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Foreign Reserve Accumulation and Balance of Payment Sustainability in Nigeria

Ekere, Edobot Udo Chukwu Sancho N. PhD

Abstract

This study investigated the impact of foreign reserve accumulation on balance of payment sustainability in Nigeria over the period 1990 to 2025. Foreign Reserve, Reserve Growth Rate, Reserve and Adequacy Ratio, was used as a stand in for foreign reserve accumulation while balance of payment was used to proxy balance of payment sustainability. Data were obtained from the World Banks World Development Indicator , statistical Bulletin 2025. The study employed the Augmented Dickey Fuller unit root approach to ascertain if the variables are stationarity or not. Based on the outcome, it was revealed that some of the variables were stationarity at level, i(o), while others became stationary after firs differencing (i(1). On this basis, the study adopted the Auto-regressive Distributive Lag bound test to determine long-run relationship between the variables. The result from the bound test showed that foreign reserve accumulation is correlated with balance g payment in the long-run. Further findings revealed that reserve growth rate had a positive and significant relationship with balance of payment while reserve adequacy ratio exact a negative but significant relationship with balance of payment while foreign reserve reported a positive but insignificant relationship with balance of payment Thus, it was concluded that foreign reserve accumulation had a considerable impact on balance of payment in Nigeria. It was therefore, recommended amongst other that the Central Bank of Nigeria should strengthen policies that promote sustainable accumulation and effective management of foreign reserves by maintaining prudent monetary policies, stabilizing exchange rates, and enhancing external sector monitoring.

Keywords

Foreign ReserveReserve Growth RateReserve Adequacy RatioBalance of payment

References

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