Twin Deficits in Nigeria: Where Does the Exchange Rate Fit?

Authors

G. K. Sanni, Central Bank of Nigeria
B. A. Gaiya, Central Bank of Nigeria
V. O. Aliyu, Central Bank of Nigeria
S. N. Okafor, Central Bank of Nigeria

Publisher

Central Bank of Nigeria

Keywords

Exchange Rate, Fiscal Deficit, Current Account Deficit

Abstract

This study investigates the twin deficits hypothesis for Nigeria while accounting for the role of exchange rate. The study utilises annual data series spanning 1981 to 2019 and the ARDL modelling technique for the estimations. Among other findings, the study reveals the existence of a bi-directional causation between current account deficit and fiscal deficit. Similarly, a positive relationship was seen to exist between current account balance and fiscal balance in both the short-run and long-run during periods of exchange rate appreciation and depreciation, thus confirming the role of exchange rate in the twin deficit hypothesis in Nigeria. The study recommends the introduction of a debt ceiling for governments, an improvement in the efforts towards non-oil export promotion, minimising imports and improving revenue generation.

Author Bio

The authors are staff of the Research Department, Central Bank of Nigeria, Abuja.

Publication Title

CBN Economic and Financial Review

Issue

1

Volume

60

First Page

67

Last Page

91

Classification-JEL

F31, F32, H62

Recommended Citation

Sanni, G. K., Gaiya, B. A., Ipinjolu, O. A., Aliyu, V. O., & Okafor, S. N. (2022). Twin Deficits in Nigeria: Where Does the Exchange Rate Fit? CBN Economic and Financial Review, 60(1). 67 - 91.