On July 05, 2015, Greece’s economic future will be determined through a referendum. The choice is simple, or so it seems: Yes or No to stay in the Euro. A ‘yes’ vote comes with the benefits of fresh debt restructure/aid/bail out albeit with huge austerity conditions. The economic consequences of a ‘no’ are not that straight forward. No identical precedent to rely on but what is certain is that Greece would default on most of its obligations and the indicators are not looking good. Either way, a decision has to be made by a people whose contribution to the current debt situation is as little as their knowledge of the consequences of the choices they are faced with.
How did we get here? We could give a long chronicle on Greece’s journey to this financial situation. But the simple summary is that due to sheer fiscal recklessness, debts accumulated over the years have not generated enough returns to effectively repay these loans. Ordinarily being a part of a block like the European Union should guarantee some level of support from financially stable members. However, gone are the 1953 days, when an empathetic ‘London Conference’ provided one of the best debt relief packages in history to effectively help Germany survive its post second world war debt problems. How ironic that Greece, which was one of Germany’s creditors then, is now at the mercy of Berlin and Angela Merkel is not showing any mercy.
Geography apart, how close is Nigeria to Greece?
As it was with Greece, public debt in Nigeria is on the increase. The Debt Management Office (DMO) puts Nigeria’s debt stock at $63.5billion as at March 31, 2015. More worrisome is that the DMO, which was established to coordinate the management of the country’s debt, does not have an up to date debt position of states in the country. The agency gives the most recent available figure of total states’ domestic debt at $10.8billion as at December, 2013! We cannot bet against the country’s actual current debt figures being in excess of $70billion.
Many states continue to pile up debt without anyone holding the Executives of these states to account for how the proceeds of these loans are spent or to provide a feasible repayment cash flow. The political class seems unconcerned about the future economic consequences of their actions. It is pertinent to state that Greece did not get into the current debt situation in a day. It resulted from gradual accumulation of debt from various units of the country, similar to what is obtainable in Nigeria today.
Agreed, a large proportion of Nigeria’s debt is domestic. Somehow, someday, they have to be repaid. Depending on the terms of these debts, their repayment would represent a huge strain on the government finances. At the moment, almost all the states owe salaries and are finding it difficult to meet other recurrent obligations. There is no end in sight to oil prices problem and the dwindling oil revenue for the country. When and how are we going to stop the worsening unemployment, the exchange rate depreciation and capital flight in the face of this? What is the capacity of the economy to absorb additional shock beyond the current threshold?
Given our situation, it is appalling to listen to plans by government to add to the current debt stock. It seems Houses of Assembly just approve any loan proposition without giving a damn about the effect on future cash flow of their states. The same states are shamelessly asking for a bail out from the federal government. How do they expect this to be financed?
The Greece debt crisis is a wakeup call for Nigeria to instil fiscal discipline across board and ensure that politicians think beyond their terms in office. The federal government needs to strengthen the current legislation regulating the borrowings of the states and take more responsibilities in curbing non-productive debts at both the federal and state level. If we allow the country to hit a crisis point, relief from western nations, if any, would certainly be a ‘Greek gift’
As the people of Greece would realise in the weeks ahead, irrespective of the outcome of the referendum, there is no easy way out of this mess. We need to take heed now and curb our country’s debt to a sustainable level in the face of current economic realities, before we are faced with our own yes or no vote.
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if we are not at our Greek state,we are very close to it.That’s why Buhari must go after those who have robbed us because we need the monies now more than ever and the Reps both at state and federal have to stop or repeal laws that benefit only a few people like Lagos(where only 2-time democratic elected govs which are Tinubu and Fashola are being paid fat pensions )………..The suffering is much.