Re-investigating the Effect of Monetary Approach to Balance of Payment Adjustment in Nigeria
Keywords:
Monetary policy, Economic growth, Balance of payment, Money supply, ARDL approach, Nigeria, MPR, Global pandemic, CBN, InvestmentAbstract
The study explored the effect of the monetary approach to the balance of payments adjustment as a result of the persistent imbalances in the country’s Balance of payments and to find out its inherent causes in Nigeria using Autoregressive distributed lag approach. The data used in the study span from 1980 to 2019 originates from the Central Bank of Nigeria Statistical Bulletin and the National Bureau of statistics. Evidence from the ARDL Bound test approach revealed that monetary approach (broad money supply and exchange rate) impacts on Balance of payment, hence supports the monetary approach to BOP adjustment. Also, the results showed that trade-balances effect BOP adjustments but ineffective in correcting the longed experienced BOP deficits due to the country’s over-reliance in imported goods and oil revenue. The study concludes that the monetary variables impacts on BOP adjustment but ineffective in correcting Nigeria’s BOP deficits. Based on the above, the study recommends that monetary authorities should look inwards to stabilize the country’s BOP. While doing so, she should endeavour to shave the supply of broad money moderately to suppress inflationary pressures attributable to it. CBN should also cut down the key policy rate to boost investment, aggregate demand and growth at large. Finally, the CBN should sustain its policy that circumscribes forex sales for imports of goods that can be produced locally to encourage infant industries which in turn boost local production and reduce the balance of payments deficits through an increase in exports. Boost of the foreign external reserves to avoid the risk of over-relying on oil is which currently crashing coupled with the effect of the global pandemic.
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