A STUDY ON THE IMPACT OF EXCHANGE RATE FLUCTUATIONS ON NIGERIA’S BALANCE OF PAYMENT

This study investigates the impact of exchange rate fluctuations on Nigeria’s balance of payments, with the objective of understanding the extent to which instability in exchange rates influences the country’s external trade performance and overall macroeconomic balance. Over the years, Nigeria has experienced persistent volatility in its foreign exchange market, influenced by both internal policy dynamics and external shocks, particularly fluctuations in global oil prices. The study is grounded in economic theories such as the Purchasing Power Parity (PPP), the Elasticity Approach, and the Monetary Approach to Balance of Payments, providing a comprehensive theoretical and conceptual foundation. Using a mixed-method approach, the study draws on time series data sourced from the Central Bank of Nigeria, World Bank, and International Monetary Fund. Statistical tools such as regression analysis and correlation techniques were applied to examine the relationship between exchange rate movements and components of the balance of payments, particularly current account and capital account balances. Empirical findings reveal that exchange rate instability has a significant and often adverse effect on Nigeria’s trade balance, leading to import-export imbalances and pressures on external reserves. Moreover, periods of significant depreciation were associated with capital flight and speculative attacks on the naira. The study highlights the importance of exchange rate stability in maintaining external sector equilibrium and recommends that Nigerian policymakers adopt a hybrid exchange rate regime that allows for market responsiveness while minimizing excessive volatility. Strengthening foreign exchange management institutions, diversifying the export base, and improving monetary coordination are essential for improving Nigeria’s balance of payments position in the long term.