Greece has become the first developed economy to default on loan repayments to the International Monetary Fund.
The country joins some of Africa’s failed states that include Somalia, Sudan and Zimbabwe.
The European country defaulted on a 1.7 billion US dollar loan repayment to the IMF, a move that could further send panic to citizens set to vote on whether or not to approve creditors’ bailout agreement terms this Sunday.
Dylan Bester from Saxo Capital Markets said, the closure of the country’s capital markets would also affect the country’s recovery and quick facilitation of financial flows.
“The country’s GDP has not been great and they have been posting around a negative point six per cent in the past few years. Any move towards the country’s local currency would severely impact on the economy,” he said.
Some analysts predict that Greece might consider pulling out of the Eurozone and start using its local currency - the drachma. This move, it is feared will see the country's currency devaluing to the point where it becomes worthless similar to what happened in Zimbabwe.
“If they move to their local currency, it is going to devalue, which will not help the situation for the first developed economy to default. For the country to survive a weak currency, they will have to adopt a lot more austerity measures."
Bester added that if citizens vote yes for the referendum over the weekend, there will likely be an increase on luxury taxes of companies that are currently based in Cyprus and Greece itself. He added that he had worries about the country's long-term prospects.
“I am a bit worried about Greece in the long term especially over the possibility of moving into own currency. For their own safety, their jeopardising the longevity of one currency, they probably have to stay in the Eurozone in order to stay competitive and having a good fiscus going forward,” warned Bester.
“The country’s citizens are feeling the pinch, it is devastating having capital controls with having a limit of 60 euros withdrawal per day which also affects even tourists,” he added.