Capital Flight From Sub-Saharan African Countries, Essay Example

It is of great significance to comprehend the expense of interest as a driving force for the cost of capital. The cost of capital is determined by the inter4st rates and the rates paid to depositors on the savings deposits. It can be seen from the graphs in the Appendix, the actual rates that were paid to bank depositors in India. This is determined by subtracting the lending interest rate and subtracting it from the real interest rate (Deshpande &Glisovic-Mezieres, 2007).

Capital flight is delineatedas the undocumented capital flows that take place between a nation and the other parts of the world. Its assessmentinitiates from the inputs of foreign currency that are documented in the nation’s BoP(Balance of Payments) that demonstrates the missing funds. The missing funds are the differential between the documented inputs and the documented outflows of capital. These are document4ed as omissions and net errors. Considering the data in the balance of payments has been discovered to under document the external quality of borrowing, the information of the debt flows is derived from the World Bank’s Global development finance Information archives (Boyce and Nkidumana 4).

The distinction between the documented inflows and the documented applications of foreign exchange yields the baseline residual assessment of the capital flight. The characteristic of capital flight is calculated by the application of the following formula:

?DEBTADJ_it +FDI_it – (CA_it + ?RES_it) = KF_it

This is considering that the quality of ?DEBTADJis the difference of the inventory of the external debt that is calibrated for the variations in the exchange rate. The net foreign investment is demonstrated by FDI. The present account deficits are represented By CA. The net aggregates to the inventory of foreign reserves are delineated as ?RES.

There are only a small proportion of the omissions that are disclosed by the application of this mathematicalformula.There are a number of undocumented flows that are derived from illegal transactions that are implemented for a number of motivations. These motivations are inclusive of tax avoidance, tax evasion and money laundering. These activities have been conducted in alignment with an in certain cases aggravated by the enhanced intricacy of the functions of multinational corporations that have a number of offices around the world and the amplification of the offshore systems that are present between the interactions of legal and illegal economic transactions (Boyce and Nkidumana 4; Kyriliand Martin 27).

The human expenses that are associatedwith African debt and the debt of low-income countries is that the nations that have more elevated risks of debt and are prone to more elevated levels of social spending. The fiscal policies must be restricted and the human costs are that many of the residents suffer. In African nations, there are a variety of epidemics that are untreated and administrated as a result of the low social economic budget (Boyce and Nkidumana 4; Kyrili and Martin 27)

In the African nations of Sierra Leone, Liberia and Guinea, the Ebola epidemic continues to go unchecked. These are part of the human costs that African nations must endure with regards to the tightening of their domestic fiscal policies that are motivated by the external debt burdens. The Ebola epidemic continues to cripple these economies. This is inaccordance with the research that has been conducted by the World Bank Group. The GNP for the African nations of Guinea, Sierra Leone and Liberia has declined. These are countries whose populations have been increasing rapidly in the past decade and the initial half of 2014.The World Bank is presently forecasting a negative growth rate for the nations of Guinea, Sierra Leone and Liberia. The report demonstrates why the zero growth rates in the spread of the Ebola epidemic must be a goal (World Bank 1).

The human and the economic effect will simply become more catastrophic. The estimated cost of the Ebola epidemic is more than $500 million in 2014. The cost of the Ebola epidemic has been 2.5 % of the GDP of Sierra Leone, 3.0 % of the GDP of Guinea and 6.0% of the GDP of Liberia.The regional governments have been compelled to reduce the investments in the public sector. An example of the public initiatives that have been affected by the tightened fiscal policies of these nations is the Mount Coffee hydroelectric facilityin Liberia. The deficits of more than $160 million in the three nations are hindering the completion of a number of public services initiatives (World Bank, 1).

Notwithstanding the decadesof technical and financial assistance that has been directed from the industrialized nations to the emerging nations, the outcomes have been less than anticipated.  The rates of economic growth have been low and the poverty indexes in the modest nations of Sub- Saharan Africa continueto remain at elevatedlevels. The persistence of the spread of diseases that are preventable has caused additional economic deprivations. In addition the epidemics have caused economic progress to become infeasible. There have been directed and diverse multilateral and bilateral aid endeavors in order to provide assistance to the poorest countries with regards to the attainment of their Millennium objectives (MDG)(World Bank, 1).

The continuation of the spread of diseases that include tuberculosis and malaria with the spread of these diseases is   in addition to the HIV/ AIDS epidemic that has created the outflow of considerable resources from the industrialized nations toward the less developed nations. These endeavors have been directed at the health sectors of these nations. The quantity of bilateral and multilateral aid has been enhanced.  In addition, there have been enhancements to other supplementary sources of aid in order to provide assistance to the world’s poorest nations. The multi- redirected approach has also created financial issues that require comprehension and administration. The temporary relieving nature of certain donor investments and the deficiency of the capacity of forecasting for the present cause issues of sustainability(World Bank, 1).

This is particularlyvalid where the continual cost allocations may be required in the event that the donors withdraw their assistance. In addition, substantial mounts flewinto the health segments of these nations that are not documented. These inputs could cause a distortion in the plans of the government to provide support to the health sector. In addition, the capital flow causes the calculations that are required by local governments to become erratic(Fairbank 1; World Bank, 1)..

In a broad definition, fundability is the context and the quality of the financial impact of the external resources that are aggregated to the domestic budgets. The donors usually have the intention that their resources are aggregated to the funds that are derived in the nations in order to provide support to the budget. The characteristics and the quantity of the aid are provided in order to reach objectives that the donors perceive would be accomplished with the contribution of matching funds from the governments(Fairbank 1; World Bank, 1).

Works Cited

Boyce, James K. and LéonceNdikumana. “Capital flight from Sub- Saharan African countries: Updated estimates, 1970- 2010.”Political Economy Research Institute, 2012.

Deshpande, Rani and JasminaGlisovic- Mezieres. “The true cost of deposit mobilization.”CGAP, 2007. Web. 2 December 2014. http://www.cgap.org/sites/default/files/CGAP- The-True- Costs-of-Deposit- Mobilization-Dec-2007.pdf

Fairbank, Alan. “Fungibility of donor assistance to Liberia: Focusing on aid to the health sector, a case study.” World Bank, 2014. Web. 2 December 2014. http://www.wddss.worldbank.org/exterbnal/default/WDSContent Server/WDSP/IB/2014/05/21/000333037_20140521123549

Kyrili, Katerina and Matthew Martin. “The impact of the global economic crisis on the budgets of low- income countries.” Oxfam, 2010.

World Bank. “Ebola: New World bank group report shows growth shrinking, economic impact worsening in Guinea, Liberia and Sierra Leone.” World Bank. 2 December 2014. Web. 2 December 2014. http://www.worldbank.org/en/news/press-release/2014/12/02/ebola-world-bank-report-growth-shrinking-economic-impact