Category: Debt

Important Realities of Debt Consolidation in Relation to Bankruptcy for People

Debt consolidation is recognized as a wide range of financial strategies to help people accomplish their crushing debt. But in reality, these strategies can be quite diverse with different penalties. The true debt consolidation into mortgages is a good way out for many people fronting large debt. If you are in debt, you may discover difficulties right now. Numerous websites are providing all sorts of debt resolutions.

What is Bankruptcy:

• Bankruptcy is an authorized proceeding. People can’t announce bankruptcy without getting a lawyer and judge involved. The proceeding comes to be part of the public record. It is very invasive in that outsiders will now regulate how your money will be distributed up to pay off debt and what you must vend.
• It provides a benefit to many mortgagors appreciate is that a court has the power to problem ‘bankruptcy protection.’ You may be permitted to write off certain debts. That shows that some debts just go away; you are no longer indebted to pay them. Also, once they have ‘bankruptcy protection,’ bill collectors can no longer follow you for those debts.
• The difficulty with bankruptcy is that it all but wrecks your credit. It stays on your credit report for several years, and it has a way of collecting up even after that. It makes it very threatening to acquire new loans or purchase a house. The loans you will be capable to get may be at extreme interest rates because you have abruptly become a high-risk mortgagor.

A debt management plan is an official plan where you hand your issues off to a firm which then negotiates your debt. You make one once-a-month payment to the DMP and they handle your issues. While there are genuine DMP programs out there while some programs out there that are complete frauds and a few that are not lying but not exactly useful to the client.

It should be noted that sometimes many debt payments, organization strategies, and debt cooperation firms will call their packages ‘debt consolidation.’ That is not mistaken, but it’s a bit confusing. It simply means enduring all your debts together. In one way, that is what all debt strategies do at first, whether it’s bankruptcy, a DMP, or some other program. But it includes lumping your debts together and then taking out one large loan to pay them off known as debt consolidation into mortgages.

Benefits of Debt consolidation

• It is the only debt solution that can aid your credit score. If you are eager to take the time to learn a few things, you can do it yourself. It’s not invasive if done appropriately; no one would ever guess you did it. Even if your bank or a moneylender figured it out they would possibly think you’re smart to regulate your debt that way.
• If you can figure out how to do a pure debt consolidation on your own, you don’t require bothering with employing a firm (or a lawyer), entering financial rehab, or paying off mediators to ‘accomplish’ your money.
• In the interest of fair revelation, however, it must be specified that debt consolidation in its pure form will not work for everybody. Some people will not be eligible for it. Others might certainly qualify for debt consolidation but will discover another plan is more to their benefit. It’s significant to learn what you can to find out if debt consolidation is accurate for you.

The Role of the IMF in the Greek Debt Crisis

The Greek Debt Crisis was caused by both internal and external factors. The heavy government spending such as the workers being entitled to an additional month’s pay in December to help with the holiday expenses, lead to dramatic increase in borrowing requirements and high levels of accumulated public debt. Due to low productivity, gradually reducing competition and increase tax evasion, the Greece government was unable to satisfy the internal public budget constrain and this led to the public debt being uncontrollable in the long run, Markrydakis (1999). The European Union governments failed to support Greece was the Debt crisis was increasing. There was lots of disagreement and debates concerning whether bailouts are illegal. This led to problems for financial institutions holding the Greek government bonds.

Due to the increased cost of borrowing in the late 2009 and the beginning of 2010, the Greek government developed and used a fiscal consolidation programme in order to reduce the debt and provide a basis to improve stability and growth of the country’s economy. The programme included measures to reduce tax evasion and improve tax collection, reduction of social contribution evasion, increase on several types of indirect taxes, decreasing government spending on salary allowances, termination of many short term contracts in the public sector and reducing the pension funds.

Since the measure taken by the Greek government were proved to be short term, the government was forced to enter a negotiation with the European Union (EU) commission in order to agree on a rescue plan given its difficulties to borrow from financial markets. The International Monetary Fund (IMF) main goal is to ensure the stability of monetary and financial system. It helped the Greece to come up with, design and implement effective policies in order to help them recover and solve the debt crisis. It also elaborated the economic adjustment programs and closely monitored the progress through quarterly reviews based on economic missions. The IMF agreed to give Greece conditional financial support on the effective implementation of the program i.e. IMF approved austerity measures. The first measure the IMF took was pushing the Greece government to create companies and jobs and thus to increase the taxes paid by the workers. This was to enable the government to collect more taxes and to reduce the high unemployment level in the country.

