3¼ percent (y/y) in 2004, slowed to 2 percent (Q1/Q1) by Q1 2005. - Annualized growth in second half of 2004: 1 percent. - Q1 2005 (Q1/Q4) annualized: 2¾ percent (partly due to sharp reversal of inventory investment fall). - Main drivers: - Cooling of housing market: - National housing prices rose at annual pace of 17½ percent in 2001–03, but were flat in the year to March 2005; modest declines in Sydney, Melbourne, Canberra. - Final domestic demand growth eased to 3½ percent (y/y) in Q1 2005 from 6 percent a year earlier; dwelling investment fell. - Business investment remained buoyant. - Exchange rate appreciation: - Real exchange rate appreciated 27 percent in 2002-03; in Q1 2005 real effective exchange rate 16 percent above its average since 1990. - Imports rose rapidly and met three-quarters of the rise in final domestic demand during 2004. - Official reserves net of swap commitments: US$20 billion (3¼ percent of GDP) in June 2005, up from US$17 billion a year earlier. - External sector: - Export volumes rose 4 percent in 2004 (25 percent rebound in rural exports). - Coal and iron ore exports constrained by mine/rail/port capacity—expanded 4 percent in 2004 despite strong global demand. - Export commodity prices in SDR terms rose to almost 50 percent above their 2001–03 average in June 2005. - Terms of trade rose 10 percent; trade balance stable in 2004. - Current account deficit widened to 6½ percent of GDP; net external liabilities rose to 65 percent of GDP. ### Monetary policy and inflation outlook - RBA policy and projections: - Target cash rate raised to 5½ percent in March 2005. - RBA February 2005 projection: inflation to about 3 percent by end-2006. - Headline inflation may approach 3 percent in 2005 due to higher oil prices; underlying inflation expected to edge up more modestly and return to about 2½ percent in medium term. - RBA view: wait-and-see stance appropriate given diminished upside risks; monetary policy able to respond in either direction. - Labor market and wages: - Unemployment: 5 percent (28-year low). - Employment growth 3 to 4 percent (y/y) in 2005. - Average wage rises edged up slightly to 4 percent. - CPI inflation steady at about 2½ percent; nontradable inflation eased slightly to 3½ percent in June 2005. ### Fiscal stance, 2005 Budget, and medium-term fiscal management - 2005 Budget features: - Significant tax reductions and modest expenditure increases linked partly to welfare reforms—mildly expansionary stance. - Underlying cash balance projected at 1.1 percent of GDP in 2004/05 (up from ¼ percent in previous budget). - Personal income tax: reduction in lowest rate from 17 to 15 percent, annual cost two-thirds of a percent of GDP from 2006/07. - Revenue projected almost 1 percent of GDP higher than before, driven by company taxes and commodity price boosts. - Managing terms-of-trade uncertainty: - Continue transparent medium-term fiscal framework; allow automatic stabilizers to operate if export prices decline. - Reassess cyclical vs. permanent nature of terms-of-trade gains and adjust fiscal policy if necessary. - If further tax reform space emerges, emphasize measures to encourage labor force participation and productive investment. ### Long-term fiscal challenges and the Future Fund - Long-term financing gap: - Productivity Commission estimates Commonwealth long-term financing gap at some 6½ percent of GDP by 2045, with rising healthcare costs the main contributor. - Future Fund (FF) design highlights: - Purpose: invest fiscal surpluses to cover unfunded public service pensions currently about 10½ percent of GDP. - Inflows: future fiscal surpluses, privatization proceeds, investment income. - Outflow restrictions: legislation to prohibit outflows until unfunded liability fully covered; thereafter outflows projected to average about 0.6 percent of GDP to meet pensions. - Governance: independent board; investment mandate details to be clarified. - Recommendation: follow international best practices in management and transparency. ### Healthcare spending projections and policy directions - Projected spending changes (difference 2003-04 to 2044-45, percent of GDP): - Health Care 4.5 - Aged Care & Carers 1.4 - Age Pensions 1.7 - Other Social Safety Nets -0.6 - Education -0.5 - Total 6.5 - Key figures: - Health spending projected to rise to 10.3 percent of GDP in 2044–45 (from 5.7 percent in 2002–03), accounting for two thirds of total rise. - Pharmaceutical expenditure growth: 7¼ percent a year on a real per capita basis over past two decades. - Historical components of real health spending per capita growth: GDP per capita 2.1-2.5; age structure 0.4-0.6; other growth 0.3-0.9; total 2.8-4.0. - Sensitivity: healthcare costs increasing 0.3 to 0.9 percent faster than per capita GDP would raise health spending to 11½ percent of GDP at upper end. - Policy prescriptions: - Reduce pharmaceutical and distribution costs. - Improve coordination across government levels to reduce duplication. - Make incentives consistent with cost effectiveness to raise healthcare productivity. - Consider comprehensive public review to build consensus for reform. ### Structural reforms to raise productivity and participation - Income and participation context: - Per capita incomes (PPP) remain some 20 percent below U.S. levels. - Reforms aim to close income gap and reduce long-run fiscal shortfall. - Labor market measures in 2005 Budget: - Work testing extended to DSP and PP; part-time work obligations for new applicants able to work more than 15 hours/week. - Cuts to high effective marginal tax rates for benefit recipients; increased childcare availability; enhanced assistance to return to work. - Authorities estimate reforms will raise labor participation by about 1 percentage point in the medium term (11 percent of workforce receive DSP or PP). - Industrial relations proposals: - Create Australian Fair Pay Commission for minimum wage determination (not reducing current minimum wages). - Replace "no disadvantage test" with legislative protection of key working conditions. - Limit unfair dismissal coverage to enterprises with more than 100 employees; extend qualification period from 3 to 6 months; retain protection against unlawful termination for discrimination. - Recommendation: implement reforms to widen employment opportunities and raise productivity; support with training and education. - Infrastructure and pricing reforms: - Priority sectors: water, land transport, electricity. - Improve price signals to encourage efficient use and stimulate timely investment. - Government fiscal strength could assist States in implementing reforms. - Trade policy: - Doha round priority; FTAs complement multilateral process. - FTAs came into force with Thailand and the U.S. in January 2005; negotiations with China, ASEAN, Malaysia, U.A.E. began in 2005. - Tariff changes: textiles from 25 to 17.5 percent (January 2005); automobiles from 15 to 10 percent (with target 5 percent by 2015 and 2010, respectively). - Official development assistance: - Increased assistance to Indonesia by A$1 billion over five years for tsunami recovery. - 2005/06 budget allocates 0.28 percent of national income for ODA (up from 0.25 percent in 2004); commitment to UN target of 0.7 percent. ### Box 1 — Terms of trade boom: prospects and macro implications - Drivers and recent moves: - TOT rising to historically high levels, driven by strong world demand, especially from China. - New contracts from mid-2005 locked in large U.S. dollar price increases (examples cited: iron ore +70 percent; hard coking coal +120 percent). - Decline in prices of manufactured imports also improved TOT. - Prospects and distribution: - TOT gains likely to reverse as global supply responds; world iron ore production expected to increase by around 20 percent in next three years. - Research: half of past TOT gains dissipated within two or three years on average. - Rule-of-thumb distribution of a rise in mining revenues: one-third to State and Federal governments (royalties/taxes), one-third to foreign investors, one-third to domestic private sector. - Exchange rate role: - If exchange rate appreciates by about one-third to one-half of the percentage rise in TOT, inflation impact will be limited. - Australian dollar has risen substantially so far, moderating inflationary pressures. ### Box 2 — Housing market, household finances, consumption risks - Housing and household finance indicators: - Housing market stabilized in most of 2004–2005; investor share of housing loans almost one-third. - Household credit growth slowed as housing market cooled. - Life-cycle consumption model (1988:Q1–2004:Q4) fits well (standard error ½ percent); household equity withdrawals found negligible effect on consumption. - Consumption elasticities (selected): - Disposable Income: One Year elasticity 0.47**, Long-Run elasticity 0.81** - Net Housing Wealth: One Year elasticity 0.09**, Long-Run elasticity 0.15** - Net Financial Wealth: One Year elasticity 0.005, Long-Run elasticity 0.008 - Real Interest Rate (25 bps): One Year elasticity -0.14**, Long-Run elasticity -0.15** - Unemployment Rate (1 percent): One Year elasticity -0.001** ... - Household Equity Withdrawals: One Year elasticity 0 ... - Scenario: If household net housing wealth declined by 5 percent, model predicts consumption decline of almost ½ percent after one year and ¾ percent in the long run. - Policy buffer: Interest rate flexibility could moderate macro impact by allowing cuts consistent with medium-term inflation objective. ### External vulnerabilities and balance-sheet assessment - External position: - Net external liabilities rose to 65 percent of GDP; private sector accounts for largest share of external debt (88 percent of total external debt; >70 