Most of the African Countries Depend on External Debt - Accounting & Finance Assignment Help

Assignment Task

INTRODUCTION
Most of the African Countries depend on external debt to spur their economic growth. This occurs mainly because of insufficiency of internal financing sources for social-economic activities leading to debt pileup. Widening budget deficit and accumulation of debt pileup is a state of financial health that affects a lot of countries. These countries include a wide specter of professionals that all must monitor their budgets and their debts. Zambia is one of the most famous countries which have accumulation of debt and budget deficits that is mismanaged and poorly executed. From this backdrop, I will explain what a country must do to bring sustainability to its public finance position and how a country must approach the urgent need to upgrade its infrastructure in its quest to bring the much-needed development in a country.

MAIN BODY
Sustainability of Public Finance
During the last three decades, the sustainability of public sector finances over the medium to long term has become an increasing concern worldwide. This is because pressures on public sector services, revenues, and expenditure have increased and look likely to increase further throughout the 21st century because of existing and new pressures in terms of development. The Oxford English Dictionary offers two definitions of sustainability: the ability to maintain something at a certain rate or level and the ability to uphold or defend something. Sustainability of public finances also referred to as fiscal sustainability, is the ability of a government to maintain its current spending, tax and other policies in the long run without threatening the government's solvency or without defaulting on some of the government's liabilities or promised expenditures.
According to Waring (2012), Public sector financial sustainability is the financial capacity of the public sector to meet its current obligations, to withstand shocks, and to maintain service debt, and commitment levels at reasonable levels relative to both national expectations and likely future income, while maintaining public confidence.
When assessing financial sustainability, due attention needs to be paid to the current and prospective level of outstanding government debt. High-debt countries are more vulnerable to negative growth rate/interest rate shocks.
Wilkinson (2010) highlights the main elements of public sector financial sustainability
as follows;
liquidity (the ability to meet financial obligations when they fall due);
resilience (the financial capacity to withstand shocks, whether internal or external);
service and fiscal responsibility (maintaining service, debt, and commitments at reasonable levels relative to both national expectations and likely future income); and
maintaining public confidence (the ultimate guarantor that enough revenue can be collected to meet tomorrow’s obligations).
A high level of outstanding government debt can put financial sustainability at risk even before considering the long-term expenditure trends influenced by population ageing.
However, countries with unsustainable financial stability are characterized by policies that harm the growth, i.e., unsound macroeconomic policies that encourage inflation, high debt levels, and budget deficits, reduced tax and increased public expenditure and high unemployment. These characteristics are somewhat prevailing in Zambia and there’s need to change the outlook of the country by finding ways and means of sustaining the finances.
There’s a lot that countries can do to bring sustainability to their public financial position and this highly borders on the geographical position and a country’s economic system. The following are my views on how financial sustainability can be achieved in Zambia.
The first step is to set up a financial sustainability committee. This is the team to do the work and will comprise of board members who are often key members of this type of committee. The group should comprise of technocrats from the background of economics, accounting and planning. Developing a plan is easier, more enjoyable, and more effective with shared leadership.