IMF advised the government to reduce debt. This was to be done by Greece embracing budgetary cuts, freezing wages and pension for a period of three years. The government will stop funding any programs that extend security benefits but will continue to provide to the weak and vulnerable (MLA, 2011).This measure would enable the economy to utilize the financial help and stabilize the economy. The withholding of the pension, would discourage early retirements and encourage working for more number of years.

The IMF implied that Greece should adopt measures to increase and improve the current business climate and environment. This will attract foreign investors who had become hesitant about investing Greece companies since the overall salaries of the work labor was very high. The increase number of investors will also lead to increased number of business. This increase number of business, will generate ad create more job employment to the citizens thus the government will be able to collect taxes, which will create a source of income to the government.

The IMF instructed the government of Greece to change policies and regulation regarding to the waste. This will impact utility from products and reduce wastes. It was also required to adopt very harsh measures to fight corruption in the country by the elimination of non-transparent procuring practices. The IMF encouraged Greece to reform the environment for conducting business since it was not appropriate as people tend to retire early and enjoy pension benefits. It also aimed to curb and reduce the several benefits the government extended to people in Christmas, Summer and Easter bonuses. This reform would encourage people to work more.

Greece would adopt procedures to minimize and reduce tax evasion and provide protection to the vulnerable. The IMF suggested and proposed that Greece needed and required to make its business environment and economy more competitive, that is, reduce monopoly of business by ensuring investors get better business opportunities. This will enable the Greece government to gain back the control over prices and ensure price competitiveness. This will lead to cost controlling and reduction in increase of prices without proper control which leads to exploitation of its citizen.

The IMF also suggested the maturity date of the loan given to Greece with the grace period of upto 30 years in order to give the Greek economy a chance to recover before paying back the loans. This debt relief was intended to provide more time to Greece to regain it economic status before imposing the payments on them.

The IMF was able to support the government of Greece by giving them two financial packages to boost their economy in 2010 and 2012. This was done in conjunction with the Eurozone government (The European Central Bank, ECB.). Greece has been gradually and consistently recovering for the state of the crisis with the several aids it has being receiving. The greatest financial relief and support has been provided by the International Monetary Fund during the economic downfall of the country. The most valuable and important input that is leading to the recovery of Greece has being the policies and proposition suggested by the IMF helping the restructure of its economy. With the help of the IMF, the country has been able to bail out of most of its extreme debt crisis thus making it economy stable and viable.

Review of Chinese Debt on Pakistan

Pakistan have always been patriotic and emotional nation when it comes to national security and sovereignty despite of that how come Pakistan got hurt and lost its significant part in 1971; well many expert suggests that it happened mainly because of lack of political awareness among the public of that time reasoning less advanced source of public reach that is media, same is also endorsed by the military establishment of the country in recent times.

Pakistan is in need of awareness once again in order to avoid the incidents like 1971 but this time around it’s the economic awareness as the country is going through a phase of ever mounting debts and slowly and gradually it’s coming at cost of national sovereignty. In this report we will discuss the famous Chinese money trap and Pakistan’s potential to survive the trap.

Pakistan should repay $100 billion to China by 2024 on total investment of $18.5 billion, which China is putting resources into type of bank advances in 19 early reap ventures, under CPEC. China is turned into the greatest bank to Pakistan subsequent to outperforming Japan. Pakistan owes $19 billion (One fifth all out debt) to China. The CPEC advances are adding 14 billion USD to Pakistan’s complete open debt, raising it to 90 billion USD by June 2019, decrease Pakistan’s financial capacity to return such tremendous amount of debt.

In spite of the fact that CPEC can possibly change the Pakistan economy, yet this change would come at substantial cost of making Pakistan a province of China. Accumulating credits from China is a major bet for Pakistan economy.

Examples of Chinese interests in South Asia Pakistan, Bangladesh, Sri Lanka and Nepal, which are all members of Belt and Road Initiative, portrays Chinese will to control the domestic markets and the assets of the South Asian countries.

With the beginning of China-Pakistan Economic Corridor (CPEC) in 2013, the main part of Chinese credits to Pakistan have expanded numerous folds. In spite of the fact that there is no reasonable estimation in such manner, financial analysts suggest that around $19 billion out of complete $90 billion outside debt of Pakistan is from China.