percent borrowed by financial corporations). - Nearly half of net external debt is short-term, but most external debt is denominated in Australian dollars or hedged. - Gross external financing need (selected series, US$ billions): 160.1, 165.4, 171.4, 219.4, 282.1, 348.3, 382.6, 409.7, 440.6, 471.1, 500.1 (2000–2010 series shown). - Resilience findings: - Stress tests and authorities’ analysis indicate banking and household sectors robust to substantial house price declines. - Banks increased liquid assets to 12 percent of total assets (from 8 percent in 2000). - APRA stress test: 30 percent fall in real property prices yields aggregate default ratio around 3.5 percent; over 90 percent of ADIs survive without breaching minimum regulatory capital. - External debt sustainability projections (baseline external debt percent of GDP): 72.8 (2000), 73.8 (2001), 77.5 (2002), 77.4 (2003), 82.8 (2004), 83.7 (2005), 85.4 (2006), 87.6 (2007), 90.0 (2008), 91.6 (2009), 92.2 (2010). ### Financial sector, households, and banking system metrics - Household sector: - Household interest payments rose to 8½ percent of disposable income in 2004; ratio increased further in 2005 after March cash rate rise. - Default rates: credit cards <1 percent; housing loans 0.2 percent. - Only 2 percent of households vulnerable (debt service >50 percent of after-tax income); 4 percent had loan-to-value ratios >75 percent. - RBA survey: household debt concentrated on high income groups with relatively low debt-service burdens. - Banking sector (selected series, end-December where shown): - Loans (share of total assets): 71.0, 69.5, 69.7, 69.5, 66.9, 67.7. - Housing loans share: 32.8, 35.2, 36.3, 35.0, 35.7, 35.8. - Net interest margin: 2.7, 2.5, 2.3, 2.2, 2.2, 2.2. - Return on average assets: 1.2, 1.3, 1.0, 1.2, 1.1, 1.2. - Return on average equity: 18.0, 19.4, 15.6, 18.2, 16.4, 18.2. - Tier 1 capital (percent of RWA): 7.8, 7.1, 7.7, 7.7, 7.6, 7.6. - Total capital (percent of RWA): 10.1, 9.8, 10.5, 9.9, 10.1, 10.5. - Impaired assets: 0.6, 0.5, 0.7, 0.6, 0.4, 0.3. - Provisions (percent of impaired assets): 120.2, 132.1, 107.1, 106.3, 131.8, 175.7. - Four major banks: return on assets >1 percent in 2004; return on equity ~18 percent; credit ratings AA- or better. - External hedging and FX risk: - Share of gross debt denominated in foreign currency: around 65 percent. - Extensive hedging mitigates currency risk; ABS survey showed net long foreign currency position of $149 billion at end-June 2001. - Scenario: one-time large depreciation has modest impact on external debt ratio given hedging. ### Box 4 — Averting infrastructure constraints: pricing and regulatory recommendations - Background: Transport bottlenecks (long queues at Dalrymple Bay and Newcastle) highlighted export constraints. - Sector-specific issues and recommendations: - Water: - Prices low vs. Europe; agriculture uses ~two-thirds of water; estimates that up to one-third of irrigation water is wasted; "88 percent of water is used to produce only ½ of agricultural output." - Establish well functioning market in rural water rights; increase prices where appropriate to moderate demand and support investments. - Land transport: - Freight share by rail between capital cities fell from 70 to 30 percent over three decades. - Low road access charges create implicit subsidy to heavy trucks; Bureau estimate: road access charges would need to roughly double to achieve neutrality with rail. - Remove implicit subsidy by raising access charges to stimulate rail use. - Electricity: - Retail prices vary across States; retail price controls and regulatory complexity hinder nationwide competitive market. - Uncertainty about carbon charges delayed investment. - Remove retail price distortions and regulatory complexity to support investment. - Projected benefits: - Comprehensive infrastructure reform agenda estimated to raise GDP by 2 percent, with rural and urban water reforms contributing almost half of these gains. - Institutional/regulatory recommendation: - Improve regulatory arrangements and dispute resolution (including federal referral option if state regulators cannot resolve issues within six months). - Price infrastructure services to reflect capital and scarcity costs and, where appropriate, externalities. ### Data and statistical dissemination - Australia subscribes to SDDS; data considered adequate for Fund surveillance. - Key planned/ongoing statistical improvements: - ABS to release updated GDP estimates based on supply-use tables in late 2005 (level of GDP may be revised upward). - Experimental price indices for financial services to be included in headline CPI from Q3 2005. - Price Index of Domestic Final Purchases (DFP) released experimentally since July 2001; plans to regularize. - New labor underutilization measures released in February 2002; quarterly series expected by October 2005. - ABS published new annual non-wage labor cost indices beginning November 2004. - Quarterly GFS and harmonized GFS/accounting data efforts ongoing; harmonized set expected to commence with 2006/07 budget. - ABS foreign currency exposure survey results expected October 2005; repeat every three years subject to funding. - Common indicator reporting status (selected, as of July 18, 2005): - Exchange Rates: latest observation 7/18/05; Frequency D. - International Reserve Assets and Reserve Liabilities: latest observation 05/05; Date received 06/30/05; Frequency M. - Consumer Price Index: latest observation Q1 2005; Date received 04/27/05; Frequency Q. - GDP/GNP: latest observation Q1 2005; Date received 06/01/05; Frequency Q. - Gross External Debt: latest observation Q1 2005; Date received 05/31/05; Frequency Q. ### Vulnerability assessment and executive board conclusions (PIN, September 12, 2005) - Summary findings: - Vulnerability assessment broadly unchanged; economy well placed to manage adverse external shocks. - High level of private external debt requires continued monitoring; extensive hedging mitigates currency risk. - Stabilization of housing market and easing household credit growth welcomed; continued monitoring urged. - Directors commended authorities for sustained strong performance and prudent, flexible policies. - Key projections (selected): - Real GDP: 2004: 3.2; 2005 (Proj.): 2.2; medium-term: rises toward about 3½ percent. - CPI inflation: 2004: 2.3; 2005 (Proj.): 2.6; medium-term: returns to about 2½ percent. - Unemployment: 2004: 5.5; 2005 (Proj.): 5.1; medium-term around 5.1–5.2 percent. - Current account: 2004: -6.4 percent of GDP; 2005 (Proj.): -5.7 percent; medium-term expected to decline to ~4½ percent of GDP. - Executive Board policy recommendations (selected): - Continue structural reforms to raise productivity and participation. - Use forthcoming FSAP to prioritize financial sector regulatory reforms. - Maintain prudent fiscal policy; 2005 budget prudently allows for significant fall in export prices. - Pursue infrastructure reforms: improve price signals for water, land transport, electricity; strengthen communications competition; increase R&D. - Enhance healthcare sustainability and implement Future Fund per international best practices. - Continue trade liberalization under Doha Round and increase ODA toward UN target. *Source: IMF Country Report _cr05331_ (Executive Summary and selected sections).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Economic Background - Economic activity slowed during 2004 as domestic demand growth eased owing to a welcomed cooling of the housing market. The appreciation of the exchange rate in recent years also contributed to the slowing by boosting imports. - While the current account deficit widened, unemployment reached a 28-year low of 5 percent, inflation remained subdued, and strong revenues lifted the fiscal surplus. - Prospects for the Australian economy remain strong: - Growth is expected to rise from 2¼ percent in 2005 to about 3½ percent in the medium term as high investment boosts capacity, particularly in the export sector. - Domestic demand growth will remain moderate as stimulus from the housing market fades. - Large terms of trade gains also lead to a declining current account deficit. - Underlying inflation may edge up in the near term, but upside risks have diminished. ### Policy Issues - Macroeconomic policies are on track: - Monetary policy is in a wait-and-see stance following the moderation in domestic demand. - Fiscal policy has responded prudently to rising export commodity prices; the mild fiscal stimulus from the budget may have helped cushion the slowing in activity. - Risks to the economic outlook are tempered by flexibility in macroeconomic policies and in the exchange rate. - The risk of a hard landing in the housing market appears to have eased. - Terms of trade gains could be reversed rapidly if global growth slowed. - Exceptional opportunity to implement further reforms to sustain and improve Australia’s strong economic performance: - Employment and productivity can be improved by implementing proposed reforms of labor markets and welfare policies. - Productivity can also be increased by improving price signals in infrastructure, especially for water, land transport, and electricity, to encourage more efficient use and stimulate timely investments to expand infrastructure capacity. - Authorities’ strategy to address long-term fiscal challenges: - Ongoing structural reforms on a broad front. - Recent steps to enhance the sustainability of health spending are welcome; reforms to strengthen incentives for cost effectiveness in the health system could have large cumulative benefits by boosting productivity growth in this key sector. - Following best practices in asset management and transparency will help ensure that the proposed Future Fund makes