IMPACT OF SELECTED MACROECONOMIC VARIABLES ON FOREIGN RESERVES IN NIGERIA

This study empirically examined the impact of selected macroeconomic variables on Nigeria’s foreign reserves. Quarterly time series data spanning from 1981Q1 to 2021Q4, covering both the pre-democracy 1981Q1 -19984 and democratic 1999Q1 -2021Q4 periods, were utilized for the analysis. The econometric model incorporates variables such as interest rate (INT), inflation rate (INF), exchange rate (EXR), oil export (OEP), non-oil export (NOE), and gross domestic product (GDP) as independent variables, with foreign reserves as the dependent variable. The ARDL bounds methodology for co-integration analysis was employed. The unit root test results indicate that most variables are stationary at the first difference, suggesting 1(1) integrations, except for the exchange rate (EXR), which is stationary at level 1(0). Co-integration analysis confirms long-run relationships between the macroeconomic variables and foreign reserves in both periods. The findings revealed that in the pre-democratic period, exchange rate, oil export, oil price, and non-oil export significantly impacted Nigeria's foreign reserves positively, while inflation rate had an inverse but insignificant effect in the long run. Similar results were observed in the democratic period, with the exchange rate, interest rate, and oil price impacted on Nigeria's foreign reserves. In conclusion, the study underscores the significance of exchange rate, GDP, oil and non-oil exports, and oil price fluctuations as major determinants of Nigeria's foreign reserves in both pre-democratic and democratic periods. Based on the findings, the study recommends among others, the government and monetary authority should initiate macroeconomic policies like lowering interest rate to promote and encourage economic activities through increased investments which will improve Nigeria’s GDP to enhance the performance of the country's reserves.