At the end of the day, China has now turned into the greatest respective loan providing country to Pakistan, outperforming Japan. As per the State Bank of Pakistan, by Jun 2017, China’s two-sided debt to Pakistan was remained at $7.2 billion, which was expanded by over $3 billion out of four years. (It was $4 billion in Jun 13). Aside from respective debt, Pakistan cash swaps in Jun17 remained at $1.5 billion, which took the figures to $8.7 billion.

The information further demonstrates that by June 17, the Industrial and Commercial Bank of China (ICBC) Pakistan branch, verified an advance of $2.7 billion from the parent organization, and swapped Pak rupees with dollars, taking the debt to $12.1 billion. Thus, the complete Chinese private division outside advance has up from $3 billion in Jun15 to $7.2 billion in Dec17, happened for the most part as IPPs’ financing under CPEC and different tasks.

Likewise, Pakistan’s debt liabilities to direct investors from China remained at around $3.5 billion. This sum is lent to foreign investors working in Pakistan. The greatest investment ($1.5 billion) by a foreign organization over the most recent couple of years is from China Mobile, adding the toll to some $17.1 billion.

Since these measurements are based on June 2107, while Pakistan’s total outer debts and liabilities have continually expanding from $83.1 billion then to $88.9 billion by Dec17 and as yet increasing. Pakistan’s total debt liabilities to China remain around $19 billion.

As per specialist’s computation, Pakistan should payback $100 billion to China by 2024 on all investments of $18.5 billion, which China has put by virtue of banks credits in 19 early projects under CPEC. The interest on these credits will be around 7% per annum payable in 25 to 40 years. This implies Pakistan would need to pay China generally in the middle of $7-8 billion as EM for coming 43 years from 2018 onwards.

These circumstance does not forecast well for Pakistan’s economy regardless of the forthcoming profits of CPEC. Actually Pakistan vigorously depends on CPEC and has put all its investments tied up on one place. Increasing loans from China and building an excessive number of expectations on the CPEC might be a major bet for Pakistan economy.

The advocates of CPEC properly guarantee that Pakistan will have an expanded FDI and other outer financing inflows, however they overlook that this flood in imports required for the tasks will probably produce an offset among the balance of trade which is already disturbed by a huge amount. The genuine test of Pakistan’s economy will be when Chinese investors will start moving their benefits back home to China CPEC-related outflows.

In spite of the fact that CPEC can possibly change the Pakistani economy, yet specialists fear this change would come at substantial cost of making Pakistan as colony of China. Financial experts have additionally communicated genuine worries over Pakistan’s capacity to pay off the developing debt. Hafiz Pasha former finance minister have assessed that CPEC advances will add $14 billion to Pakistan’s total debt, raising it to $90 billion by end June 2019.

This is shocking situation for Pakistan open debt, which is now achieving disturbing stage, with debt to-GDP proportion running to 70%, troubling each Pakistani resident with $982. The circumstance going quick from awful to most exceedingly awful as Pakistan needs to as of late raise loans from different IFIs by mortgaging its national resources; Motor Ways, Air Ports, radio and TV stations at 8.75% financing cost.

The Government of Pakistan and the ruling class rates CPEC as distinct advantage for the nation and the region, however, specialists and local financial analysts have different thinking about CPEC. They see CPEC has significantly less to offer Pakistan for trade reacted benefits. The Chinese methodology of not partnering together with local organizations won’t help making new openings for work for many Pakistani youth.

Pakistan government is granting tax exemptions to Chinese firms, a circumstance which is making harming and creating unfair playing field for Pakistani firms abolishing the left over manufacturing sector of Pakistan. Subsequently Chinese manufactured products are ruling the local markets.

While there are instances where chines investors in Pakistan are reported to violate the local legal obligations in terms of balancing the ratios of local utility and the imports.

China’s Belt and Road Initiative raises debt dangers not only in Pakistan, but also some other South Asian countries like Bangladesh, Sri Lanka and Nepal, if we see the form of Chinese investments in recent times with all the stated countries, it appears that China is having more and more tendency to control the domestic markets and natural resources of the region.

Reviewing it carefully since the global financial crises 2008 till 2016, Chinese interests in South Asia have gathered generally in two divisions of energy and transport. While 53% of these investment have been in energy projects, around 30% have been in transport plans. Without a doubt, aside from Sri Lanka, where greater part of Chinese investments have been in transport, similar interests in Pakistan, Bangladesh and Nepal have been tremendously in energy sector. The total share of Chinese investments in energy sector in these three countries from 2008 to 2016 is 68%, 55% and 68%, respectfully. Transport represents 27%, 36% and 8% of the total Chinese investments in these countries.