the greatest contribution to strengthening the government’s balance sheet. - Financial regulation requires ongoing refinement to preserve the financial health of the private sector and the resilience of the economy. Recent steps in response to the emergence of nonstandard household lending are prudent. ### I. Reforms Have Paid Large Dividends - Australia has implemented wide-ranging structural reforms and strengthened the frameworks for monetary and fiscal policies over the past two decades, yielding: - Rapidly rising incomes through strong job creation and high productivity growth. - Low inflation and virtually eliminated net public debt. - An increasingly stable and resilient economy. - Key outcomes and facts: - Since 1992, Australia’s real GDP has grown at an average annual rate of 3¾ percent, lifting per capita incomes to almost 10 percent above the OECD average by 2003. - The unemployment rate has fallen by 6 percentage points since 1992, supported by more flexible labor markets and welfare reforms. - Wages of only one-fifth of employees were set by centralized awards in 2002, compared with two-thirds in 1990. - The Mutual Obligation Initiative introduced in 1996 increased incentives for the unemployed to take jobs or participate in programs to enhance employability. - Productivity and price changes in key infrastructure sectors in the 1990s to which the NCP contributed are estimated to have raised GDP by 2½ percent. - The standard deviation in the annual rate of GDP growth was 0.9 percent in 1992–2004, well below the 2.3 percent in the previous three decades. - CPI inflation has averaged 2½ percent since 1993, within the inflation target of 2 to 3 percent. - Fiscal surpluses were achieved in six of the past seven years; government net worth rose by 9 percentage points of GDP, and net debt is expected to be less than 1 percent of GDP by the end of 2005/06. - The external current account deficit has averaged 4½ percent of GDP since 1990, lifting net external debt from 35 percent of GDP to 50 percent by end 2004. - Almost all net external debt—97 percent—is owed by the private sector, with four-fifths being intermediated by financial institutions. - Private sector net wealth rose from 400 percent of GDP in 1990 to over 600 percent of GDP in 2004; net external liabilities have remained less than one-tenth of the domestic assets of the private sector. - Political opportunity: - The Liberal-National party coalition was elected to its fourth consecutive term in October 2004, and from July 2005 the government has a majority in the Senate, creating an exceptional opportunity to implement further reforms. ### II. Why did the Economy Slow Recently? - Overview: - Activity slowed in the second half of 2004 largely reflecting a welcomed cooling of the housing market and the rise in the Australian dollar in recent years. The external current account deficit widened but strong job creation continued and inflation remained low. - Recent growth performance: - Growth averaged 3¼ percent (y/y) in 2004, but slowed to 2 percent (Q1/Q1) by the first quarter of 2005 (Table 1). - Economic activity was particularly weak in the second half of 2004, with growth running at an annualized rate of only 1 percent. - A sharp fall in inventory investment was partly reversed in the first quarter of 2005, boosting quarterly growth (Q1/Q4) to an annualized rate of 2¾ percent. - Drivers of the slowdown: - Decelerating domestic demand was the main factor, following a welcomed cooling of the housing market. - National housing prices had risen at an annual pace of 17½ percent in 2001–03, but were flat in the year to March 2005, with modest declines in Sydney, Melbourne, and Canberra. - Consumption growth moderated and dwelling investment fell; growth in final domestic demand eased to 3½ percent (y/y) in the first quarter of 2005 from 6 percent a year earlier. - Business investment remained buoyant, reflecting high levels of profitability and capacity utilization. - The appreciation of the Australian dollar restrained output growth in 2004: - Imports rose rapidly, responding to the 27 percent appreciation of the real exchange rate in 2002-03, and met three-quarters of the rise in final domestic demand during 2004. - In the first quarter of 2005 the real effective exchange rate was 16 percent above its average level since 1990—reflecting a combination of U.S. dollar weakness, strong commodity prices, and relatively high Australian interest rates. - Official reserves net of swap commitments were US$20 billion (3¼ percent of GDP) in June 2005, up from US$17 billion a year earlier. - Exports and external accounts: - The volume of exports rose 4 percent in 2004 mainly because of a 25 percent rebound in rural exports from the 2002–03 drought. - Constraints on mine capacity and on rail and port infrastructure limited expansion of coal and iron ore exports to 4 percent in 2004 despite strong global demand. - Export commodity prices in SDR terms rose to almost 50 percent above their 2001–03 average in June 2005, led by sharp increases in coal and iron ore prices. - As a result of a 10 percent rise in the terms of trade, the trade balance was stable in 2004 despite the large rise in import volumes. - The current account deficit widened to 6½ percent of GDP, being financed mainly through external debt issues by financial institutions, with net external liabilities rising to 65 percent of GDP. - Labor market and inflation: - Unemployment has fallen to a 28-year low of 5 percent, with employment growth at 3 to 4 percent (y/y) in 2005 and rising labor participation. - Indicators of the difficulty of finding suitable labor have increased, yet aggregate wage growth has risen little; average wage rises have edged up only slightly to 4 percent. - CPI inflation has been steady at about 2½ percent (y/y). - Nontradable inflation eased slightly to 3½ percent in June 2005, partly reflecting less rapid rises in the housing component as dwelling investment declined. - Tradables inflation has picked up as the dampening effects of the 2002–03 exchange rate appreciation have waned. *Source: IMF Country Report _cr05331 - Executive Summary_* ### 13. The RBA tightened the stance of monetary policy in March 2005 to lean against a ### 13. The RBA tightened the stance of monetary policy in March 2005 to lean against a ### Monetary policy and inflation outlook - The RBA raised target cash rate by 25 basis points to 5½ percent in March 2005, having kept interest rates on hold since late 2003. - In its February 2005 Statement on Monetary Policy the RBA projected that inflation would rise to about 3 percent by the end of 2006. - Headline inflation may approach 3 percent in 2005 owing to higher oil prices; underlying inflation is expected to edge up more modestly. - The RBA noted that the impact on inflation from the appreciation in 2002–03 has been smaller than expected. - The current broadly neutral monetary stance will remain appropriate if moderate demand growth is sustained. - The authorities consider a wait-and-see attitude appropriate in view of the diminished upside risks to the inflation outlook. - The RBA considered it appropriate for monetary policy to recognize that the interest sensitivity of spending may have increased due to higher household indebtedness. - Monetary policy is well placed to respond in either direction to cushion the economy, consistent with achieving the RBA’s medium-term inflation objective. ### Fiscal position and government projections - The fiscal surplus for 2004/05 is projected to be substantially higher than previously expected. - In the 2005 Budget released in May, the government projects the underlying cash balance to reach 1.1 percent of GDP in 2004/05 (the fiscal year ends in June), compared with the surplus of 0.3 percent of GDP projected in the 2004 Budget. - Revenue is projected to be almost 1 percent of GDP higher than before, with company taxes particularly buoyant, partly reflecting the boost in profits from rising export commodity prices. ### Short-term growth and demand composition (2005) - Real GDP growth is projected to continue at about 2¾ percent during the remainder of 2005. - Year-on-year growth of 2¼ percent in 2005 is expected as a result of carry-over effects from slow growth in the second half of 2004. - Domestic demand growth will likely further ease as households respond to lower housing price rises and slightly higher interest rates. - Investment intentions remain positive and consumer confidence is underpinned by: - strong employment growth, - income tax reductions, - the broad based 25 percent rise in equity prices in 2004. - Some resource projects are coming on-stream in 2005, but total export growth may be restrained by weakness in agricultural production. - The current account deficit is expected to narrow to about 5¾ percent of GDP due to terms of trade gains—the trade balance increased notably in the second quarter as export prices rose steeply. ### Medium-term projections and drivers - Real GDP growth is projected to rise to about 3½ percent on average in the medium-term, with exports likely to play a greater role as a driver of growth. - Domestic demand growth is expected to remain moderate as the stimulus from the housing market fades and household saving is rebuilt over time. - The external current account deficit would decline back to its historical average of 4½ percent of GDP in the medium term. - Underlying inflation may remain in the upper half of the target range in 2006, before returning to about 2½ percent. - Export strengthening reflects rising investment in the resource sector in recent years and substantial further investments planned in coming years. ### Terms of trade boom—prospects and macroeconomic implications (Box 1) - Australia’s