FISCAL DOMINANCE AND EXCHANGE RATE STABILITY IN NIGERIA
Abstract
Utilizing the Ordinary Least Squares regression technique, the study examined how Nigeria\'s fiscal dominance and exchange rate stability interacted. It specifically focused on the effects of inflation, government debt, and budget deficits on the exchange rate, using secondary data gathered from the Central Bank of Nigeria\'s statistical bulletin between 1990 and 2023. The results of the OLS analysis indicated that the exchange rate significantly influences the fiscal dominance components of public debt and deficits. However, the correlations between the two differ: public debt negatively impacts the exchange rate, while fiscal deficits have a positive effect. Additionally, the inflation rate was found to positively affect the exchange rate in a fairly significant manner. The study concluded with compelling evidence that Nigeria\'s exchange rate stability is greatly influenced by fiscal dominance. Among other recommendations, it is advised that the government work to reduce the level of public debt, as excessive debt may increase the risk of fiscal dominance and adversely affect Nigeria\'s exchange rate.