Chinese firms are making great investments in gas projects and port building in Bangladesh and coal and road projects in Nepal. In Sri Lanka, transport and energy projects represent 58% and 9% of Chinese investments amongst 2008-2016. So is the situation in coal powered energy plants in Pakistan where Chinese organizations extending their controls.

The second phase of the China-Pakistan Economic Corridor (CPEC) is to connect sea and land routes across Eurasia under Belt and Road Imitative, as a results 5 big projects in Pakistan worth $57 billion are under construction;

Gawadar Port: Gawadar Port is a principle component of the CPEC. It is an option of transportation for transporting oil into China. Under the contract, Chinese Overseas Ports will oversee Gawadar Free Trade Zone on a 43-year lease with control of all the port’s business issues.

Karot power station: This 720 megawatt hydro-venture worth $1.42 billion is situated in Azad Kashmir, would be finished by December 2021.

Direct transmission line from Lahore to Matiari: The project worth $2 billion goes for creating 4,000MW of power from coal power plants. As indicated by media reports, the Chinese organization associated with the project has put the project on hold after only nine months reasoning different issues, including the conflicts on funds with changing governments.

Karachi Circular Railway: This task, worth $2.07 billion would be finished by 2020. It faces a lot of opposition from local residents, who have built their homes on railroad track.

Karakoram Highway: Beijing is financing the 1,300-kilometer Karakoram Highway that is at present the main overland cross border link among China and Pakistan.

Orange Line Train, Lahore: The 27-kilometer metro train project cost $1.6 billion, out of which $300 million would originate from the Federal Government of Pakistan, the rest is financed through credit by the Government of China. Government of Pakistan has issued Rs.20 billion tax exemption for this project.

Pakistan need to take into count the outcomes from projects in Sri Lanka, Tajikistan, and a few countries of Africa, which are all currently confronting immense debt dangers brought by Chinese investments. We should identify what China did to different nations previously. The recent information from the Center for Global Development (CGD), proposes China’s Belt and Road Initiative (BRI) program has officially left developing counties suffocating into debt.

Tajikistan: In 2011, Tajikistan gave away 1,158 square kilometers of land to china against unknown amount of loan and this was just 5% of the land what Chinese actually demanded.

Kyrgyzstan: Kyrgyzstan’s debt from infrastructure projects has jumped from 62 % of the GDP to 78 %, while china’s share in this debt is increased from 37 % to 71 %.

Sri Lanka: In Sri Lanka, China completed a debt to equity swap against $8 billion advance at 6% given to development of Hambantota Port against 99 years lease for overseeing port.

Venezuela: China has put over $52 billion in Venezuela from 2008 up till 2014. All the Chinese advances to Venezuela were items sponsored, under which Venezuela was obliged to continue providing China a huge number of barrels of oil.

Nepal: In November 17, Nepal dropped a $2.5 billion arrangement with China for the development of a hydroelectric dam, since Nepalese authorities were concerned that the arrangement would align the country too closely with Beijing.

Pakistani authorities need to take into count the outcomes of Chinese investments in other countries specified in the report and revise the policy matters related to growing Chines influence in the country considering the sovereignty and national security as the top most priority, else the days are not far when Pakistan is under a condition of losing the rid over country’s financial, social and security aspects.

Analyzing Human Trafficking through Debt Bondage in India

Human trafficking involves the coercion, force and manipulation to obtain cheap or free physical or domestic labor, the procurement of organs or commercial sexual acts from men, women and children. Today, human trafficking is held to be modern-day slavery as the movement of persons between countries has become more prevalent and increasingly, persons are trapped in human trafficking situations in their own village. This type of human trafficking takes many forms with one of these forms being debt bondage or peonage defined by Kara (2011) as “the exploitive interlinking of credit and labor agreements that devolve into slave-like exploitation due to severe power imbalances between the lender and the borrower”. Debt bondage is especially prevalent in South Asia especially India as it is embedded into their socio-economic structure. Thus, this paper will focus on different types of debt bondage in India, its victims, how they are recruited and controlled by their perpetrators, and how this exploitation is being fought by local, national, and international organizations.

