Question

Define the term Net International Investment Position [NIIP] as used in international macroeconomics and describe a country’s credit position based on the sign of the NIIP. List and discuss briefly why NIPP can change overtime. What was Australia’s NIIP in 2018?

Answer 1

A net international investment position (NIIP) can be viewed as a nation’s balance sheet with the rest of the world at a specific point in time, in that it measures the gap between a nation’s stock of foreign assets and foreigner's stock of that nation's assets.NIIP is an important barometer of a nation’s financial condition and creditworthiness.

A nation with a positive NIIP is a creditor nation, while a nation with a negative NIIP is a debtor nation.

A nation's net foreign assets (NFA) position is also defined as the cumulative change in its current account, which is the sum of the balance of trade, net income over time, and net current transfers over time. The net foreign assets position indicates whether the nation is a net creditor or debtor to the rest of the world. A positive NFA balance means that it is a net lender, while a negative NFA balance shows that it is a net borrower. Because a country's current acount is subject to change whenever any of its component changes, the country's NIPP also changes over time.

Australia's net international investment position was a liability of $953.4 billion at 30 June 2018, an increase of $19.5 billion (2 per cent) on the revised 31 March 2018 position of $933.9 billion. Australia's net foreign equity assets decreased $4.2 billion to $83.0 billion