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The Logistics of National Debt Term Paper

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Updated: Sep 14th, 2021

Introduction

The logistics of national debt across many of world’s developing countries hit diversity of rationality in global think tanks and diplomats. Developing countries have continued to be tied in wrangles of post-colonialism from the dense dictates on the modalities for the expenditure of foreign funds. Due to the low economic development status in such developing countries, external borrowing from the developed countries and other global financiers such as the IMF and World Bank has been the main tool for sanctioning their fiscal deficits. However, a lot of inequality exists between the financial inflow from the financiers and the purpose for which these funds are used for.

From a logical point of view however, one would wonder whether the high spending behavior in social welfare activities has a positive relationship with the high scale of debt contributions in the developing countries. Indeed however, the much external borrowing which is still growing day after day has not seen the required economic development in such developing countries as expected. Generally therefore, excessive spending in social welfare activities than investment projects is a solid contribution towards the high national debt within the developing countries.

Main text

Generally, the aspect of economic growth and development by the developing countries in the relationship with the spending system of their national income is highly inadequate for optimal scales of economic development. Developing countries have been described and characterized by huge spending on social welfare issues than on investment programs. They are highly weak and irrational in terms of the most optimal scales of spending. Due to the diversity in the spending behavior, disequilibrium in their development portfolio has been the hallmark of attribute in every activity that is defined in terms of national spending. In the broad view of the macroeconomic variables, investments are the primary object and form the launching pads for any activity towards economic development.

From the income equation of an individual, the level of such income is taken as a dependent variable with consumption and savings as the component independent variables. The magnitude of one (between consumption and savings) determines the level/scale of the other. Their relative influences and effects to the income level determine the relative marginal propensities (to consumer and to save). (Boyer, Young, 1)

The directional phenomenon in the government spending is perhaps not too different from that of personal spending.

However, social welfare spending is a basic inhibitor to the state of savings for investment purposes. From their high social welfare spending patterns, this is synonymous to final consumption of the foreign borrowed income.

Various social activities such as family planning, promotion of culture, sports, maintenance of general internal peace, control of social diseases and problems above others form the bench mark for the spending behavior of such countries. However, the basics of this spending behavior is allocation to the final consumption variable of the national income function.

As an important tool for economic development and hence a reduced level of borrowing, investment in productive projects is an important aspect for the stability of the economic situation.

The broad national economy can be strengthened by investing in productive projects whose potential benefits would seldom accrue in the future. Investment projects are the chief building blocks of any economy.

With the low state of the economic activity operating in the developing countries, any external borrowing should not compromise intensive project investment in areas that will provide future financial incomes to the state government.

Either, the choice of projects should follow a logical process in which case the projects with the highest benefit should be chosen from the bulk of investment projects provided by the low state of economic activity in these countries. However, the general outlay of investment also shows many rigidities and inequalities where professionalism is never used as a basic tool for promoting the choice of the most beneficiary project.

They have failed to apply the use of investment techniques such as the use of rolling plans. (Johnson, Turner, 76) Either, there is basic inadequacy in the employment and use of methods of choosing the viability of project from the wide range of opportunities. This can be through the use of Cost-Benefit Analysis (CBA), Benefit-Cost Ratio (BCR), and Internal Rate of Returns (IRR) above others. Poor compliment in the use of these investment techniques in analyzing the work of investment in relation to cost outlay and benefit has led to the choice of poor projects whose recoup and general profitability is highly comprised.

Generally, government from developing countries shows relatively poor scale of debt management in their external borrowing funds. Poor debt management however, captures variables such as lack of professionals (economists for project planning and evaluation), un-optimal choice of investment project and the general mismanagement of investment funds. (Harrison, 47)

The rationality in the relationship between external borrowing and economic development in developing countries is however, critical. However, every initiative of boosting the state of development should not develop the function with which external financing contributes to their economic situations. With the implicit rigidities and inequalities operating within these economies, it serves as the major stumbling block towards the successful contribution towards the economic development success from these finances.

The low development status within them provides situations for various basic needs which include clothing, education, food, health shelter and stability in their political activities. The level of spending requirements is highly ridiculous in relation to the volume of finances they are getting from the external world. An overhaul in disequilibrium between the demands (needs) and the supply (finances) usually develops. (Dunning, 86)

The aspect of debt has drawn various global relations which include diplomatic relations, economic integrations, policies guiding internal trade relations and business, North-South dialogue phenomenon above others. The North-South relationship is perhaps the most adequate analytical tool which seeks to explain various thresholds ascribed to debt conditions within such developing countries. However, the more finances are pulled towards the southern countries; the question of the debt problem continues to flourish more in the geographical dispensations of such developing countries. The current debt for 18 global poor countries is reported by the UNCTAD as been $40 billion.

The success in such huge debts has been through various diplomatic activities of relieving the same. Though current statistics show high inequalities between the repayment pattern and finances, with relatively high scale of repayments than what the financiers are currently offering to the global borrowing community, poverty is continuing to be the major issue of concern. The developing countries are showing very little development if any from the contribution of these finances.

According to various reports by the World Bank statistics, developing countries are showing higher amounts in their debt repayments than what they are currently getting. However, the basic reason behind the inequality can be attributed to the deficiencies and rigidities borne to the domestic investment system by these developing countries. (Adjibolosoo, 103)

Since 1986, debt problem has been an issue of concern in the North-South relationship. Elsewhere, capital outflow ever since the late 20th century among the developing countries had been in excess of the financial inflows.