A strategic plan should also be put in place as a guide on how the sustainability will be effected. The plan should incorporate all of the information that should include ; current financial situation, annual budget, long and short term financial goals, broad strategies which will be used to carry out those goals and timeline with specific actions and lastly the source of funding.
It’s always important to assess and understand the treasury’s cash flow because it supports the ability of a country to meet its objectives and build resilience against external financial pressures. It important that as a country we increase our cash flow through various investment activities and other income generating activities because this is the same money moving in and out of the country and the money that a country uses to pay for goods and services and to pay off debts.
Furthermore there’s need to have viable monetary and fiscal policies synchronized. Fiscal policies are actually measures put up by the government to stabilize the economy by manipulating the levels and allocations of taxes and government expenditures. Fiscal policies are frequently used in tandem with monetary policy to achieve high rate of economic growth and stabilize prices and wages (Augustin, 2020). The Zambian government can effect a decrease in taxation which in turn can lead to high consumption which in turn can have a stimulating effect on the economy as a whole. Similarly a reduction on the tax burden of the corporate sector will stimulate and encourage investment.
In the current scenario, there’s need to ensure that new projects are suspended until stalled ones are completed in a phased out manner. Increases in government spending by public works have an expansionary effect, but a reduction in government expenditure has the effect of contracting the economy. However, In Zambia we have projects that were started as far back as 2013, still uncompleted and yet but new projects are being commisioned, which is not right. This brings about deficits in the budgets. An appropriate fiscal policy aims at balancing the budget. More so, it’s important to ensure that expenditures are within the budget.
Apart from sourcing for external financial help, There’s need to scan our country and find other areas where government can generate income through investment. One such idea would be to manage the mining activities on the Copper belt and Northwestern provinces. Individuals and private firms are making a lot of money by selling minerals outside the country, i.e. emerald and gold. 1f only the Zambian government could take hold of those mines Zambia’s cash flow would greatly improve.
Furthermore, there’s need to ensure that un-captured businesses in the tax base are captured to widen tax collections avenues. There are a lot of businesses in Zambia that do not remit tax, and other entities whose finances are collected by cadres. one fine example was the Lusaka intercity bus terminals whose revenue amounting to two million kwacha per month was being collected and shared by the patriotic front cadres. This happened in most parts of the country and it should be stopped. All public finances should be collected and accounted for by the government to beef up the cash flow.
Investments should be prioritized in sectors of high returns such as high value additions in the agricultural sector through industrialization, tourism and small and medium enterprises. These sectors should be revamped as they are some of the most generating income in the country.
Zambia can also borrow to enable it finance important developmental programs and projects. But taken too far, the burden of debt repayment can overwhelm a countries finances, at worst leading to default, as it happened . Therefore it’s important that a debt plan is instituted to avoid default and not to over borrow but to look at internal resources.
The core analytical argument for fiscal watchdogs is that, left to their own devices, governments are prone to deficit bias and pro-cyclicality in their management of public finances, this is to say governments on average borrow more than they should and spend too much (Chote, 2008). The possible reasons for this is that ministers may be seduced by their own rhetoric. Governments may be driven by election campaign promises and the finance minister may be weaker than the large departments they are meant to control. So it’s important that the government should not do things to please their electorates or else they will fail to sustain the finances.
There’s also need to find other ways of mobilizing finance other than debt, though public debt is one easiest way of raising money for development. Ways such as raising domestic revenue through collecting at least 90% of the taxes, improving the efficiency of spending, reducing corruption which makes spending too expensive as it is with the road construction where we have been informed that road contracts were over paid due to corruption, fire fighters bought at one million kwacha each instead of three hundred thousand kwacha and improving the business environment.
Investing in financial skills is core to the process of financial sustainability. It supports the ability of policy makers to understand and respond to financial information (Klinz, 2011). This assessment needs to be completed by appropriate levels of financial skills and competences. Political leaders at the top and all civil servants should have appropriate level of financial skills and capabilities to have a better understanding of finances and how they are disbursed.
Audit is a vital element to transparent and accountable public finances. It is very important for countries to take auditing serious because auditing takes account the principles of transparency and accountability where public funds are at stake. Through auditing public funds are accounted for and it’s a deterrent to embezzlement. Therefore all governments departments financial statements need to be audited every year and should comply with international accounting standards. Good public accounts also make life easier for government and gives confidence to the stakeholders.
Financial sustainability is an uphill battle, and the challenge to get to the top can be one of the biggest frustrations we face in our work. Developing a plan for financial sustainability, as with any plan, takes a lot of work to be done right. It's intricately linked with the idea of institutionalizing your organization and its programs as a whole. By creating an effective financial plan, members of your organization will be able to do more to make your vision a reality and have your mission accomplished.

Best Approach to Urgent Need to Upgrade Infrastructure
World over, it is the ultimate goal of any government to sustain its economic growth through infrastructure development. Any country requires sufficient capital finance for investment in infrastructure and development of productive capacity. However, due to capital inadequacy from domestic capital sources in developing nations, borrowing has to be done externally in order to finance spending on infrastructure and other necesities, (Akram, 2011; Mbah, Ummuna& Agu, 2016). By definition, infrastructure refers to basic physical and organizational structures and facilities like buildings, roads and power supplies needed for the operation of the society or enterprises.
Gains from infrastructure are fully realized however only when projects generate tangible public benefits. Unfortunately, many governments find it difficult to select the right projects, those with the most benefits. Furthermore infrastructures can provide social and economic advantages but only when operating costs can be financed sustainably.
There several ways a country must approach the urgent need to upgrade its infrastructure in its quest to bring the much needed development. Firstly strategic planning is key to the success of the economic development. Along term plan of ten years is ideal to plan for infrastructure development. There after prioritize the projects that need to be developed.
There need to institute a local resources based approach which applies a cost effective use of local skills, enterprises, labour and materials in the infrastructure delivery process. This can serve as a cost saving measure and lower the cost of development.
There’s also need to establish independent agencies to help government identify, prioritize and assure the completion of critical public infrastructure and offer checks and balances.
Too many projects should not be done or worked on at once because they become an economic burden and a drain on finances when a government borrows money for an undertaking.
The government should develop projects with tangible and quantifiable benefits which in turn will spike economic development.
The social and health benefits of citizens who will benefit and have access to infrastructure, i.e. health care facilities and with a reasonable distance matters a lot.
Project development should only be undertaken only if it will improve the quality of life of the residents, i.e. reducing road congestion by building a new lane or bridge.
In conclusion, the approaches laid out can help government improve and modernize decision making for infrastructure. By approaching infrastructure in this way a government can improve in their selection and their outcome.
b. INTRODUCTION
Since 1951, the issue of external debt accumulation and its servicing has become a matter of great importance and introduced the debt crisis debate. That is, countries were encouraged to borrow externally without taking care of the liability side of the current accounts and due to the concessional nature of external debts, countries tend to prefer this source to internal sources (Were, 2001). Kenya, for example, has been heavily depending on external borrowing for the improvement of its agricultural, industrial and infrastructure bases, with assumption that when conditions improve, there would be an expansion of the economy and which would lead to high foreign exchange to be used to repay the external debts (Were, 2001). Public debt is a source of collecting income by state and when a government borrows it gives birth to public debt. Zambia which is in so much debt similar to Kenya, is hoping to secure an IMF lending program so that it can repay its debt to international creditors and stabilize its macro economy. But the question is “can a country go on borrowing forever to repay its debts whenever they are due?” This assignment will try and justify whether or not a country can go on borrowing to repay its debts whenever they are due.

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