THE IMPACT OF EXCHANGE RATE FLUCTUATIONS ON NIGERIA'S BALANCE OF PAYMENTS

This study investigates the effect of exchange rate fluctuations on Nigeria’s balance of payments (BOP). Employing an ex-post facto research design, the study utilizes secondary data on import rate, export rate, and GDP spanning relevant years, and applies the two-stage least squares method alongside Granger causality tests to examine causal relationships. Findings reveal that exchange rate fluctuations have a positive but statistically non-significant impact on Nigeria’s balance of payments, with a coefficient of 0.082 (t-value = 0.304, p = 0.764). The model explains 72.3% of variations in the dependent variable, adjusted to 61.2% when accounting for control variables such as export and import rates. The study attributes the vulnerability of Nigeria’s balance of payments to the dominance of the oil sector and insufficient diversification into other sectors. Based on these findings, the study recommends that monetary policy authorities adopt a consistent and domestically-tailored exchange rate policy to ensure a favorable balance of payments position and reduce vulnerability to external shocks