The Bonded Labor System (Abolition) Act of 1976 prohibited all bonded labor in India but both adults and children are still being trapped in debt bondage situations reinforced by poverty and certain customs. The pervading caste-system in India has made those of the lower-classes, called Dalits, vulnerable to exploitation as they are considered the only ones inferior enough for manual, labor like ploughing and menial jobs in brick kilns (Upadhyaya, 2004). Middle to upper class landlords target these Dalit families and take advantage of their land ownership struggles by sharing loans without assets to the Dalits who can only repay them with their labor (Knight, 2012). Knight (2012) also posits that Dalit laborers will use employment agencies linked with these high-caste landlords to find jobs and the payment from the agency to the landlord becomes the principal debt that they incur and are unable to get out from subsequently. Their main asset is their labor where most bonded laborers can be found working in the agricultural sector in rice mills, silk farms and tea and cane plantations.

According to Knight, in the 1990’s almost 80 percent of bonded laborers worked in the agricultural sector (2012). As of 2019, agriculture is still the largest sector of the Indian economy, accounting for 17% of their Gross Domestic Product (India- Agricultural Sector). In the sugarcane industry, sugarcane plantations are owned by farmers from the dominant agricultural caste. (Marius-Gnanou,2008). However, labor jobbers capitalize on the hardships that migrant workers and their families face, which is made especially possible due to the seasonal nature of agriculture. Marius-Gnanou found that jobbers are typically of the same caste as those they recruit for or similarly affluent villagers (2008). Workers migrate to where there is job availability which is where the indebtedness to labor jobbers begin.

From the outset, workers seek a jobber to represent them as having a social network can prevent them from underpayment, but the amount of money needed to recruit workers is larger than the sum advanced to them by the employers. Therefore, they borrow high-interest loans from money lenders, and workers are enslaved in a cycle of paying these interests, and also borrowing from their boss to repay the interest. (Marius-Gnanou, 2008). Jobbers control the workers directly through interest repayment, but also indirectly through the harsh working conditions they must endure. The physical intensity of the labor, sun exposure, and low quality or lack thereof of food accounts for many illnesses and diseases which they need medical attention for, thus acquiring advances from their jobbers to expense these bills (Guérin, Venkatasubramanian & Kumar, 2015).

Often, these landlords and jobbers manage to sustain these debts over generations, and many children are forced to work off debts incurred by their grandparents and parents, unable to (Hepburn & Simon, 2013). These intergenerational transfers increase the supply of child labor in the market, which leaves households worse off as they are paid lower wages and subsequent generations are more susceptible to debt bondage (Basu & Chau, 2004). Typically, traffickers will offer parents a cash advance on the child’s wages if they permit them to work, and these cash advances act as loans which accrue over time making the child indebted to providing the traffickers with their services (“Small Change”, 2003). However, according to Hepburn & Simon, many traffickers deceive parents into sending their child away by promising they will receive an education or learn a trade (2013). Children are especially targeted by these perpetrators as they are easy to control and are “unlikely to defy orders given by an imposing adult authority”, especially valued in industries that involve dangerous work conditions like the use of boiling water when manufacturing silk (Knight, 2012).

Although the problem of debt bondage slavery in India has pervaded much of the rural, and urban informal sector, burdening families and the lower castes, both the Indian government and the international community have prioritized its reduction. Hepburn and Simon (2013) noted that in July 2009, the Emigration Act was amended “to secure increased penalties for Indian labor recruitment agencies involved in deceptive recruitment practices and/or the trafficking of laborers.” This showed not only a direct prioritization of the laborers that are less educated on these operations and easily fall prey to such schemes, but also consequences for the traffickers. Aside from these laws, to reduce the number of laborer’s indebted to traffickers, they are “expanding a national scheme” to provide state-funded work days (200 per household) and an increase from 180 Rupees to 286 in Odisha where the majority of the labor force migrate and are then “duped by illegal agents” (Nagaraj, 2019).

On an international level, the Anti-Slavery Society has placed immense concentration on facilitating systematic change to reduce debt bondage contracts in the Chhattisgarh, Punjab and Uttar Pradesh region by regularly visiting brick-kilns in these areas to monitor working conditions (“India: Debt Bondage”, n.d.). “India: Debt Bondage” (n.d.) addresses how the Anti-Slavery Society not only identifies debt bondage situations but also raises awareness in villages prone to labor migration to identify schemes themselves, which has resulted in over 200 worker groups advocating for their own rights. Further, they have also lobbied and succeeded in influencing the Punjab government to sure that the children of brick-kiln workers get a primary education, thus slowing the cyclical effect of inter-generational debt bondage. Legislation wise, India is a part of internationally agreements such as the International Labour Organization (ILO) Convention No. 29 concerning Forced or Compulsory Labour, to which India is obligated to severe all customary norms furthering bonded slavery. (“V.I.I. Legal Framework”, n.d.). The United Nations has also paid special attention to debt bond slavery in India. They have combined forces with the Organization for Economic Cooperation and Development (OECD) to ensure that multinational corporations are closely monitoring their supply chains in India to check on workplace slavery through debt bondage in the brick-kiln industry (McKean, 2019).

