10 Worst Economies

All the countries on this list have at least one trait in common:
The governments of respective countries discourage private investment and economic growth through some Individual discretion. These governments are finding very difficult to generate hard currency for paying off the debt and also discourages citizens from investing in education to improve their own economic lot.


These are the Worst Economies/ Worst Disaster Economies with Worst Inflation and other Factors.






Zimbabwe:
GDP Per Capita Income of Zimbabwe: $375
Zimbabwe, always toped the Inflation rate at the highest level, in fact crossed more than 5 digits in number. The country is rated as one of the Worst Economies one could ever face it. One no need to get shocked to hear the price of loaf of bread soared from 200,000 Zimbabwean dollars to 1.6 trillion in the Last year. It relies on the Foreign Aid to feed it people.


Only question arises is Why does the Zimbabwe Inflation has gone such High?
Answer is simple, whenever the government want to make development or in need of money, what they simply did was Printing of Money. They never the concept of rotating the money circulated among the people.
An More than Excess printing has soared the Inflation rate and got into this situation.


Democratic Republic of Congo
GDP Per Capita Income of Congo: $172
The Inflation has rosed more than 50% last year. The Strength of Democratic Republic of Congo is Commodities, but due to the huge support in the way of Credit to the bank given by the Central Bank, the country is an deficit of $13trillion in External Debt. Which amount equal to the 1/4th of the Revenue earned by the government and its 1.5 times the exports it has. There is a Huge need of malnutrition and to construct and repair its Infrastructure for bagging a Mining deal, to reduced the huge Account deficit they current hold.


Guinea
GDP Per Capita Income of Guinea : $414
The huge problem with the country Guinea is that there is an huge government intervention in the Private Business, which has slowed down the Investment by the Foreign and Domestic companies in Exploration, adding to it the price level decrease had a huge impact.
Guinea, has the Huge Bauxite reserves amounting to more than 30% of worlds reserve. But need of an proper Infrastructure, Stable Government and No Intervention by government could bring it back in Success Mode.


Sierra Leone
GDP Per Capita Income of Sierra Leone: $310

Country has an huge reserve of diamonds, titanium and other commodities, but due to huge Corruption the export are very low and the country is struggling in the deficit of 9%.


Nicaragua
GDP Per Capita Income of Nicaragua: $971
Due to the highly Discouragement of Foreign Investment, the country is facing an massive crisis of Blackouts, Water Shortage and the High cost of the energy to use, which the Poor can not afford.


Burundi
GDP Per Capita Income of Burundi:  $163
The country is such a deficit that, it need close to $6 Billion to invest in the fields of Telecommunication, Transportation, and Energy for the next Two decades to raise the standards of the Economy.  It is said to be spending 12% of its Gross Domestic Product on its employee and finding hard for Income.  Current year the country has an trade deficit of more than $200million even after a $44million exports of coffee.



Eritrea
GDP Per Capita Income of Eritrea: $363
Meddling of Ruling parties Front for Democracy and Justice is not helping in any way to even build its economy. Need of Domestic and Foreign Investment.


Liberia
GDP Per Capita Income of Liberia: $234
Liberia has an 85% unemployment, huge amongst any country in the world.  There is an War debt of more the $3.4 Billion. Recently, Arcelor Mittal has agreed to Ship the Iron ore, which is expected in the year 2011.


Ghana
GDP Per Capita Income of Ghana: $671 with 16% Inflation rate.
Ghana, has an very necessary Infrastructure and resources, but there is only a need of Functioning economy to put the things at the right time and place for active results. Ghana, has the worlds biggest manmade lake, 1-gigawatt hydroelectric plant and more of Offshore Oil reserves.


To reduced the Budget Deficit, the government should lease out to Private companies the State owned Enterprises and can use the money earned in stabilizing its finances.


