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Debt Management in a Low-Debt Environment: Australia’s Experience

This paper provides the necessary background to understand the current approack to debt issuance and portfolio management in Australia. In recent years, debt management in Australia has been conducted within a Government policy of reducing Australian government net debt (it fell from almost 20 per cent of GDP to less than 4 per cent of GDP between 1996 and 2003. The debt portfolio is examined from two perspectives: its place in the broader financial markets, and the most appropriate approach to managing the debt from the Government’s own financing perspective.
This paper provides the necessary background to understand the current approach to debt issuance and portfolio management. The paper is organized as follows. Section 1 provides background on the evolution of debt levels in Australia and the process of the Commonwealth Government Securities (CGS) Review. Section 2 examines in more detail the reasons for the decision to maintain the CGS market. Section 3 discusses the size of the CGS market. Section 4 outlines how the CGS Review outcome will affect the Australian Government’s approach to debt issuance, given the prospect of continued fiscal surpluses. Section 5 explains the new benchmark for portfolio management, given the low debt environment, and the constraints imposed by directing debt issuance to meet financial market efficiency objectives. Section 6 provides some concluding remarks.