terms of trade (TOT) are rising to historically high levels, driven by strong world demand, especially from China. - New contracts locked in large price increases in U.S. dollar terms for some key exports with effect from mid-2005, e.g., a 70 percent rise for iron ore, and a 120 percent increase for hard coking coal. - A decline in the prices of Australia’s manufactured goods imports has also contributed to the steady improvement in TOT. - These TOT gains are likely to reverse as global supply responds to higher commodity prices; world production of iron ore is expected to increase by around 20 percent in the next three years. - Recent research finds that half of past TOT gains were dissipated within two or three years on average. - As a rule-of-thumb, about one-third of the rise in mining revenues will be received by State and Federal governments through higher royalties and tax receipts, one-third will accrue to foreign investors, leaving only one-third for the domestic private sector. - Exchange rate flexibility will play a key role in shaping macroeconomic effects; if the exchange rate appreciates by about one-third to one-half of the percentage rise in the TOT, the impact on inflation will be limited. - In the current episode the Australian dollar has risen substantially to date, tending to moderate inflationary pressures. ### Housing market, household finances, and consumption risks (Box 2) - After a year of stability in the housing market, potential risks appear to have eased. - Investors account for almost one-third of housing loans. - Some countries have experienced a slump in consumption after housing markets cooled, but an analysis suggests this risk is modest in Australia. - Household credit growth has slowed as the housing market cools. - A life-cycle model of household consumption (1988:Q1–2004:Q4) explains real household consumption well (standard error ½ percent). - Controlling for other variables, household equity withdrawals were found to have negligible effects on consumption. - Key determinants of household consumption expenditure in Australia are: - Disposable Income: One Year elasticity 0.47**, Long-Run elasticity 0.81** - Net Housing Wealth: One Year elasticity 0.09**, Long-Run elasticity 0.15** - Net Financial Wealth: One Year elasticity 0.005, Long-Run elasticity 0.008 - Real Interest Rate (25 bps): One Year elasticity -0.14**, Long-Run elasticity -0.15** - Unemployment Rate (1 percent): One Year elasticity -0.001** ... - Household Equity Withdrawals: One Year elasticity 0 ... - If the household sector’s net housing wealth declined by 5 percent, the model predicts consumption would decline almost ½ percent after one year and by ¾ percent in the long run. - Interest rate flexibility could moderate the overall macroeconomic impact by allowing cuts if consistent with keeping inflation on-track in the medium term. ### External vulnerabilities and balance-sheet assessment - Australia’s relatively high and rising net external debt is noted, with just under one-half of it short-term. - Most external debt is either denominated in Australian dollars or hedged. - Net foreign liabilities are expected to rise before stabilizing in the medium term. - A depreciation of the exchange rate would facilitate an orderly decline in the external current account deficit if rising liabilities reduced the attractiveness of foreign investment. - Stress tests do not suggest significant external vulnerabilities (Annex I, Figure I). - Authorities’ analysis finds that banking sector and household sectors are robust to substantial declines in house prices (Section IV.D and Annex I). ### Risks and policy implications - Downside risks include: - A reversal of recent terms of trade gains if global demand weakens (e.g., a hard landing in East Asian growth). - A rapid increase in global supply of resource products leading to downward pressure on commodity prices. - A large fall in the U.S. dollar would reduce the buffer from exchange rate depreciation. - The economy is well placed to manage both external and domestic risks due to: - strong private sector balance sheets, - effective currency and liquidity risk management, - flexibility in macroeconomic policies. - Policy priorities to sustain strong economic performance: - Reforms of labor markets, welfare policies, and infrastructure to support high productivity growth and raise employment. - Reforms to moderate growth in health spending to tackle long-term fiscal challenges. - Protecting the financial soundness of the private sector to underpin resilience. - Macroeconomic policies should continue to respond flexibly to potential shocks. - The current flexible exchange rate has helped moderate inflation pressures and switch expenditure to imports; exchange rate is about 15 percent above its medium-term equilibrium using a macroeconomic balance approach, although that approach does not allow for changes in the terms of trade. *IMF staff report content (chapter/section).* ### 24. Higher surpluses projected in the 2005 Budget are appropriate. The budget included ### 24. Higher surpluses projected in the 2005 Budget are appropriate. The budget included ### Fiscal stance and 2005 Budget assessment - The 2005 Budget included significant tax reductions along with modest expenditure increases partly linked to welfare reforms, implying a mildly expansionary fiscal stance. - Underlying cash balance projections: - Projected to remain at close to 1 percent of GDP over the next four years. - Up from ¼ percent of GDP in the previous budget. - Revenue outlook drivers: - Expected revenue gains from higher export commodity prices. - A revised methodology for projecting revenues to correct consistent under-prediction in recent years. - Specific tax change noted: - Personal income taxes: phased increases in thresholds for the highest rates; reduction in the lowest income tax rate from 17 to 15 percent, with an annual cost of two-thirds of a percent of GDP from 2006/07. - Policy judgment: - Authorities considered adjustments prudent because a significant portion of the higher revenue outlook was saved as higher surpluses. - Revenue projections allowed for a fall in export commodity prices to historical average levels by 2007/08. - Mission view: mildly expansionary stance in the last two budgets may have cushioned recent slowing in growth without undue stress on monetary policy or public finances. ### Medium-term framework and managing terms-of-trade uncertainty - Fiscal policy approach: - Continue to manage uncertainty in the terms of trade within a transparent medium-term framework. - If export prices decline, allowing automatic fiscal stabilizers to operate would be consistent with the objective of budget balance over the cycle. - Authorities will reassess whether terms-of-trade gains are cyclical or permanent as budget projections are updated; fiscal policies would be adjusted if necessary. - Policy focus if further tax reform space emerges: - Emphasize measures that encourage labor force participation and productive investments. ### Tackling long-term fiscal challenges (ageing and health) - Long-term fiscal gap: - Productivity Commission estimates the long-term financing gap of the Commonwealth government at some 6½ percent of GDP by 2045, with rising healthcare costs the main contributor. - Policy fronts to address the challenge: - Lifting incomes and the revenue base via increases in labor force participation and labor productivity. - Enhancing sustainability of health spending while maintaining high standards of healthcare. - Ensuring government savings are available for long-term liabilities (see Future Fund below). - Future Fund (FF) design and projections: - Purpose: invest fiscal surpluses to cover unfunded public service pensions currently standing at about 10½ percent of GDP. - Inflows: future fiscal surpluses, privatization proceeds, and investment income. - Outflow constraints: legislation to prohibit outflows until unfunded liability fully covered; thereafter outflows must meet pension payments covered by the FF, projected to average about 0.6 percent of GDP. - Governance: independent board with members selected by government based on financial expertise; further investment mandate details to be clarified. - Recommendation: follow international best practices in management and transparency to underpin FF success. ### Healthcare costs: scale and risks - Projected spending changes (Project ed difference between 2003-04 and 2044-45, in percent of GDP): - Health Care 4.5 - Aged Care & Carers 1.4 - Age Pensions 1.7 - Other Social Safey Nets -0.6 - Education -0.5 - Total 6.5 - Productivity Commission projections and key figures: - Health spending projected to rise to 10.3 percent of GDP in 2044–45, up from 5.7 percent of GDP in 2002–03, accounting for two thirds of the total rise in spending. - Pharmaceutical expenditure rising by 7¼ percent a year on a real per capita basis over the past two decades. - Historical growth in real health spending per capita components: - Growth in GDP per capita 2.1-2.5 - Growth related to age structure 0.4-0.6 - Other growth 0.3-0.9 - Total 2.8-4.0 - Small changes in healthcare cost outlook have large long-run effects: - Healthcare costs may increase 0.3 to 0.9 percent faster than per capita GDP owing to technology and other factors. - Health spending would rise to 11½ percent of GDP if the rise in costs was at the upper end of this range. - The increase would be 2½ percentage points of GDP smaller if the rise in costs was at the lower end. - Policy direction: - Moderate growth in pharmaceutical spending via downward pressure on pharmaceutical costs and moderating distribution costs to the public. - Improve coordination across levels of government to reduce duplication and