Budget and state finance in 3rd world countries

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Budget and state finance

The issue of finance has been the Achilles heel of third world countries irrespective of the natural resources they may have in their coffers.

3rd world countries as they are called are the countries that stayed neutral during the cold war as they did not take part in the war and neither joined forces with any of both warring parties.

Although the term 3rd world country is no longer used often as it use to be, it still remains the name tag given to them to identify them as countries that neither joined NATO forces nor signed agreements with the communist bloc either. They are now referred to as developing nations which many think sounds more acceptable. Most of these countries can be found in Africa but we also have a few of them in continents like Asia with very low or little signs of development yet they have been in existence for more than two decades.

Examples of third world countries include:

Somalia
Yemen
Niger
Guinea
Dr Congo
Eritrea
Gambia
Burundi
Ethiopia
Lesotho
Uganda
Benin

The list is quite long and about over a 100 countries make up the third world countries.

In recent times, these countries have been touted as next to develop after Europe due to their natural resources and blooming workforce and prospects but more than five decades down the line, third world countries still remain at the bottom of the food chain looking up to grants and gifts to run their nation.
Third world countries are known to be relentless borrowers and always sem to be in debt which is mostly used to fund the heavy cost of running their government in a palatial manner. In 2010, the total debt owed by third world countries hit a record high of $4trillion. This was as a result of them taking loans from different bodies like the IMF and world bank. The major reason they take loans is budget funding and financing.

Budgets and state finance in 3rd world countries

Budget funding in third world countries is always on the surplus side as recurrent expenditure tends to rise yearly coupled with high cost of running the government and this has become a norm. All needed funds don’t necessarily come from loans, there are other sources of income for the government but they are hardly enough to cover 50% of the budget in most cases. It was reported that Nigeria currently has a debt profile the sum total of N33 trillion and the whole 3rd world countries put together being in about $7.8 trillion in debt which will probably not be serviced anytime soon. We will look at some of the ways these countries fund their budgets and how their finances is managed.
Source of finance in third world countries

Natural resources: some of these countries like Nigeria, Rwanda and the rest have natural resources like oil, tin and gold which is used as a medium of earning foreign exchange which brings in income to fund the state finance. However, since all of the third world countries have been reported to be amongst the most corrupt in the world, most of the revenue generated from the sale of these natural minerals don’t make it to the national purse but line the pockets of the various public office holders who siphon the funds and save it in offshore accounts where the banks make use of it while the nation falls into more anguish caused by the rising poverty rate and debt portfolio.

It is recorded that more than $50 billion of natural resources revenue have been embezzled in Africa alone in the last 10 years which begs to ask if Developing nations are really willing to make their countries better or they enjoy making wealth out of its misery.

Grants: Different organizations like the IMF, ADF and World bank to mention a few give grants which is often called intervention funds to third world countries to help them fund various projects which can help the citizens live a better life. An example of this intervention fund is the donation made to developing countries to help achieve their millennium development goals. Needless to say, most of these monies was unaccounted for and were siphoned into private pockets with thousands of projects left unfinished. This has prompted most world financial bodies to refrain or become hesitant to hand over the money to countries without supervision of how it was made which will in turn curb the corruption in play.

Recovered Loots: These are monies stolen by political office holders but recovered from banks all over the world and returned into the state coffers. Oftentimes, it is used to fund budgets and execute emergency projects. An example of this is the recently recovered Abacha loot which was recovered from an offshore account in Europe.

Loans from international bodies: This is the most common source of budget funding in third world countries. Developing countries keep taking loans from financial bodies year in year out to fund their budget and state expenses which has always been more than the previous year. Third world countries are yet to learn and understand the fact that the loans they take will keep increasing with interests piling up and they have refused to reduce the running cost of governance in the state.

Needless to say, finance in third world countries is a mess as the countries strive to maintain a good GDP and also try to service their external debt portfolio as well which might stretch them out overtime. The willingness of global financial bodies to give loams to these countries too is quite alarming as they hardly turn down loan requests.

Nigeria recently received a go ahead to take a loan of $5 billion to fund its reoccurring expenditure which could have been cut by half if only the budget planning office can look for areas to cut costs.

Tax: This is a huge money making avenue for the funding of budget and expenses of the government. Individuals and cooperate bodies are taxed based on different factors. While some country’s tax is charged based on income while some charge theirs based on government policies.

Although developing countries make a lot of money through tax, but still, it seems not to be enough as a lot of cooperate organizations and individuals still avoid paying tax and exploit loopholes in various tax laws to cheat the government. To curb this, developing countries should revisit their tax laws and also tighten their grip and build secure database that is airtight which will enable them identify and go after tax defaulters.

Developing nations will continually base their budget finance on debts and will be indebted to developed nations and global financial bodies as long as they always look outwards for their source of funding for their yearly expenditure rather than look inwards at their resources and how best to optimize it for financial liberation from the claws of reoccurring debts.

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