Substantially, adverse effects of U.S. government’s default for even a short time would preclude the government from honouring all of its obligations including paying employees’ salaries and wages, social security benefits, civil service retirement, contractual services and supplies.

Thus, Nigeria would have to queue up like other countries which are foreign holders of U.S. Treasury securities since President Obama has said that default might not be avoided should Congress fail to adjust upwards the debt ceiling. This, it is contended, might affect the economy of Nigeria as she may not be able to meet most of her fiscal and budgetary obligations in the short-term as she depends heavily on oil exports.

It is not as if there are no emergency measures which the U.S. government can take in the event of Congress not increasing the debt limit/ceiling. It is, however, not clear what the financial markets would do in certain situations. The U.S. Treasury might prioritize which obligations to pay while other obligations would go into unpaid queue. In other words, the U.S. federal government’s inability to borrow or use other means of financing implies that payment of some or all bills or obligations would be delayed. This unfolding scenario might expose the U.S. to inability to stand behind its legal obligations and commitments. If this happens, then, it is likely that the Nigerian economy will suffer hiccup.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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