The Nexus amid Government Spending and Foreign Exchange Reserves in Nigeria
Abstract
Nigeria and many other primary product-based export economies struggle from having
enough foreign exchange reserves because it helps them meet their international financial obligations,
which include paying for goods and services overseas and maintaining the value of their currency.
Sequel to this, this study evaluates the nexus amid government spending and foreign exchange reserves
in Nigeria. The study employed VECM to analysis the data obtained from Central Bank of Nigeria and
World Development Indicators, 2021 covering 1986-2021. The findings of the study revealed there is
cointegration between foreign exchange reserves and other employed independent variables. The
coefficient of government spending has a detrimental impact on FORES, as was indicated. Accordingly,
a 0.26% decrease in FORES will result from a percentage increase in government spending. The study
recommends that efforts should be made to expand revenue-generating strategies while also reducing
spending. The current administration should be urged to prioritize and carry out measures that will
broaden the tax base, particularly to include economic agents in the informal sector who may be eligible
and contribute to increasing tax revenue, in light of the issues raised by the ongoing negative budget
balance. encouragement of growth and development driven by the private sector.
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