The Debt Crisis of Nigeria and Greece

Topics: United States public debt, Government debt, Debt Pages: 13 (5186 words) Published: August 25, 2012
The debt crisis of Nigeria and Greece
National debt is a problem that can inflict any country including the developed countries. Almost all countries go into budget deficit one way or the other and end up borrowing money. The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interest come due, future taxpayers will face a difficult choice. Inheriting such a large debt cannot help but lower the living standard of future generations. In the 1960s and 1970 some developing countries were encouraged to borrow money to service old debts and also to finance development projects in their country like infrastructure. This has been necessitated by the availability of huge oil earnings deposited by OPEC member countries and were eager to lend at very low rates. Moreover, it is misleading to view the effects of government debt in isolation. Government debt can be divided into two categories namely domestic debt and international debt. The International debt is facilitated by the formation of such institutions like the International Monetary Funds (IMF) the International Bank for Construction and Development (World Bank). Governments borrow money from the private sector and foreign governments if they can't pay for all their spending with taxes and government revenues. A government will issue bonds at bond auctions every so often and market participants will come in and bid for them. Market participants lend the government money and in return the bondholder will receive the face value (the amount lent) of the bond at maturity and payments from the bond issuer called coupons. Governments borrow at different maturities with most major economy's governments borrowing at varying maturities. The UK even issued bonds that have no maturity. Governments have two main options to repay debt; the first one is revenues from taxes and state owned assets from government surplus budget. The second one which is tricky is to request for more debt. Nobody would think that would be a good solution to any debt problem, but that is exactly how countries like the United States of America meet their bond repayments. In making these decisions over fiscal policy, policymakers affect different generations of taxpayers in many ways. The government’s budget deficit or surplus should be considered together with these other policies (Mankiw 2004). Public policy is made not by angels but by a political process that is far from perfect. Sometimes policies are designed simply to reward the politically powerful. Sometimes they are made by well-intentioned leaders who are not fully informed (Mankiw2004).The issue of policy making is not as simple as one might think. As Bernard Shaw quoted in Beardshaw et al (2005) once said “If all economists were laid end to end, they would not reach a conclusion” Mankiw p31 Because of differences in scientific judgments and differences in values, some disagreement among economists themselves is inevitable. Yet one should not overstate the amount of disagreement. In many cases, economists do offer a united view when thing are easy to understand. We will now look at the government debt of Nigeria and later of Greece which is among developing countries in the Eurozone. Nigerian debt crisis

Nigeria is located on the west coast of Africa and is the most populous African country in the world, bordering the North Atlantic Ocean, between Benin and Cameroon. Nigeria covers about 923 770 square kilometres. Nigeria is a diversified country in people and culture. Oil-rich Nigeria, long stunted by political instability, corruption, inadequate infrastructure, and poor management, is in need of some reforms. Nigeria's former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 20% of Gross Domestic Product, 95% of foreign exchange earnings, and about 65% of budgetary...
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