The Effect of Exchange Rate in Balance of Payment of Nigeria Economy

BACKGROUND OF THE STUDY                                        

       In any nation, there arem basically four objectives or goal of micro- economics policies.

i.     High level of employment

ii.    A reasonable stable price

iii.    Rapid economic growth and maintenance of equilibrium in the international balance of payment.

       The last objective (balance of payments stability is very crucial since then basic condition of the world community is one of the mutual independence. Again, there is not a country in the world that does not rely to some degree for it’s national well being on international trade and payment.

       The truth carried particular force for must developing countries whose trade and payment magnitudes are particularly large in relation to domestic economics activity Killick (1981-187)

       Since 1982, Nigeria has been experiencing a profound and sustained economic crisis used in her contemporary economic history indeed from the sailed on unsteadily and dangerously towards the devastating economic hurricane of the 1980’s . It can be said that the deeping current Nigerian economic crisis has in long term perspective spanned about two decades, since 1978. The crisis has in general been manifested in an acute problem of federal imbalance and accommodating monetary policy or expansion fiscal and monetary policy, fragile export base and weak non-oil export earning import depended production base and undiversified nature of the economy Obadan (2001 p242). Other problem include unprecedented increasing level of unemployment of the most energetic Imaginative, Innovative and highly educated and skilled section of the labour force. Low and decreasing level of capacity utilization in many others resulted into manufacturing Industries. All these and many others resulted into serious foreign exchange problem because exchange control were not applied consistently and the administered exchange late mechanism adopted led to the over evaluation of the naira exchange rate.

       Nigeria has been endangered by high rate of foreign exchange, Inflation and balance of payment disequilibrium which led to series of political unrest and social disorder such as 29.9% average annual growth rate in 1980-1984 as recorded by the total domestic credit to the economy. And most of the increase was attributed to net claims by government simultaneously, two debit Inflation at a mean yearly rate of 20.2% was registered, clear evidence perhaps, in support of the monetarists proposition. But the Inflation in 1984, which stood at almost 40% is Imported goods and services imposed by Inadequate foreign exchange earning.

       A derivation of the steep fall in crude oil price eqwaikide (et al 1994) before the Introduction of (SAP in 1986, the Nigerian economy was obviously distress for external reserve was high while the balance of payment area pushed the country to an economically disadvantaged position. Real out put declined and hence Import which in turn resulted to the decline in foreign exchange earning as such SAP was introduce in 1986 to eliminate there observed distortion in the economy. That’s why structural adjustment programme (SAP) getting price has foreign exchange rate reform as it’s central focus (FRM) in pursuit of this, the second tier foreign exchange 

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