CADs are recorded because of persistent exceeding of import debits to export credits in the CA (Current Account). The CAD as a GDP is a key measure of how sustainable the CAD is over time and allows for the accurate comparisons between countries and severity of the CAD problem. The CAD is known to act as a constraint on growth thus it indicates external stability becoming a problem when it is sustained at an average level above 3% and reaches a crisis level when it exceeds 6% of GDP. Australia has the highest CAD as a percentage of GDP (along with US) compared to the OECD. It widened to 5.6% of GDP in 2002-3 and was -$46.7bn in December 2003.

Persistent CADs which are financed by foreign debt and foreign equity increase the size and servicing cost of net foreign liabilities in the future, leading to a larger net income deficit...