The Relationship Between Exchange Rate Fluctuations and Debt Recovery Efforts in Nigeria

Patimi Ebikeiseye; Pullah Ebipre

doi:10.59890/ijfbm.v3i2.36

Authors

Patimi Ebikeiseye Isaac Jasper Boro College of Education Sagbama Bayelsa State
Pullah Ebipre Isaac Jasper Boro College of Education Sagbama Bayelsa State

DOI:

https://doi.org/10.59890/ijfbm.v3i2.36

Keywords:

Exchange Rate Fluctuations, Debt Recovery, Trade Performance, Oscillating Convergence, External Debt Management

Abstract

The study examined the relationship between exchange rate fluctuations and debt recovery efforts in Nigeria. Adopting the debt overhang theory, debt servicing (DSVt) was specified as a function of exchange rate (EXRt), government revenue (GRVt), government capital expenditure (GCEt), and inflation rate (INFt), while interest rate (INTt) was chosen as a control variable. Data of the variables were obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin. Following unit root and cointegration tests, the autoregressive distribution lag (ARDL) model was estimated to determine the long-run equilibrium relationship and short-run parameters. The results revealed a significant positive relationship between the exchange rate and debt servicing and implied that as the exchange rate increases, the cost of servicing external debt also rises in Nigeria. Moreover, in the short run, the study identified oscillating convergence. This suggested that debt servicing dynamics adjust toward equilibrium over time, though not in a smooth manner. Oscillating convergence implies that there are short-term fluctuations before reaching a stable long-term equilibrium. The study concluded that external debt management in Nigeria is significantly influenced by exchange rate fluctuations, fiscal policies, and inflation dynamics. Among others, the study recommended that the government prioritize fiscal discipline, ensuring that public spending is aligned with long-term economic growth and debt sustainability in Nigeria.

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