gaps in services. - Make incentives within the health system consistent with improved cost effectiveness to raise productivity growth in healthcare services. - Consider a comprehensive public review to build consensus for health reform. ### Structural reforms to raise productivity and participation - Income gap and productivity objective: - Per capita incomes (PPP basis) remain some 20 percent below those in the United States. - Structural reforms to raise productivity and employment can help close the income gap and reduce long-run fiscal shortfall. - Labor participation reforms in 2005 Budget: - Work testing extended to disability support pensions (DSP) and parenting payments (PP) for single parents (work tests do not apply to current DSP recipients; new DSP applicants able to work more than 15 hours/week must seek part-time work; similar part-time obligation for single parents with school-age children). - Improved work incentives by cutting high effective marginal tax rates faced by benefit recipients. - Enhanced assistance for returning to work, including increased childcare availability. - Expected impact: with 11 percent of the workforce receiving DSP or PP, authorities estimate reforms will raise labor participation rates by about 1 percentage point in the medium term. - Mission urged continued efforts to increase employment rate, especially among persons aged 55 or older. - Industrial relations reforms proposed: - Create an Australian Fair Pay Commission to transform minimum wage determination, focusing more on employment implications while not reducing minimum wages from their current level. - Provide legislative protection of key working conditions (annual leave, parental leave, personal leave, maximum ordinary hours) to replace the "no disadvantage test". - Scale back employment protection: limit unfair dismissal coverage to enterprises with more than 100 employees; extend qualification period from 3 to 6 months; retain protection against unlawful termination for discrimination. - Unify Federal and State industrial relations systems and streamline agreement making. - Contextual statistics: - Minimum wages are relatively high at almost 60 percent of median earnings of full-time male employees. - Empirical studies cited find a negative relationship between wages and employment; papers focusing on minimum wages find a negative elasticity of employment demand with respect to the minimum wage. - Mission recommendation: implement reforms to widen employment opportunities and raise productivity; support with training and education initiatives. - Infrastructure and pricing reforms: - Important reform challenges in water, land transport, and electricity. - Priority: improve price signals to encourage efficient use of water, road and rail networks, and electricity; stimulate timely investments. - Government’s strong fiscal position could facilitate measures to assist States in overcoming reform hurdles. - Trade liberalization: - Multilateral Doha round is a priority; FTAs negotiated to complement multilateral process. - FTAs came into force with Thailand and the U.S. in January 2005; negotiations with China, ASEAN, Malaysia, U.A.E. began in 2005; feasibility study for FTA with Japan planned. - Tariff reductions: textiles from 25 to 17.5 percent in January 2005; automobiles from 15 to 10 percent, with these rates to reach 5 percent by 2015 and 2010, respectively. - Official development assistance: - Increased assistance to Indonesia by A$1 billion over five years for tsunami recovery. - Budget for 2005/06 allocates 0.28 percent of national income for ODA, up from 0.25 percent in 2004; commitment to UN target of 0.7 percent. ### Financial sector and household vulnerability - Overall assessments: - Financial and corporate sectors remain in strong financial health. - Aggregate household interest payment burdens have risen, which could signal increased household financial vulnerability. - Microeconomic evidence: - Based on a survey of over 7,000 households, the RBA reports household debt is concentrated on high income groups who have relatively low debt-service burdens and lower vulnerability. *Source: _cr05331 - 24. Higher surpluses projected in the 2005 Budget are appropriate. The budget included_* ### Box 4. Averting Infrastructure Constraints—Getting the Pricing Right is Crucial ### Box 4. Averting Infrastructure Constraints—Getting the Pricing Right is Crucial ### Background and recent developments - Recent transportation bottlenecks raised concerns that Australia’s infrastructure could become a constraint on growth, illustrated by long queues of ships outside Dalrymple Bay and Newcastle ports limiting exporters’ ability to meet rapidly expanding demand for coal, especially from China. - Infrastructure is typically the responsibility of the States in Australia, with some infrastructure privately managed but subject to state level regulation. Example: the private port operator at Dalrymple Bay is subject to regulation by the Queensland Competition Authority, which covers issues like changes in user charges. - A taskforce commissioned by the Prime Minister proposed referring disputes between infrastructure providers and users to the Australian Competition and Consumer Commission in cases where State regulators could not resolve an issue within six months. ### Sector-specific challenges - Water: - Citizens in many of Australia’s major cities face restrictions on their water use. - Prices are low compared with European countries, encouraging relatively high water usage. - Agriculture uses about two-thirds of Australia’s water. - Some estimates suggest that up to one-third of irrigation water is wasted. - "88 percent of water is used to produce only ½ of agricultural output." - A well functioning market in rural water rights is needed. - Land transport: - The share of freight carried between Australia’s capital cities by rail has fallen from 70 to 30 percent in the past three decades. - Weak rail profitability is reflected in low investment and poor service levels. - A significant part of the decline reflects low road access charges for heavy long-distance trucks, which do not include a return on the capital invested in roads. - The Bureau of Transport and Regional Economics calculates that road access charges would need to roughly double to achieve neutrality with rail. - Electricity: - Retail prices for electricity vary significantly across States. - Development of a competitive nationwide electricity market has been hindered by retail price controls and regulatory complexity. - Uncertainties about potential carbon charges have delayed some investment. - Appropriate price signals would promote necessary investments in electricity generation and transmission. ### Policy recommendations and reforms - Improve regulatory arrangements to lower the risk of infrastructure constraints on exports, including clearer dispute resolution mechanisms between State regulators and a proposed federal referral option if unresolved within six months. - Price infrastructure services to reflect capital and scarcity costs, and as appropriate, externalities, rather than simply increasing the quantity of infrastructure. - Water sector: - Increase water prices where appropriate to moderate demand, discourage waste and inefficient uses, and make investments (dams, pipe repairs, recycling facilities) more economic. - Establish a well functioning market in rural water rights. - Land transport: - Remove the implicit subsidy to heavy road users by raising access charges to stimulate rail use and reduce the cost of maintaining and expanding roads. - Electricity: - Remove retail price distortions and regulatory complexity to allow competitive pricing and reduce investment delays from carbon charge uncertainty. - Use the government’s strong fiscal position to assist States in overcoming hurdles to implementing reforms. ### Projected benefits and quantitative estimates - Preliminary estimates of the productivity gains from infrastructure reforms are substantial. - A comprehensive infrastructure reform agenda is estimated to raise GDP by 2 percent, with rural and urban water reforms contributing almost half of these gains. *Source: Box 4 from the IMF staff report excerpt provided.* ### 47. It is proposed that the next Article IV consultation with Australia take place on the ### It is proposed that the next Article IV consultation with Australia take place on the standard 12-month cycle. ### Vulnerability assessment — summary findings - Australia’s vulnerability assessment remains broadly unchanged from the last assessment, and the economy remains well placed to manage adverse external shocks. - Net foreign liabilities remain high relative to other advanced economies, mainly reflecting private sector borrowing, and the external debt has become more concentrated in private financial corporations due to increased intermediation of flows by banks. - Despite the large share of foreign currency denominated debt, the currency risk is mitigated through extensive hedging. - Corporate and banking sector balance sheets remain strong and have proven resilient to large swings in exchange and interest rates in recent years. - Housing prices have risen substantially in recent years, but microeconomic analyses indicate a relatively small share of households are potentially vulnerable to a significant fall in housing prices, and the banks are sufficiently well capitalized to withstand a substantial housing market correction. ### External position — key analysis and figures - Net external liabilities have increased from 55 to 65 percent of GDP over the last five years, driven by private sector borrowings intermediated by financial corporations (Table 1). - The composition of liabilities shifted more