High outflows on the net debt form the basics of poor economic activities. As the relationship between capital inflow and also outflows continue in being an important subject matter, the major contributory factor towards higher debt can fundamentally be allied to the management pattern of these funds.

The root basis of the spending portfolio will remain to be questionable if grounds of rationality would not be compromised. However, people from developing countries can be described as being vulnerable to excitement by simple and cheap social activities. They are less conscious in the appropriation adequacy and optimal scales of investment expenditures. They have a stronger affinity to social values and activities which affect the social life more than the economic point of view. They never compromise in higher spending to those social projects which have only a low scale of benefits. The project investment system is very low compared to the level of social activities.

Either, expenditure on the social activities can be attributed to final consumption expenditure with very little benefits recouping back in the future benefits. Either, the expenditure on the social activities in the social projects is primarily more attributed due to the quick maturity period of these projects.

Faster maturity will float the benefits to the current generation though of a low benefit if not non at all. The decline for investment project is overlooked due to some basic fundamental factors which operate within such huge investment projects. Firstly, there projects are evident of having a long gestation period with the breakeven point being unrealizable in the short-run investment process. However, many of them take long period before benefits can be plowed back. Periods can even go beyond twenty years. This is a basic rigidity which forces governments from such developing countries to overlook such investment project before choosing other spending options whose benefit accrues steadily fast. Indeed, these choices are basically on social projects. (Ahmed, Tanzi, 95)

However, high spending on social welfare projects than investment projects is the beginning of the high debt factor into their economies. This is because they are highly unable to recoup back financial benefits from their domestic investment which can sustain them from the future financial requirements and even repaying the debts. There is therefore a continued low economic development factor before higher external borrowing needs to even finance the future needs.

However, every activity of spending can be summarized into falling under poor management of debt. Debt management has become a historical activity and a point of high attribute in the global portfolio of external debt financing. The relationship between the borrowers and the financiers has been codified by agreements that have never looked down the role played by management of this debt for any future benefits. Such management has even been the hallmark of consideration even before engagement into external finances. Globally, debt management has been described as the tools, methods and techniques through which external debts can be allocated and appropriated in the investment outlay of the borrower’s economies to yield the most optimal benefits.

Financiers have never compromised efficiency into the management process before drawing the terms of financing. (Anderson, 1)

Indeed, the subject matter of debt management posits an important subject vote head if rationality in the success of the debt financing would never be compromised. Every detail of debt management would formulate structures with which the most optimal investment project would be attained. At one point adequacy in management would provide rationality into the benefits accruing into the investment process of more investment projects than social welfare context.

It will seek to overhaul the dogmatism that lies in the investment procedures and policies in the developing countries that social welfare projects should be chosen at the first level due to the early benefits recouping nature than investment projects. However, through logistics of project planning and evaluation process, such management process will bring out the clarity operating within the investment decisions of huge investment projects.

Either, management will rationalize the relationship between the opportunity costs and benefits operating between long maturing projects and short maturing. Every deep insight of management will never comprise the rational structural support which provides refuge to giving the basic thresholds that limit the benefits from external finance spending. Either, in the due process of developing investment structures, methods should be instituted which provide the best and most optimal investment opportunities.

Elsewhere, debt management does a lot of tribute in defining the scope in the choice of the most adaptive projects which provided the deepest insight into the benefits through a machinery of bargain into the fundamentality of project system. Rationality in form of techniques and methods is fully provided for. (Mankiw, 148) Within the scope of discount rate/factor, a fair view into the subordinate standard with which to choose the most prolific and beneficial project is provided for.

From one point of view, debt management defines the standard of instituting the system of development through rolling plans. It helps to create sediment on the importance of continuous investment process/rolling plans to shutter down the effects of inequalities that develop from long maturing projects. Elsewhere, the choice of investment option would be the most optimal one via the employment of various techniques for evaluating the high beneficial investment option.

This will be basically through the use of various ratios which seek to compare the viability in terms of benefits and time period between various projects.

Conclusion

Summarily, therefore, the critique into the logistics of effects by national debt is a factor that operates within the avoidable rigidities of the investment pattern of the developing countries.

Any success worth to be provided by the external debt should not be directed immensely to social welfare projects as these are close substitutes of final income consumption.

However, debt management process should be a basic tool for promoting structure that helps to improve the investment system. Inadequacy into the benefits from external debt can therefore be directed to the deficiency into the countries investment phenomena of attributing social welfare projects than investment projects. Elsewhere, the relative importance of professionalism in the critique of evaluating sustainability of investment should not be compromised.

Work cited

Ahmad, E & Tanzi, V. Managing Fiscal Decentralization. London, Routledge, 2002.

Adjibolosoo, S. Rethinking Development Theory and Policy: A Human Factor Critique. Mahwah, NJ, Praeger, 1999.

Anderson, G. Toward Economic Democracy. International Journal of World Peace, Vol. 20, 2003.

Boyer, J & Young, W. Mondell’s International Economics. Adaptations and Debates. IMF Staff Paper, Vol. 52, 2005.

Dunning, J. Governments, Globalization, and International Business. Oxford, Oxford University Press, 1999.

Harrison, F. Economic Development: Theory and Policy Applications. Mahwah, NJ, Praeger, 1996.

Johnson, D & Turner, C. International Business: Themes and Issues in Modern Global Economy. London, Routledge, 2003.

Mankiw, N. Principles of Economics. Thomson, South Western, 2006.

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