THE IMPACT OF EXCHANGE RATE ON EXTERNAL DEBT IN NIGERIA
Abstract
Nigeria external debt over the years is relatively high and the exchange rate of the naira had not been favorable recently. This study examined the impact of exchange rate on external debt in Nigeria using the Autoregressive Distributed Lag (ARDL) estimation technique Annual time series data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin (various issues) and the Word Development Indicator (2024) respectively was used on the selected variables: exchange rate, external debt, government expenditure, foreign reserve, external debt servicing, interest rate and inflation. The results from the long run and short run estimation revealed that exchange rate and government expenditure had direct and significant impact on external debt in Nigeria. Also, inflation rate had negative and significant impact on external debt in Nigeria during the period of study. The result of the ECM shows the correct negative sign and relative speed of adjustment whenever disequilibrium occurs within the period. The study therefore recommended that government should put in place strict economic policies with emphasis on stabilizing the naira against the currencies of major trading partners. This is because the increase in the Country exchange rate consequently increases external debt accumulation and its burden.
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