International Journal of Research in Economics and Social Sciences
Year : 2016, Volume : 6, Issue : 4
First page : ( 19) Last page : ( 34)
Online ISSN : 2249-7382.

Oil Price Slump and Exchange Rate Management in Nigeria

Balami Dahiru Hassan¹, Ahmed Funmilola Fausat¹, Balami Hassan Dahiru²

¹Department of Economics, University of Maiduguri, Borno State

²Department of Accounting, University of Maiduguri, Borno State

Online published on 20 April, 2017.

Abstract

This paper examined global oil price slump and exchange rate management in Nigeria. Both supply and demand factors have played a role in the sharp price decline since June 2014. Risk to financial stability has increased in Nigeria particularly the foreign exchange market given global financial linkages and the slow accretion to the foreign reserve. Crude oil price exerted a significant impact on the dollar/naira exchange rate with a significant t-value and coefficient consistent with expectation. Generally, changes in exchange rate needed to be guided by the objective of aligning the exchange with fundamentals to preserve external competitiveness. This is to avoid the risk of a forced adjustment similar to that experienced in the mid 1980s. In response, Nigeria as an oil exporter and import dependent economy, aimed at smoothening out the adjustments by curtai\ling fiscal spending abruptly. The fall in oil prices provided an opportunity for the country to decrease energy subsidies and use the savings towards targeted transfers. These developments demand increased vigilance on and synergy of economic variables for all round growth and development. Also, the need to diversify the economy among other policy measures cannot be overemphasised.

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