Impact of external debt on fiscal stability and economic development Case Study

Impact of external debt on fiscal stability and economic development. a of Nigeria - Case Study Example Following nearly 16 years of military rule, a new constitution was adopted in 1999, and a peaceful transition to civilian government was completed. The president faces the daunting task of rebuilding a petroleum-based economy, whose revenues have been squandered through corruption and mismanagement, and institutionalizing democracy. In addition, the NEW administration must defuse longstanding ethnic and religious tensions, if it is to build a sound foundation for economic growth and political stability. Despite some irregularities, the April 2003 elections marked the first civilian transfer of power in Nigeria's history. (Country Profile: Nigeria, Cia.gov) Although some gains were made because of this return of revenue to the regions of derivation, the proportions were actually less than 20% of national revenue totals so in fact the regions experienced very little financial or budgetary momentum, setting up an easy move toward hyper-centralisation of the revenue-sharing system during the era of military rule from 1966-1979. (Suberu, 2002). By the early 1980's Nigeria had become very dependent on oil, which accounted for 96% of export earnings, 81% of government earnings and 22% of GDP (Ogbe, 1992). Oil wealth increased dependence on imported goods while local industries were ignored. Consumption of imported goods became the order of the day. The 1981 oil glut cau... The 1981 oil glut caused the economy to suffer from price distortion and an overvalued currency. Heavy dependence on importation left the government unprepared to deal with a prolonged period of depressed international oil prices. The sharp decline in oil prices affected domestic production, leading to deterioration in the balance of payments and government finances. The government financed the shortfalls by borrowing, drawing down on external reserves, and amassing of debts on external trade payments. Chapter 2 Literature Review (Historical View) The president had shown greater commitment to implementing liberal economic reforms in his second and last term in office, but still faces a huge task to if he is to turn around the corruption ridden, heavily indebted and oil dependent economy. Mr. Obasanjo may also pursue controversial reforms, such as constitutional changes, to shake up Nigeria's crisis-prone political system. However, these are likely to be resisted by powerful groups with vested interests in maintaining the status quo. Given the background of ethnic and religious divisions, widespread poverty and political disillusionment, there is a risk that the reform drive could destabilize the country if not properly managed. However, assuming that the president is able to navigate Nigeria's turbulent political waters and achieve some progress with reform-against the background of ongoing growth in the oil and gas sector. Political outlook - Legislation had been presented to the National Assembly seeking to curb the powers of the trade unions. Given the controversial nature of the proposed reform, the government may have opened a battle with the unions that proves difficult to win while diverting energy from