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Bullion

Keywords

Illiquidity, Bankruptcy, Conditional solvency, Sovereign, Quasi-sovereign, Fiscal stress, Resolution mechanisms

Abstract

Governments like businesses, are sometimes faced with financial constraints, which impede it to carry out its functions. Thus, states, like households and firms, sometimes need to borrow to finance its activities. Unlike government revenue, expenditures are counter-cyclical and debts incurred have to be repaid at some future date, based on a repayment schedule and pre-determined terms. ln the event of a debt crisis, default or liquidity situation, unlike households and companies, the effects are more pronounced for sovereign states mainly for two reasons. This paper examines the events that trigger sovereign insolvency and likely measures of resolutions. lt acknowledges the absence of a one-size-fits-all approach to fiscal distress resolution. lt also examines some fiscal indicators for Nigeria through a ratio-based analysis in an attempt to discern the existence or otherwise of build-up of liquidity and/or insolvency features.

Author Bio

The author is a staff of Research Department, Central Bank of Nigeria.

Publication Title

CBN Bullion.

Issue

2 - 1

Volume

37 - 38

Included in

Economics Commons

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