Madagascar
GDP Per Capita Income of Madagascar: $412.
With No proper Aid from the U.S. and very low Exports leaded to the Trade Imbalance and rosed the Current year deficit to 17%.

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Meaning and Difference between Budget and Fiscal Deficit with Examples?

The government, every year prepares budget which shows the expected receipts and expenditures of the government in the coming financial year.  Receipts of the government come form taxes (both direct and indirect taxes), profits from various financial institutions, government commercial undertakings, interest from loans given to other governments, local bodies, etc and expenditure of the government are on developmental projects such as construction of roads, railways, production of energy and non-developmental expenditure on a large number of activities such as defence, subsidies, police, law and order etc.

If receipts are equal to expenditure, the budget is said to balanced one.
If receipts are higher than the expenditure the budget is said to be surplus one, and
If receipts are lower then the expenditure, the budget is said to be deficit one.

The estimates included in the budget are simply estimates; the actual may not conform to the original estimates.  The budget must, however, estimate revenues and expenditures as accurately as possible.  Accuracy becomes essential if equilibrium established in the estimates is to be maintained to the end and realised in actual.

The Budget comprises data for three years;
a) Actual Figures for the Preceding Year;
b) Budget estimates for the Current Year;
c) Revised estimates for the Current Year, and
d) Budget estimates for the Following Year.

What is Budget Deficit and Fiscal Deficit?
Budget deficit = Total Receipt - Total Expenditure.

Fiscal Deficit:
a) the difference between total expenditure and total revenue receipts and capital receipts but excluding borrowings and other liabilities, or
b)  it is the Sum of Budget deficit plus Borrowings and other Liabilities.

Budget deficit is the difference between total receipts and total expenditure. If borrowings and other liabilities are added to budget deficit, we get Fiscal deficits. Since budget does not show the true pictures of government liabilities and hence a true picture of the financial health of the economy, the practice of showing budget deficit is not in use, Budgets now show fiscal deficits to show the overall shortfalls in the public revenues, Over the years fiscal deficits have grown rapidly and have become the cause of concern.  To meet the challenge, many reforms have been carried out but still the problem of high fiscal deficit remains.

Example showing Calculation of Budget Deficit and Fiscal Deficit.
                                                                                                        In Crores.
1. Revenue Receipts                                                                           3,50,200
2. Capital Receipts of which                                                              1,63, 144
     a) Loan recoveries + other receipts                                               12,000 
     b) Borrowings & Other liabilities                                                   1,51,144
3. Total Receipts (1 +2)                                                                     5,14,344
4. Revenue Expenditure                                                                     1,14,982
5. Capital Expenditure                                                                          67,832
6. Total Expenditure (4+5)                                                                 5,14,344
7. Budgetary Deficit (3-6)                                                                       NIL
8. Fiscal Deficit [1+2(a) - 6 = 7 + 2 (b)]                                            1,50,144

Budget Deficit: $5,14,344 Crores - $5,14,344 Crores = Nil

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Different Types of Economies? Market, Mixed and Command Economies.

Majorly Economies are of 3 types namely, Market Economy, Command Economy, and Mixed Economy. Though Traditional economy is another type but which is mostly converted into the rest three economies.

What is Market Economy?
This economic system emphasizes the freedom of individuals as consumers and suppliers of resources, and allows market forces to determine the allocation of scare resources through the mechanism called price.  Based on market demand and supply, consumers are free to buy goods and services of their choice and producers allocate their resources based on the demand.

Decisions made by producers and consumers are greatly influenced by price. An increase in the price of a product without a corresponding increase in cost increase profit; such a result, manufacturers allocate more resources to that particular product.  On the other hand, if consumers do not like to buy a product, supply would exceed demand and price would fall, resulting in a lower profit or even a loss can occur to the producer.

Thus, Price plays a major role in a Market Economy.  The role of Government is negligible, Consumer choose the products they want and producers allocate their available resources to that products based on the demand for different products.

