Canada's international investment position

The value of Canada's assets abroad, as well as its foreign liabilities, plunged dramatically during the first three months of 2003 in the wake of a surging Canadian dollar.

The decline in international assets was four times the decrease in liabilities. As a result, Canada's net liability to foreign residents - the difference between its external assets and foreign liabilities - increased substantially.

The value of international assets fell to $949.2 billion, a drop of $34.1 billion from their 2002 year-end level. The dollar, which gained 7% in value in relation to the US dollar from January to March, removed $60.4 billion from the value of these assets, most of which are in US dollars. This more than offset gains resulting from new acquisitions.

At the same time, the nation's international liabilities declined $7.9 billion to $1,159.4 billion. This impact of the strengthening dollar was partly offset by increased activity in international borrowing.

As a result, Canada's net foreign liability rose from a record low of $184.0 billion at the end of 2002 to $210.3 billion in the first quarter of 2003. This leaves the ratio of external debt to gross domestic product at 17%, within the range observed during the past 11 quarters and well below the peak of 44% in 1994.

Canadian direct investment abroad declines

The stronger Canadian dollar had its largest impact on the value of Canadian direct investment abroad, which fell by $24.9 billion to $406.9 billion.

The pace of acquisitions of foreign enterprises has slowed to virtually nothing in recent quarters, with most of the foreign direct investment in the first quarter going to existing affiliates.

Overall direct investors' assets abroad declined by $24.9 billion in the quarter; about $11.1 billion of the decrease occurred in the United States.

Holdings of foreign stocks also down

The combination of a weak equity market in the first quarter and the rise of the Canadian dollar translated into an 8% decrease in the value of foreign stock held by Canadians.

Canadians sold $2.7 billion worth of foreign stocks in the first quarter. Combined with the currency revaluation, this resulted in a decline of $17.0 billion in foreign stock investments to $202.2 billion. A large share of the decline, about $9.7 billion, occurred in the United States.

Canadian bond liabilities down despite first quarter acquisitions

In the first quarter, foreign investors acquired almost $10 billion in Canadian bonds issued in Canadian dollars. However, as more than one-half of the outstanding Canadian bonds held by foreign investors are issued in US dollars, the total value of that instrument fell by $11.6 billion to $432.1 billion.

With four consecutive quarters of slow investment, foreign direct investors added less than 1% to their foreign direct investment position in Canada. This type of investment, always denominated in Canadian dollars, reached $352.5 billion at the end of March.

Annual 2002: Long-term downward trend in net foreign liabilities

Canada's net foreign liability position has been on a downward trend for the past nine years.

At the end of 2002, Canada's net foreign liability had hit a record low of $184.0 billion. This was down from $189.4 billion at the end of 2001, and well below the net liability of $243.7 billion in 1999.

On a regional basis, American investors hold an increasing proportion of Canada's net liabilities. Since 2001, however, Canada has been in a net asset position with all other countries as a group.

Canada has decreased its net liability with the European Union over the past five years, reducing it by more than one-third, to $52.4 billion. Japan, which has also steadily decreased its position of net creditor to Canada, holds $19.3 billion of Canada's international liabilities, down from $42.3 billion five years ago.

For all other countries, as a group, Canada has moved rapidly into a net asset position since 1997.

Available on CANSIM: tables 376-0037, 376-0039 to 376-0041 and 376-0055 to 376-0057.

Definitions, data sources and methods: survey number 1537.

The first quarter 2003 issue of Canada's international investment position (67-202-XIE, $21/$47) will be available soon.

For more information, or to enquire about the methods, concepts or data quality of this release, contact Christian Lajule (613-951-2062) or Éric Simard (613-951-7244), Balance of Payments Division.