Overall, one can see how deeply entrenched the intricacies of debt bondage are in India and why it is still so prevalent. This paper highlights three of the most common debt bondage situations in the rural informal sector of India- the Dalit bonded labor system due to their low class, debt bondage in the agricultural sector and intergeneration child labor bondage as well as their respective perpetrators and the means used to recruit and target those who are vulnerable. Further, this paper went on to discuss some of the Indian government’s legislative and humanitarian efforts, as well as those of the international community. Debt bondage has had a long lifespan in India due to both social and socio-economic factors and it is with great concern that organizations, both national and international, treat this matter with sensitivity and urgency.

Effects of Public Debt on Household Welfare in Kenya

Public expenditure by government to offer services and social amenities and development programs is aimed at improving the overall welfare of the state. However, scarcity of resources results to government relying on borrowing publicly to augment the existing budget. From economic analysis, a unit increase in public expenditure by government increases the GDP of an economy by more than a unit. The economic phenomenon that creates this scenario is known as the multiplier effect. Therefore, governments borrow externally and/or internally to fund development programs and recurrent expenditure. Increased government funding to implement development programs has a positive effect to the economy in that it creates employment leading to a higher proportion of citizens earning income. In addition to employment creation that translate to increased income for a country, the government uses these resources to meet recurrent expenditure for the existing public servants in form of salaries. Whether through development or funding recurrent expenditure, the use of public debt results to a higher income for a country and the resultant effect is the improved household welfare through increase in per capita income.

Mannah (2018) posits that highly indebted households in Ghana experienced reduced expenditure that translated to credit Theconstraint. Further, due to lack of competition in the sector, micro finance institutions tend to charge high interest rates therefore keeping households in a captive market. The ability of citizens to borrow capital at a friendly rate and put it to good use should aid in uplifting a country’s income and the overall welfare of the household. For the period under review, the lending rates declined by approximately 5% from 19%. A country with efficient capital and money markets make it easier for borrowers to borrow competitively and cheaply division of a country’s income with its population yields the per-capita income. The rate of growth of a country’s population determines the levels of per-capita income. In the event a country’s income grows faster than the population, the country will witness a positive increase in the per- capita income, the reverse is true.. Cheap capital put to development purposes generates income over the long run and is beneficial to the household and the larger economy.

This increased borrowing resulting to increased expenditure should translate itself to a better GDP translating to improved household welfare in form of improved per capita income.

According to data retrieved from World Bank, from the period 2001 to 2017, Kenya’s public debt has increased six and the GDP five times. From 1999 to 2017, Kenya’s population grew at a slower rate compared to public debts and GDP at 34% .Over the same period, Per-capita income has increased approximately two and a half times, a pale comparison to the growth in public debt GDP. The growth rates of Per-capita income should mimic the growth of Public debt and the GDP should governments put the debt to proper use in terms of development translating to improved welfare.

Cecchetti et al (2011) studied the real effects of debt focusing on countries in the Organization for Economic Cooperation and Development. The study measured correlation of debt with annual per capita GDP with government borrowing having a positive correlation with annual per capita GDP growth.

Mutsonziwa et al (2019) focused on over-indebtedness and its welfare effect on households in Southern African countries.

From the study on “effects on domestic public debt in Kenya’’, Njoroge (2015) posits that while total debt has a negative effect on the economy, public domestic debt has positive effects on the GDP.

Although studies on the subject of debt, GDP and household welfare are available, they have not brought out the clear relationship between the variables in question particularly in the Kenyan context. In some instances, these studies are limited to private debt and its effect on household welfare in form of heavy indebtedness Mutsonziwa et al (2019).

The study will be valuable to policy makers and the government at large for policy targeting purposes. In addition, the study is useful in advancing general knowledge in the areas of public debt and household welfare to the public.

The geographical location of this study will be Kenya. The study shall concentrate on macroeconomic data from 2001 to 2017. The unit of analysis will be the household with specific focus on household welfare.

The proposal is structured in three chapters. Chapter 1 includes the background and highlights the relationship between the explanatory variables and the dependent variables. In this case, Public debt, GDP will be the explanatory variables while household welfare will be the dependent variable.