Advantage:
Producers makes the goods at the lowest cost of production, and consumers gets the Best quality of goods and services at the cheapest prices.
Unites States, Japan and Capitalist countries are the best example for Market Economy.

What is Command Economy?
In a Command Economy, all the economic decision are taken by the government - What to produce, how to produce, and for whom to produce.  Thus, all decisions. from the allocation of resources to the distribution of end products. of taken care off by the government.  In this type of systems, efficient can be achieved only when demand are accurately estimated and resources allocated accordingly.   The government had complete control over the economy, and consumers were just the price takers.  The government set output targets for each district and factory and allocated the necessary resources.

Incomes are often more evenly distributed in a Command Economy, in comparison to the other types of economies.

The USSR, Cuba, China and all Communist Country is an example of Command Economy.
Advantage:
Prices are controlled and this allows for greater equality in the economy.

Dis-Advantage:
Decisions are taken on the National goals but not on the Individual tastes and preferences.


What is Mixed Economy?
Mixed Economy is an combination of free Market Economy and Command Economy.  Here, government controls the price fluctuations to achieve certain objectives such as high level of Employment and Low level of Inflation.  A mixed economy uses cost-benefit analysis to answer the fundamental questions discussed earlier - what, how, and for whom to produce.  A cost benefit analysis helps to assess the full costs and benefits to society arising from a particular decision or project.  Decisions or projects affecting the economy as a whole are taken or accepted only when the social benefits from the decisions of project are greater than the social costs.

In a mixed economy, the government organizes the manufacture or provision of essential goods and services such as education and health care.

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What is Inflation? Types of Inflation? Inflation Impacts? Solution?

Very often you must have heard the word "Inflation", every time you hear some CRR, Rates, Price High, Credit Policy and more, and don't understand what exactly it is.

I thought of writing an article on it with suitable examples in as simple language as possible, as the blog itself is called Layman blog, so that one can understand the meaning of these words and relation between them.

Mainly question raised on inflation is, what it is? why? types? Impact or effects? Does it affects me? Solution?

Here I put these question one by one and explain it in detailed.

The First Question:

What is Inflation?

Simple meaning of inflation, the present value of the currency is going low.

What leads to Inflation?

Mismatch of demand and supply leads to Inflation, where the purchasing power goes down in Inflation.  Inflation is a rise in the general price level of goods and services.

Inflation is not the rise of prices, but the excess money printing and expansion of the money supply (Huge example is Zimbabwe, where the inflation is around in thousands).

For example, earlier let say a product can be bought at Rs.10, but now the same product cost you Rs.50. An increase of 400%, If you ask any one why this happened, the answer will be simple the cost of production has gone up so the end value.

The reason is right, but the perspective is wrong, the price has not gone up but the value of the money has gone down.

Now a question may arise, what is relation between demand, supply, cost going up?

People has excess of money holding with them, which forces them to spend it, by which the demand is going up for the respective product but the supply is same/constant, simple rule applies here, demand is high, supply not reaching demand, price is high.

Now you may ask, why do one spend when the rates are already high?

The Answer is simple, ask your mother. She says, the prices may go even more up tomorrow, so let me buy and store the stock today itself.

An Example of inflation is the recent times is the oil prices touching the sky,

where oil is an essential need of any industry in the country so the demand exceeded the supply and inflation in India touched double digit.

What are the types of inflation?

Inflation are of two types majorly, CostPush Inflation and Demand Pull Inflation.

In the former the prices goes up because the cost of production went up and in the later the demand exceeds supply and leads to excess in price of the available output of goods.

What is skewflation/ Skew-flation/Skew Inflation?

The economic survey as termed a new word called skew inflation which was termed after observing Inflation which was somewhat unusual, since there was an huge inflation in Food Sector where the Non-food sector was constant. 
As some sector was facing an huge inflation and few other sectors faced were no changes or even deflation(opposite of inflation) so they termed its as “skewflation”.

