EXCHANGE RATE VARIATION AND BALANCE OF PAYMENT POSITION IN THE NIGERIAN ECONOMY

Abstract

This study was carried out to examine the impact of exchange rate variation and balance of payment position in Nigeria. This study used time series data (secondary data) for regression analysis. The data were sourced from World Development Indicators (2024) and Central Bank of Nigeria Statistical Bulleting (2023). The data cover the period between 1986 and 2022. This period was chosen based on the availability of data in the study period. The study used the following variables: Balance of payment (BOP) measured in N million, Inflation rate measured by consumer prices (annual %), Broad money supply as a proxy for monetary policy, Exchange rate measured by LCU per US$, period average & Government Capital Expenditure measured in N billion. The method of analysis adopted is the autoregressive distributed lag (ARDL) estimation technique. The result showed that exchange rate has a negative and significant (p<0.05) impact on balance of payment position in Nigeria. Government capital expenditure has an insignificant (P>0.05) positive impact on balance of payments in Nigeria. Broad money supply as a prosy for monetary policy has an insignificant positive impact on balance of payments in Nigeria. The result also showed that inflation has a positive and insignificant impact on balance of payment during the period under review. Based on the findings, the following could be recommended that the Central Bank of Nigeria should focus on maintaining flexible and stable exchange rates, as it has a negative and significant impact on balance of payments. Government capital expenditure should be carefully planned and executed to ensure that it is targeted towards investments that promote exports and reduce imports. The Central Bank of Nigeria should maintain a stable inflation rate to ensure that it improves the balance of payment position of the country. The government should diversify the economy by promoting non-oil exports and reducing dependence on oil exports. The government should review and adjust its monetary policies especially money supply to ensure that the policies improves the balance of payment position of the country.