toward debt. - The private sector now accounts for 88 percent of total external debt, including more than 70 percent borrowed by financial corporations. - Non-resident claims on the public sector have declined in recent years as the total public debt has fallen. ### Selected macroeconomic context and headline statistics (as reported) - Nominal GDP (2004): $A 839 billion (US$ 618 billion) - GDP per capita (2004): US$ 30,697 - Population (2004): 20.1 million - Quota (in millions): SDR 3,236 - Recent output and demand (percent change): - Real GDP: 2000: 3.2; 2001: 2.5; 2002: 4.0; 2003: 3.3; 2004: 3.2; 2005 (Proj.): 2.2 - Total domestic demand: 2000: 2.2; 2001: 1.3; 2002: 6.6; 2003: 5.9; 2004: 5.0; 2005 (Proj.): 3.2 - Private consumption: 2000: 3.2; 2001: 2.7; 2002: 4.0; 2003: 4.3; 2004: 5.6; 2005 (Proj.): 2.7 - Total investment: 2000: 1.2; 2001: -0.7; 2002: 16.1; 2003: 8.2; 2004: 6.3; 2005 (Proj.): 2.9 - Inflation and labor market (in percent): - CPI inflation: 2000: 4.5; 2001: 4.4; 2002: 3.0; 2003: 2.8; 2004: 2.3; 2005 (Proj.): 2.6 - Unemployment rate: 2000: 6.3; 2001: 6.8; 2002: 6.4; 2003: 6.0; 2004: 5.5; 2005 (Proj.): 5.1 - Saving and investment (in percent of GDP): - Gross national saving: 2000: 19.2; 2001: 19.6; 2002: 19.6; 2003: 19.4; 2004: 18.4; 2005 (Proj.): 19.0 - Gross capital formation: 2000: 23.2; 2001: 21.9; 2002: 23.7; 2003: 25.3; 2004: 24.8; 2005 (Proj.): 24.7 - Fiscal indicators (in percent of GDP): - Receipts (Commonwealth): 2000: 26.6; 2001: 24.1; 2002: 22.8; 2003: 23.1; 2004: 23.0; 2005 (Proj.): 23.5 - Payments (Commonwealth): 2000: 24.5; 2001: 23.2; 2002: 22.9; 2003: 22.2; 2004: 22.0; 2005 (Proj.): 22.4 - Underlying balance: 2000: 2.1; 2001: 0.9; 2002: -0.1; 2003: 1.0; 2004: 1.0; 2005 (Proj.): 1.1 - Public debt, net: 2000: 8.6; 2001: 6.4; 2002: 5.3; 2003: 3.9; 2004: 2.9; 2005 (Proj.): 1.9 - Money and credit (end of period): - Interest rate (90-day bill, in percent): 2000: 6.2; 2001: 4.2; 2002: 4.8; 2003: 5.5; 2004: 5.4; 2005 (Proj.): 5.7 - Treasury bond yield (10-year, in percent): 2000: 5.5; 2001: 6.0; 2002: 5.2; 2003: 5.6; 2004: 5.3; 2005 (Proj.): 5.1 - Balance of payments (in percent of GDP): - Current account: 2000: -4.1; 2001: -2.3; 2002: -4.1; 2003: -5.9; 2004: -6.4; 2005 (Proj.): -5.7 - Trade balance: 2000: -1.2; 2001: 0.5; 2002: -1.3; 2003: -3.0; 2004: -2.9; 2005 (Proj.): -1.9 - Net income: 2000: -2.8; 2001: -2.7; 2002: -2.7; 2003: -2.8; 2004: -3.3; 2005 (Proj.): -3.6 - External assets and liabilities (in percent of GDP): - Net external liabilities: 2000: 54.8; 2001: 55.2; 2002: 58.6; 2003: 60.8; 2004: 64.5; 2005 (Proj.): 65.9 - Net external debt: 2000: 46.1; 2001: 45.8; 2002: 48.0; 2003: 47.1; 2004: 50.2; 2005 (Proj.): ... - Gross official reserves (in $A billion): 2000: 34.0; 2001: 36.5; 2002: 38.1; 2003: 44.3; 2004: 47.4; 2005 (Proj.): ... ### Medium-term and fiscal projections highlights (selected) - From the medium-term scenario (2004–10) projections: - GDP (percent change) projections: 2004: 3.2; 2005: 2.2; 2006: 3.2; 2007: 3.5; 2008: 3.5; 2009: 3.5; 2010: 3.5 - CPI inflation projections: 2004: 2.3; 2005: 2.6; 2006: 2.6; 2007: 2.7; 2008: 2.6; 2009: 2.5; 2010: 2.5 - Unemployment rate projections: 2004: 5.5; 2005: 5.1; 2006: 5.1; 2007: 5.2; 2008: 5.2; 2009: 5.2; 2010: 5.2 - Public sector net debt (percent of GDP) trajectory shown falling into negative territory under assumptions, with Commonwealth net debt: 2004/05: 2.9; 2005/06: 1.9; projections further negative in later years in the Budget tables. *Source: IMF staff report content and figures as provided in the content unit.* ### 3. Net interest payments rose ### 3. Net interest payments rose ### Net interest payments and external income - Net income payments to exports (percent): 15.7, 15.8, 13.0, 12.3, 13.3, 15.8, 18.2 (end-December series shown). - Of which: Net interest payment to exports (percent): 9.1, 10.5, 10.0, 9.1, 8.4, 8.1, 9.3 (end-December series shown). - Net interest payments rose modestly relative to exports in 2004 but remained low by historical standards. The ratio has declined in recent years due to low global and Australian interest rates, and is considerably lower than the level reached in the early 1990s. ### Foreign currency risks and hedging - Share of gross debt denominated in foreign currency: around 65 percent. - ABS survey (captures around 90 percent of total foreign currency assets and liabilities) showed a net long foreign currency position of $149 billion at end-June 2001. - Around 65 percent of derivative contracts taken by banks are with non-residents; 27 percent of the total derivative positions were swap transactions with the Reserve Bank. - Taking into account foreign currency hedging, the country’s international investment position has been little affected by movements of the exchange rate. - Scenario note: A one time large depreciation has a relatively modest impact on the country’s external debt ratio given extensive hedging (Figure 1). ### External debt maturity and liquidity management - Around half of external debt has maturity of less than a year, but refunding risks are limited by banks’ active liquidity management. - Banks increased holdings of liquid assets to 12 percent of total assets from 8 percent in 2000. - Asset-backed securities provide potential liquidity by enabling residential mortgage loans to be treated as a source of liquidity. - Interbank Deposit Agreement and RBA liquidity operations (RBA determines the short end of the yield curve through the official cash rate) provide onshore liquidity backstops in case of temporary loss of offshore funding. ### Nonfinancial corporate sector - Debt-to-equity ratio in the non-financial corporate sector declined to 66 percent at end-2004. - Debt declined relative to operating surpluses since 2001, improving debt servicing ratios. - Operating margins improved and return on equity remained at double-digit levels. ### Household sector - Net worth declined relative to disposable income in 2004 but remained high by historical standards. - Housing prices rose 3 percent in 2004 (subdued), partly offset by strong gains on financial assets. - Household debt increase primarily driven by a 15 percent increase in housing financing. - Household interest payments rose to 8½ percent of disposable income in 2004; the ratio increased further in 2005 following the increase of the official cash rate in March, and given continued household credit growth. - Default rate on credit cards: remained below 1 percent. - Default rates on housing loans: 0.2 percent. - Only 2 percent of households were considered vulnerable due to debt service ratios over 50 percent of after-tax income. - Only 4 percent of households had loan-to-value ratios exceeding 75 percent. - RBA reports household debt concentrated on high income groups with relatively low debt service burdens and significant financial assets. ### Banking sector - Loans (share of total assets, end-December series shown): 71.0, 69.5, 69.7, 69.5, 66.9, 67.7. - Loans to persons: 39.3, 41.2, 42.2, 41.3, 41.9, 42.0. - Housing loans: 32.8, 35.2, 36.3, 35.0, 35.7, 35.8. - Net interest margin (ratio to average interest earning assets): 2.7, 2.5, 2.3, 2.2, 2.2, 2.2. - Return on average assets: 1.2, 1.3, 1.0, 1.2, 1.1, 1.2. - Return on average equity: 18.0, 19.4, 15.6, 18.2, 16.4, 18.2. - Tier 1 capital (percent of risk-weighted assets): 7.8, 7.1, 7.7, 7.7, 7.6, 7.6. - Total capital (percent of risk-weighted assets): 10.1, 9.8, 10.5, 9.9, 10.1, 10.5. - Impaired assets: 0.6, 0.5, 0.7, 0.6, 0.4, 0.3. - General and specific provisions (percent of impaired assets): 120.2, 132.1, 107.1, 106.3, 131.8, 175.7. - Housing loans past due (percent of total housing loan): series shown but values not all legible in source table. - Net foreign currency liabilities: 9.6, 11.9, 11.7, 10.5, 9.6, 11.1. - Banking system profitability in 2004: return on assets for the four major banks was over 1 percent and return on equity rose to 18 percent. - Capitalization: total capital of 10½ percent and tier-one capital of 7½ percent of risk-weighted assets. - Asset quality: impaired assets of 0.3 percent of total assets; provisions increased to more than 170 percent of impaired assets. - All four major banks have a credit rating of AA- or better. - APRA stress test: a 30 percent fall of real property prices yields an aggregate default ratio around 3.5 percent; over 90 percent of ADIs would survive without breaching minimum regulatory capital requirement. ### External liabilities, reserves, and debt dynamics (selected indicators) - Net external liabilities (end-December series shown): 55.2, 55.5, 54.8, 55.2, 58.7, 60.9, 65.4 (series across years shown). - Net external equity liabilities: 14.3, 14.9, 8.7, 9.4, 10.6, 13.7, 15.1 (series shown). - Gross external debt: 63.0, 64.4, 72.9, 73.7, 77.6, 77.4, 82.4 (series shown). - Short-term net external debt (residual maturity basis): 17.5, 17.0, 22.3, 23.9, 23.1, 18.5, 19.5 (series shown). - Gross official reserves (in $A billion): 25.0, 33.6, 34.0, 36.5, 38.1, 44.3, 47.4 (series shown). - RBA outstanding forward contracts (in $A billion): 10.1, 22.6, 24.9, 29.5, 25.0, 26.4, 22.4 (series shown). - Net official reserves (in $A billion): 14.9, 10.9, 9.1, 7.0, 13.1, 17.9, 25.0 (series shown). - Gross official reserves (in months of imports): 2.3, 2.7, 2.7, 2.7, 2.8, 3.0, 3.0 (series shown). - Gross official reserves to short-term foreign currency denominated debt (percent): 19.5, 23.0, 18.9, 19.3, 18.5, 21.7, 21.5 (series shown). ### External debt sustainability projections and shocks (selected values) - Baseline external debt (percent of GDP): 72.8 (2000), 73.8 (2001), 77.5 (2002), 77.4 (2003), 82.8 (2004), 83.7 (2005), 85.4 (2006), 87.6 (2007), 90.0 (2008), 91.6 (2009), 92.2 (2010). - Change in external debt (percent of GDP): 8.4, 1.0, 