How Changes in Credit Policy rate/ Bank rates affects Inflation?

Inflation can be very much directly controlled by the medium called Banks/Financial Institution.  A direct impact can be reaped through it.  So, that's the reason why the RBI intervene and control the inflation in the way of changes in the policy rates.

Not let me be clear with it how this works, talking an recent example of changes of CRR, Repo rate, Reverse repo rate. These rate has been increased of .25 basic points. What happens when this changes took place is? (Check out the Present Credit Policy Rates).

If the interest rate are low, there is the higher liquidity of cash in the market so the purchasing power of the people goes up, when these rate are increase in interest rates means lower liquidity in market., which means there is lower availability of cash to change hands. Due to this credit crunch there is an direct impact takes place in investments as well as in all sectors.

If the interest rate goes up, people start making saving so ultimately the inflation goes down.

How inflation Impacts?

These are the few impacts of Inflation:

It slow down the economic growth rate.

Prices goes up, that mean you pay more money for the same product which you got it lesser earlier. 
The standard of living declines. 
You got to save more to pay high expenses tomorrow, so your left with less income in hand.

Solution/Steps to control inflation?

Stop printing of excess money.

Increasing in credit policy rates.

Don't keep the cash in hand, Invest the money some where. Because it loses its value constantly.

What is the Present Inflation rate?

In 2009, the inflation rate stood at 11.49%, but gradually settled now at 9.90% in March 2010.

Very Important question, Is Inflation Good Or Bad?

When the government is trying to decrease the inflation rate at its best means the answer is the inflation is bad.

But I say Inflation is absolutely Good, why?

As I said inflation means excess of demand over supply, so if the demand is more and supply is low there will be an start of new player entry, again advantages of competitive rates, best quality, latest methods technology comes in, most importantly the Foreign Direct Investment(FDI) goes up.

But this all advantages can be gained only if the inflation is at 4%-5%.

Conclusion: "Low Inflation should be the key goal of Monetary policy of any country."

I hope I have written the article as simple as possible for better understanding.

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RBI revises Bank Rate to control Inflation.

The Reserve Bank of India(RBI) has come up in changing its credit policy by making changes in Bank Repo and Reverse rate rates, CRR to curb the growing Inflation in India. The current inflation rate is said to be around 9.90%, which is pressured the RBI to take necessary steps in raising the annual monetary credit rate policy. 


Even the Food Inflation prices has touched 20% in January 2010 but marginally falling down and stood currently at 16% approximately. 


To control these situation the RBI has raised the Repo rate(The rate the Apex bank lends the money) and Reverese Repo rate (The rate at which RBI borrow the money) by 25 basic points which gives and direct impact on the inflation. The RBI is expecting an growth of 8.2% by the end of current fiscal year.

For an better understanding here is the Current Rates mentioned in the below table.

Credit Policy Rates	Old (20 / 4 / 2010)	New (27/09/2011)	Percentage change compared
Bank Rate	6%	6%	Nil
Repo Rate	5.25%	8.25%	3%
Reverse Repo Rate	3.75%	7.25%	3.50%
Cash Reserve Ratio(CRR)	6%	6%	Nil
Statutory Liquidity Ratio (SLR)	25%	24%	(1%)

By Increasing the CRR(Cash Reserve Ratio), the credit scenario can be changed, because Cash reserve ratio is an ratio which a bank should maintain mandatory an liquid amount of 6%, which means the amount in the system will be drain out and will have an impact on Inflation. 

Basic concept of this is the Increase in rates will increase in deposits, so as savings and which will lead in less expenditure, through which Inflation can be controlled. 


On the changes of this rate the RBI is expecting to collect an amount of about Rs12,500 crores. 


But another changes in this rate are expected in 2-3 months to balance the exchange rates.

What is Inflation? Types of Inflation? Inflation Impacts? Solution?

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