Chapter two contains the review of literature focusing on the theoretical framework and empirical literature. The theoretical framework will look review existing theories surrounding the variables. The empirical literature will review previously done studies relating to the topic. Strengths, weaknesses and gaps of these literatures will be highlighted.

Chapter three will focus on the methodology. In this chapter, the research design and the framework will be developed that will guide in the collection and analysis of the research.

This chapter shall cover a review of previously done theories and studies that will offer better insight around the subject. This theoretical literature will be reviewed first then the empirical literature shall follow thereafter. Finally, the summary of the literature review will capture the highlights of chapter two.

This sub chapter shall review studies done previously to understand their objectives, variables considered and the findings that can help the researcher better refine the study. In addition, strengths and weaknesses of the studies shall be highlighted alongside similarities and contrasts.

According to Kobey 2016, public debt has a negative effect on economic growth in that a unit increase in public debt decreases economic growth by 1.26 units. The variables of interest to the researcher were public debt (exogenous) and economic growth (endogenous) regressed through a linear model. Other independent variables considered were inflation and unemployment rate. The findings further indicates that economic growth is inversely related to inflation and unemployment such that the increase of either inflation and or unemployment reduces economic growth rate. From the study, it is possible to establish the causal relationship of public debt on economic growth. The presentation of the findings are elaborate and simple to understand. However, the regression model was statistically insignificant. The proposed study has similarities in terms of the variables considered; however, the dependent variable in this case shall be per capita income. In addition, the proposed study will include lending rate as an additional explanatory variable.

A faster increase in public debt such that the debt to GDP ratio increases implies higher future taxes that can adversely affect growth (Dar and Sal, 2014). In their study, the authors focused on the impact of public debt in OECD countries from 1996 to 2007. The variables considered by the authors were debt to GDP ratio, employment levels, investment and export growth rate. The variables considered were regressed using random generalized least squares (RGLS). From the findings, there is a preferred threshold of debt to GDP. Should countries maintain their debt levels below this threshold, the impact on economic growth is either positive or neutral. The study is limited to developed OECD countries unlike Kenya that is considered a developing economy, thus, the findings could vary. However, the study offers insight on what variables to consider in undertaking this study.

According to Mutsonziwa & Ashenafi (2019), credit plays an important role in modern society by helping people in consumption smoothing and hence in maintaining a lifestyle when earnings fall short of expenditure. The increased availability of credit is partly responsible for higher levels of debt burden and household over-indebtedness. The authors analyzed the determinants of over-indebtedness and its links with poverty employing a binary logistic regression model using data on 51,359 individuals from 11 economies in the Southern Africa Development Community (SADC). The authors focused preferred primary data obtaining information on multiple variables among them income, credit literacy, age, gender amongst others.

The results suggest that over-indebtedness is driven by, among others, lack of credit literacy, cross-borrowing and income. The results also suggest that over-indebtedness is likely to impoverish the indebted. The study focuses mostly on micro economic data per country helping the mentioned economies customize policies to address the issue of over indebtedness. In addition, the study sheds light on various causes of over indebtedness. However, the study is limited to the area of micro finance credit specifically in Southern African countries. The intended study shall deviate from the study above by focusing on public debt, per capita income as a measure of household welfare in Kenya.

From the literature reviewed, there are numerous studies centered on the causal relationship of debt; public, domestic or a combination of both on economic growth. Few African based studies have narrowed down to the relationship between debt and household welfare in form of per capita income.

The main objective of this research is to understand the effect of public debt on household welfare. The objectives of the study dictate the application of a exploratory design on the study. The exploratory design is preferred since it allows the researcher to show the causal relationship of the variables over a period. The study shall adopt a causal research design. According to Zikmund, 2000, the main goal of causal research is to identify cause and effect relationships between variables. According to Cooper and Schindler (2006) a causal study is designed to establish the influence of one variable(s) on another variable(s) which depicts causation the relationship between public debt and per capita income.

For this case, secondary data of macroeconomic nature shall be used in the analysis. Data shall be obtained from The World Bank and The Central Bank of Kenya from the period 2001 to 2017.

Since this study takes a macroeconomic approach, it is limited to the confines of Kenyan border. Data on public debt shall be obtained from The Central Bank of Kenya. Data on Lending rates, inflation rates, unemployment and the per capita income shall be obtained from World Bank. An excel data collection template shall be developed and data cleansed.