3.7, -0.1, 5.4, 0.9, 1.6, 2.3, 2.3, 1.6, 0.6 (2000–2010 series). - Identified external debt-creating flows (4 + 8 + 9): 4.9, 2.7, -0.4, -5.5, -2.0, 3.9, 2.3, 2.2, 2.2, 2.0, 1.5 (series). - Current account deficit, excluding interest payments (percent of GDP): 1.2, -0.3, 1.7, 3.8, 4.1, 2.5, 1.5, 1.6, 1.7, 1.4, 0.9 (series). - Automatic debt dynamics contributions (percent of GDP): contribution from nominal interest rate: 2.9, 2.6, 2.4, 2.1, 2.3, 3.2, 3.4, 3.5, 3.6, 3.7, 3.7; contribution from real GDP growth: -2.1, -1.9, -2.6, -2.0, -2.1, -1.6, -2.5, -2.8, -3.0, -3.0, -3.0; contribution from price and exchange rate changes: 1.7, 2.9, -4.3, -10.0, -8.1, ... (series continues). - Residual, including change in gross foreign assets (2-3): 3.4, -1.7, 4.1, 5.4, 7.4, -3.0, -0.7, 0.1, 0.2, -0.4, -0.9 (series). - External debt-to-exports ratio (in percent): 332., 327.4, 374.6, 431.5, 455.7, 425.8, 432.9, 457.0, 485.2, 505.0, 511.2 (series). - Gross external financing need (in billions of US dollars): 160.1, 165.4, 171.4, 219.4, 282.1, 348.3, 382.6, 409.7, 440.6, 471.1, 500.1 (series). - Gross external financing need (percent of GDP): 42.4, 46.3, 42.8, 42.9, 45.6, 50.6, 53.0, 54.2, 55.7, 56.5, 56.7 (series). - Key macro assumptions under baseline (selected): - Real GDP growth (percent): 3.2 (2000), 2.5 (2001), 4.0 (2002), 3.3 (2003), 3.2 (2004), 2.2 (2005), 3.2 (2006), 3.5 (2007–2010). - GDP deflator in US dollars (change in percent): -6.3, -7.5, 8.0, 22.9, 17.7, 8.9, 1.7, 1.2, 1.2, 1.8, 2.3 (series). - Nominal external interest rate (percent): 4.3, 3.4, 3.7, 3.4, 3.6, 4.3, 4.3, 4.3, 4.3, 4.3, 4.3 (series). - Growth of exports (US dollar terms, percent): 12.8, -2.8, 3.0, 10.7, 22.4, 20.4, 5.2, 1.8, 1.3, 3.0, 5.2 (series). - Growth of imports (US dollar terms, percent): 3.9, -9.7, 12.1, 21.3, 22.4, 13.4, 2.6, 2.7, 2.7, 2.6, 2.7 (series). - Scenario note: A scenario assuming foreign exchange hedging covers 77 percent of foreign currency debt is referenced (consistent with a 2002 ABS survey). *Source: IMF staff report content in _cr05331 - 3. Net interest payments rose* ### 1. Australia publishes a wide array of economic and financial data. It has subscribed to the ### Australia publishes a wide array of economic and financial data. It has subscribed to the Special Data Dissemination Standard (SDDS) and its metadata are posted in the Dissemination Standards Bulletin Board (DSBB). ### Summary assessment - Economic and financial data provided to the Fund are considered adequate for surveillance purposes. - Australia is a regular reporter of Government Finance Statistics (GFS) data for publication in IFS and the GFS Yearbook. - The Reserve Bank of Australia (RBA) reports monetary data to the Fund on a monthly basis; some monthly IFS series are partly based on estimates because underlying sources are quarterly or unpublished. - The ABS is actively updating and enhancing statistical measures across the real, fiscal, monetary, and external sectors. ### Real Sector Statistics — National Accounts - In late 2005, the Australian Bureau of Statistics (ABS) will release new GDP estimates based on an updated set of supply-use tables. - Work to date indicates that the level of GDP may be revised upwards, although such a revision is likely to have little effect on growth rates. ### Real Sector Statistics — Prices - Since mid-2004, the ABS has released experimental price indices for financial services, covering both direct charges such as banking and real estate service fees, and indirect charges such as the interest rate margins. - These indices are expected to be included into the headline CPI from the third quarter of 2005. - With the 5-year review of the CPI, the weights in the CPI basket will be updated, based largely on the 2003–04 household expenditure survey. - The ABS released a new price measure—the Price Index of Domestic Final Purchases (DFP)—on an experimental basis since July 2001. - The DFP reflects purchases of Australian residents (households, governments, and businesses), with import prices included and export prices excluded. - The series is confined to final market purchases to avoid multiple counting of price impacts that would result if prices of intermediate stages of production were included. - The items and weights for the DFP are derived from the 1994–95 input-output tables. - The ABS plans to regularize the production of the DFP in the next few years, when the existing system for compiling price indexes is updated to accommodate this. - Price changes of intermediate purchases are provided by the Stage of Production producer price index introduced in July 2000. ### Real Sector Statistics — Labor - In February 2002, the ABS released two new measures of labor underutilization: - labor force underutilization rate = unemployed plus the underemployed as a percentage of the labor force; - extended labor force underutilization rate = unemployed + underemployed + two marginally attached groups (persons actively looking for work, who are not available to start work in the reference week but available to start work within four weeks, and discouraged job seekers) as a percentage of the 'extended' labor force (labor force plus the two marginally attached groups). - Currently, the new series are available on an annual basis back to 1994; the ABS is working to create a quarterly series for the labor force underutilization rate, which is expected to be available by October 2005. - Since July 2003 the ABS has published experimental measures of volume based labor underutilization in terms of the number of hours of labor. - The volume of underutilized labor is derived as the number of hours of work sought by unemployed persons plus the number of additional hours of work offered by underemployed workers. - The statistics are expected to be included in the official figures from late 2006. - Beginning in November 2004, the ABS published new annual non-wage labor cost indices covering superannuation, workers’ compensation, annual leave, and payroll tax; these will contribute to the development of indices of overall labor costs. ### Government Finance Statistics (GFS) - The Australian Commonwealth (central) Government introduced accrual budgeting with the 1999/2000 Budget estimates that were released in May 1999. - Consolidated Financial Statements for the Commonwealth and all State governments now contain a complete set of financial statements and various summary measures of government performance prepared on an accrual basis in accordance with applicable Australian Accounting Standards. - Separate GFS statements, in accordance with the GFSM (2001) methodology, are produced for the budget and mid-year updates of the estimates and the final budget outcomes publications. - The ABS has been producing quarterly GFS estimates for many years as an input into the quarterly national accounts. - In March 2004, the ABS published quarterly data on the operations of general government and nonfinancial public corporations, excluding data on financing. - The ABS is working with the Commonwealth and State governments to produce a harmonized set of GFS and accounting data, which is expected to commence with the 2006/07 budget. - Cash data from the Department of Finance Monthly Financial Statements are used for publication in IFS. ### Monetary and Financial Statistics - Data are reported to the Fund by the Reserve Bank of Australia (RBA) on a monthly basis and cover operations of the RBA and those of the trading and savings banks. - The accounts of other deposit-taking institutions are not included. - To compile these data, the RBA uses several unpublished data sources, some of which are produced on a quarterly basis; therefore, monthly data published in IFS are partly based on estimates. - The RBA advised it was not at present in a position to submit the new Standardized Report Forms for monetary statistics. ### External Sector Statistics - The ABS is working to further enhance the coverage of trade in services, especially in education. - The timeliness of the international investment position (IIP) statistics has been improved by releasing the data one quarter earlier. - Revisions to IIP data have resulted from improved reporting and the identification and correction of errors. - The estimates in the July 2004 issue of the Balance of Payment and International Investment Position are presented on a calendar year basis to allow for better international comparisons. - Quarterly External Debt Statistics are now also available in the Balance of Payment and International Investment Position publication. *Source: _cr05331 - 1. Australia publishes a wide array of economic and financial data. It has subscribed to the* ### 11. The ABS is currently conducting a survey on Australia’s foreign currency exposure, an ### _cr05331 - 11. The ABS is currently conducting a survey on Australia’s foreign currency exposure, an ### ABS foreign currency exposure survey - Purpose: - Provide updated statistics on Australian enterprises’ foreign currency exposure. - Assess the level of risks associated with that exposure due to adverse movements in the exchange rates. - Measure the extent to which hedging is used to mitigate the risks. - Timing and frequency: - Results are expected to be published in October 2005. - In future, the foreign currency exposure survey is expected to be updated every three years, subject to funding being available. ### Common indicators required for surveillance (As of July 18, 2005) - Exchange Rates: - Date of latest observation: 7/18/05; Date received: 7/18/05; Frequency of Data: D; Frequency of Reporting: D; Frequency of Publication: D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: - Date of latest observation: 05/05; Date received: 06/30/05; Frequency: M; Reporting: M; Publication: M - Reserve/Base Money: - Date of latest observation: 06/05; Date received: 07/14/05; Frequency: M; Reporting: M; Publication: M - Broad Money: - Date of latest observation: 05/05; Date received: 06/30/05; Frequency: M; Reporting: M; Publication: M - Central Bank Balance Sheet: - Date of latest observation: 06/05; Date received: 07/14/05; Frequency: M; Reporting: M; Publication: M - Consolidated Balance Sheet of the Banking System: - Date of latest observation: 05/05; Date received: 06/16/05; Frequency: M; Reporting: M; Publication: M - Interest Rates: - Date of latest observation: 7/18/05; Date received: 7/18/05; Frequency: D; Reporting: D; Publication: D - Consumer Price Index: - Date of latest observation: Q1 2005; Date received: 04/27/05; Frequency: Q; Reporting: Q; Publication: Q - Revenue, Expenditure, Balance and Composition of Financing – General Government: - Date of latest observation: 2003/04; Date received: 09/04; Frequency: A; Reporting: A; Publication: A - Revenue, Expenditure, Balance and Composition of Financing – Central Government: - Date of latest observation: 05/05; Date received: 07/08/05; Frequency: M; Reporting: M; Publication: M - Stocks of Central Government and Central Government-Guaranteed Debt: - Date of latest observation: 05/05; Date received: 07/08/05; Frequency: M; Reporting: M; Publication: M - External Current Account Balance: - Date of latest observation: Q1 2005; Date received: 05/31/05; Frequency: Q; Reporting: Q; Publication: Q - Exports and Imports of Goods and Services: - Date of latest observation: 05/05; Date received: 07/04/05; Frequency: M; Reporting: M; Publication: M - GDP/GNP: - Date of latest observation: Q1 2005; Date received: 06/01/05; Frequency: Q; Reporting: Q; Publication: Q - Gross External Debt: - Date of latest observation: Q1 2005; Date received: 05/31/05; Frequency: Q; Reporting: Q; Publication: Q Notes (as presented): - 1 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions. - 2 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds. - 3 Foreign, domestic bank, and domestic non-bank financing. - 4 The general government consists of the central government (including budgetary, extra budgetary, and social security funds) and state and local governments. - 5 Including currency and maturity composition. - 6 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA) ### Public Information Notice (PIN) — IMF Article IV Consultation with Australia (Executive Board conclusions, September 12, 2005) - Background and recent performance: - Australia’s economic expansion is in its 14th year, with growth averaging 3¾ percent. - Real GDP rose by 3¼ percent (y/y) in 2004. - Housing prices slowed from an annual average growth of 17½ percent in 2001–03 to being largely flat in the year to March 2005. - Employment growth in 2005: 3 to 4 percent; unemployment reduced to a 28-year low of 5 percent. - External current account deficit widened to 6½ percent of GDP in 2004. - Net external liabilities rose to 65 percent of GDP. - In Q1 2005 the real exchange rate stood 16 percent above its average level since 1990. - CPI inflation steady at about 2½ percent. - Reserve Bank of Australia raised the target cash rate by 25 basis points to 5½ percent in March 2005. - 2005 budget projection: underlying cash balance to reach 1.1 percent of GDP in 2004/05 (compared with surplus of 0.3 percent of GDP projected in 2004 budget). - Revenue projected to be almost 1 percent of GDP higher than budgeted. - Outlook and projections: - Growth expected to rise from 2¼ percent in 2005 to about 3½ percent in the medium term. - External current account deficit expected to decline back to its historical average of about 4½ percent of GDP in the medium term. - Headline inflation may approach 3 percent in 2005 because of higher oil prices; underlying inflation expected to edge up only modestly then decline toward the middle of the target range in the medium term. - Executive Board assessment — key findings: - Directors commended the authorities for sustained strength of Australia’s economic performance and exemplary policy settings. - Structural reforms and prudent, flexible monetary and fiscal management have enhanced resilience. - The wait-and-see monetary stance of the RBA was viewed as appropriate. - Stabilization of the housing market in 2004 and 2005 and easing in household credit growth welcomed; continued monitoring of housing market and household sector finances urged. - Improvement in banks’ risk management and timely refinements of prudential regulations noted; authorities encouraged to continue enhancing financial regulation. - High level of private external debt amid sustained current account deficits requires continued close monitoring. - Exchange rate flexibility and automatic fiscal stabilizers play key roles in dampening shocks. - Extensive foreign currency hedging contributes to resilience against exchange rate fluctuations. - Policy recommendations and priorities: - Continue structural reform efforts to further raise productivity and labor force participation and address fiscal impact of an ageing population. - Use the forthcoming FSAP to help identify reform priorities for financial sector regulation. - Maintain prudent fiscal policy; the 2005 budget’s allowance for a substantial decline in export prices in medium-term revenue projections judged appropriately prudent. - Continue efforts to expand labor force participation, including among those aged over 55. - Pursue ambitious reform agenda in key infrastructure sectors: - Improve price signals for water, land transportation, and electricity to enhance incentives for efficient use and timely investment. - Strengthen competition in the communications sector. - Increase research and development. - Further enhance sustainability of healthcare spending; explore ways to improve healthcare productivity growth. - Implement the proposed Future Fund to cover unfunded public service pension liabilities and operate in accordance with international best practices. - Continue commitment to trade liberalization under the Doha Round and increase official development assistance toward the United Nations target. ### Table 1 — Australia: Selected Economic Indicators, 2000–05 (selected entries) - Output and demand (percent change): - Real GDP: 2000: 3.2; 2001: 2.5; 2002: 4.0; 2003: 3.3; 2004: 3.2; 2005 (Proj.): 2.2 - Total domestic demand: 2000: 2.2; 2001: 1.3; 2002: 6.6; 2003: 5.9; 2004: 5.0; 2005 (Proj.): 3.2 - Private consumption: 2000: 3.2; 2001: 2.7; 2002: 4.0; 2003: 4.3; 2004: 5.6; 2005 (Proj.): 2.7 - Total investment: 2000: 1.2; 2001: -0.7; 2002: 16.1; 2003: 8.2; 2004: 6.3; 2005 (Proj.): 2.9 - Exports of goods and services: 2000: 11.2; 2001: 1.7; 2002: 0.1; 2003: -2.2; 2004: 4.1; 2005 (Proj.): 3.4 - Imports of goods and services: 2000: 7.9; 2001: -4.2; 2002: 11.1; 2003: 10.5; 2004: 14.5; 2005 (Proj.): 7.8 - Inflation and unemployment (in percent): - CPI inflation: 2000: 4.5; 2001: 4.4; 2002: 3.0; 2003: 2.8; 2004: 2.3; 2005 (Proj.): 2.6 - Unemployment rate: 2000: 6.3; 2001: 6.8; 2002: 6.4; 2003: 6.0; 2004: 5.5; 2005 (Proj.): 5.1 - Saving and investment (in percent of GDP): - Gross national saving: 2000: 19.2; 2001: 19.6; 2002: 19.6; 2003: 19.4; 2004: 18.4; 2005 (Proj.): 19.0 - General government saving: 2000: 2.9; 2001: 2.6; 2002: 3.0; 2003: 3.4; 2004: 3.0; 2005 (Proj.): 2.7 - Private saving 1/: 2000: 16.3; 2001: 17.1; 2002: 16.6; 2003: 15.9; 2004: 15.4; 2005 (Proj.): 16.3 - Gross capital formation: 2000: 23.2; 2001: 21.9; 2002: 23.7; 2003: 25.3; 2004: 24.8; 2005 (Proj.): 24.7 - Fiscal indicators (in percent of GDP) 2/: - Receipts 3/: 2000: 26.6; 2001: 24.1; 2002: 22.8; 2003: 23.2; 2004: 23.0; 2005 (Proj.): 23.5 - Payments 3/ 4/: 2000: 24.5; 2001: 23.2; 2002: 22.9; 2003: 22.2; 2004: 22.0; 2005 (Proj.): 22.4 - Underlying balance 4/: 2000: 2.1; 2001: 0.9; 2002: -0.1; 2003: 1.0; 2004: 1.0; 2005 (Proj.): 1.1 - Public debt, net: 2000: 8.6; 2001: 6.4; 2002: 5.3; 2003: 3.9; 2004: 2.9; 2005 (Proj.): 1.9 - Money and credit (end of period): - Interest rate (90-day bill, in percent): 2001: 6.2; 2002: 4.2; 2003: 4.8; 2004: 5.5; 2005: 5.4; 2005 (Proj.): ... - Treasury bond yield (10-year, in percent): 2000: 5.5; 2001: 6.0; 2002: 5.2; 2003: 5.6; 2004: 5.3; 2005 (Proj.): ... - M3 (percent change): 2000: 4.6; 2001: 14.7; 2002: 7.1; 2003: 11.9; 2004: 9.6; 2005 (Proj.): ... - Private domestic credit (percent change): 2000: 11.2; 2001: 7.9; 2002: 11.4; 2003: 10.6; 2004: 11.5; 2005 (Proj.): ... - Balance of payments (in percent of GDP): - Current account: 2000: -4.1; 2001: -2.3; 2002: -4.1; 2003: -5.9; 2004: -6.4; 2005 (Proj.): -5.7 - Trade balance: 2000: -1.2; 2001: 0.5; 2002: -1.3; 2003: -3.0; 2004: -2.9; 2005 (Proj.): -1.9 - Foreign direct investment, net: 2000: 2.9; 2001: -2.1; 2002: 1.9; 2003: -1.6; 2004: 4.3; 2005 (Proj.): ... - Terms of trade (percent change): - 2000: 5.5; 2001: 1.5; 2002: 2.0; 2003: 3.1; 2004: 10.0; 2005 (Proj.): 10.7 - External assets and liabilities (in percent of GDP): - Net external liabilities: 2000: 54.8; 2001: 55.2; 2002: 58.6; 2003: 60.8; 2004: 64.5; 2005 (Proj.): 65.9 - Net external debt: 2000: 46.1; 2001: 45.8; 2002: 48.0; 2003: 47.1; 2004: 50.2; 2005 (Proj.): ... - Gross official reserves: 2000: 5.2; 2001: 5.3; 2002: 5.2; 2003: 5.6; 2004: 5.6; 2005 (Proj.): ... - Exchange rate (period average): - US$/$A: 2000: 0.554; 2001: 0.509; 2002: 0.566; 2003: 0.750; 2004: 0.769; 2005 (Proj.): ... - Trade-weighted index: 2000: 51.6; 2001: 50.2; 2002: 51.7; 2003: 63.0; 2004: 62.8; 2005 (Proj.): ... - Real effective exchange rate 5/: 2000: 79.3; 2001: 79.2; 2002: 83.1; 2003: 99.2; 2004: 98.3; 2005 (Proj.): ... *Sources: Data provided by the Australian authorities; and IMF staff estimates and projections.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05331.pdf_