www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 08 - 27. html 6 / 12 8 / 28 / 2019 a balance of payments | speeches | rba graph 5 in 2007, the banking sector accounted for the bulk of australia's net foreign liabilities. their annual borrowing amounted to around about the same size as the current account deficit. this led to the misplaced claim that the banks funded the current account deficit, which ignored the other large capital outflows and inflows that were occurring. [ 5 ] the banking sector's net flows and stocks were the same order of magnitude as the aggregate net flows and stocks. but this wasn't causal. there were large capital flows occurring in both directions in other parts of the economy at the same time. and on the stocks side, there were other large stocks of debt and equity, both assets and liabilities, which all also contributed to the aggregate net foreign liability position in addition to those of the banking system. equity at least as dramatic has been the shift in the net equity position. for most of its modern history, foreigners owned more equity in australian companies than australians owned in foreign companies. but since 2013, that has not been true. since 2013, australians have owned more foreign equity than foreigners have owned australian equity ( graph 6 ). this largely reflects the significant allocation to foreign equity by the australian superannuation industry together with the fact that the superannuation sector is relatively large as a share of the australian economy. currently, australian equity investment abroad exceeds foreign equity investment in australia by 7 % of gdp. that is, the country has a net foreign equity position. this compares to an average net equity position of 10 per cent of gdp between 1990 and 2010. liability https : / / www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 08 - 27. html asset 7 / 12 8 / 28 / 2019 a balance of payments | speeches | rba graph 6 the shift to a net foreign equity asset position reflects : the ongoing accumulation of foreign equities by australia's large superannuation sector ( these flows have partially, but not completely, offset continued equity inflows to australia from foreign investors ) asset valuation effects, as foreign equities have outperformed australian equities over the past several years the depreciation of the australian dollar over this period. because foreign equity assets are denomi

between investment and saving has declined to its lowest in a long time, which, if you remember your national accounting identities, is directly equivalent to the current account being at multi - decade lows. but the trade balance story is not just a resources story. there has been strong growth in exports of education and tourism. the share of services in australia's exports has increased from 17 per cent in the 1980s to 21 per cent now. the other noteworthy development of late has been the strong growth in manufactured exports. these include pharmaceutical goods and medical devices, and have grown by 15 per cent over the past two years. the other part of the current account is the net income balance. the net income balance is the difference between how much it costs to service the country's foreign liabilities ( for example, interest payments on foreign debt ) and the earnings on australia's foreign assets ( for example, dividend payments to residents from foreign share holdings ). the income balance has widened a little in https : / / www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 08 - 27. html 3 / 12 8 / 28 / 2019 a balance of payments | speeches | rba recent years, but is around the middle of the range it has been in since the late 1980s at 3. 4 per cent of gdp. i will come back to this later. net foreign liabilities each quarter that australia funds its current account deficit with net borrowing from the rest of the world, we gradually add to the stock of net foreign liabilities ( nfl ) we owe to the rest of the world. as australia ran current account deficits through the 1970s, 80s, 90s and 2000s, that stock of nfl grew, peaking at 60 per cent of gdp in 2009. but since then, reflecting the lower levels of the cad and correspondingly lower net capital inflows, the stock of australia's nfl ( as a share of gdp ) has declined over the past decade to be 50 per cent of gdp currently ( graph 2 ). the decline in nfl as a share of gdp masks some significant changes in the composition of both the gross foreign liabilities and gross foreign assets. graph 2 it is important to stress the need to look at the gross flows and stocks, not just the net numbers. there are large capital inflows and outflows all the time, even when the net capital flow ( or the current account deficit ) is low. as a result