An Essay on the Reasons of the Debt Crisis in Greece

The Greek government debt crisis was the sovereign debt crisis faced by Greece within the aftermath of the financial crisis of 2007–08. Widely known within the country because the crisis, it reached the populace as a series of sudden reforms and austerity measures that led to impoverishment and loss of income and property, furthermore as a small-scale humanitarian crisis. In all, the Greek economy suffered the longest recession of any advanced laissez-faire economy thus far, overtaking the US Great Depression. As a result, the Greek form of government has been upended, social exclusion increased, and many thousands of well-educated Greeks have left the country.

There are various reasons for the general public debt in Greece. These are divided into internal and external. Internal reasons are understood as those who is influenced by the Greek state itself with political or economic measures. The external reasons, however, can’t be influenced directly or not in the least by Greece.

The national budgets of the member states showed high deficits even before the one currency. These developed into debt and will transform state bankruptcy. This also applied to Greece. Compared to Germany, Greece had accounting deficits amounting to 14.5% of GDP. On the opposite hand, Germany with a surplus of 7.5% of GDP. Some high-exporting countries within the eurozone had more savings than investments. For others, the other was true. Within the accounting, whose components are often put together from the exchange goods, the services, the first income and also the secondary income, this fact is mapped. the actual fact that an economy produces quite consuming foreign and own goods, points to an accounting surplus. Thus, such an operating economy builds up foreign assets. For countries with an accounting deficit, the entire thing is strictly the opposite way around. With them, more foreign and own goods are consumed than produced. The external debt of the Greek state already went up between 2001 and 2007 as results of accounting deficits. Decisive factors were also falling prices and therefore the associated increase within the yield on Greek government bonds. Thus, the liquidity of the state was directly threatened. Excessive borrowing by Greek companies and households was chargeable for the event of sovereign and foreign debt. The loans couldn’t be got the foremost part. Bank failures, a loss of confidence and a pointy collapse of the economy followed. As later seen in an exceedingly rising debt, clear handicaps for the general public household were connected.

The huge reduction within the competitiveness of the Greek economy is one amongst the most causes of the crisis. Here, labor costs have risen significantly faster than productivity. In 2011, pension increases represented 11% of Greece’s GDP, the best within the eurozone. The privatization of enterprises and thus also the private economic activity was strongly impeded by the general public administration. Compensating for slumps in exports with improvements in services was also unsuccessful. As a result, the Greek state lived far beyond its means and has become immensely indebted. A failed economy and structural deficits are therefore sometimes the most causes of Greek financial problems.

What Greece had no direct influence on were the external causes. The change of currency has given many member states positive and negative consequences. However, the Greek state soon had to appreciate that seemingly positive consequences quickly developed as negative ones. These supposedly positive effects include easier accessibility to capital and therefore the reform of the Greek banking sector. Before the reform, there was an upper limit of € 25,000 for line at one credit institution. This was lifted to realize a homogenization within Europe. Thus, banks were able to issue consumer loans in unlimited amounts. Further reforms, like the reduction of the reserve requirement of 12% to the standard 2% within the EU cleared the way for easier borrowing conditions, resulting in higher private sector debt and a deteriorated banks’ risk balance.

The adoption of the only currency led in opposition to the supposedly positive con-sequences to negative effects. The change automatically made the member states lose control of their own currency. Thus, the associated risk of insolvency followed, in contrast to highly indebted countries with their own currency like Japan, the USA or England. A rustic with its own currency should buy up government bonds of its own country at any time through its own financial institution. Practically, these countries cannot run into a shortage of liquidity because they’ll create the cash, they have to repay themselves. In a very monetary union, this possibility doesn’t exist. Additionally, a rustic within a monetary union also lacks the means of devaluing its own currency. This will correct one’s own competitiveness. For Greece, this may be invaluable.

Additionally, there’s the insufficient risk assessment of Greek debt. Theoretically, the over-indebtedness of a rustic should be prevented from the markets ahead. The markets are guilty of controlling and that they have the ability to try to do so. The individual valuation of a rustic and therefore the corresponding risk surcharge for one with high debt and deficit ratios result in high borrowing costs, thus preventing a dangerously high level of capital rising. Within the case of Greece’s crisis, this was neglected excessively. In Greece, more and more government bonds were in demand as a secure investment over an extended period of your time. That the chance rose with each new bond wasn’t considered. The more government bonds are issued, the upper the interest burden that results. Greece reached a stifling level of interest.

So, as this essay shows, there were several reasons behind the Greek debt crisis that started in late 2009. Overall, however, it was driven by the shocks of the global Great Recession, the structural weaknesses of the Greek economy, and the lack of monetary policy flexibility as a member of the eurozone.