The Debt Crisis of Nigeria and Greece
The debt crisis of Nigeria and Greece
Introduction
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
Introduction
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
References: Beardshaw J.Brewster D. Cormack P. and Ross A.(2001). Economics: A Student’ Guide 5th edition Prentice Hall.