Background of the Study
Government spending plays a pivotal role in shaping macroeconomic outcomes, including exchange rate stability. In Nigeria, fiscal policies—especially government expenditures—affect economic fundamentals such as inflation, interest rates, and the balance of payments, which in turn influence exchange rate movements (Chukwuma, 2023). Expansive government spending, particularly when financed by borrowing or money creation, can lead to higher inflation and depreciate the domestic currency. Conversely, prudent fiscal management may stabilize exchange rates by fostering a conducive environment for economic growth. Recent studies have explored how fiscal deficits and public debt affect the exchange rate, highlighting the sensitive interplay between fiscal imbalances and currency volatility (Oladipo, 2024). The Nigerian economy, characterized by fluctuating oil revenues and external shocks, is particularly vulnerable to such dynamics. Government spending that exceeds revenue generation can widen fiscal deficits, trigger inflationary pressures, and ultimately lead to exchange rate depreciation. This study examines the causal relationship between government spending and exchange rate movements in Nigeria, seeking to determine whether fiscal expansion contributes to volatility in the foreign exchange market. By employing econometric models and analyzing time-series data from recent fiscal years, the research aims to isolate the effects of government expenditure from other macroeconomic factors. This analysis will contribute to a deeper understanding of fiscal policy transmission mechanisms and offer insights for policymakers seeking to achieve exchange rate stability through balanced fiscal management (Adewale, 2025).
Statement of the Problem
Nigeria’s exchange rate has been highly volatile in recent years, a situation often attributed to unsustainable levels of government spending. Excessive public expenditure, combined with revenue shortfalls, has led to fiscal deficits that exert downward pressure on the domestic currency (Chukwuma, 2023). Such fiscal imbalances not only undermine investor confidence but also fuel inflation and erode the purchasing power of households. The resulting depreciation of the naira complicates external trade and increases the cost of imported goods, further straining the economy. Despite efforts to contain spending, government expenditure continues to be a significant factor affecting exchange rate stability. The problem is compounded by the lack of a coordinated fiscal framework that aligns spending with revenue generation and macroeconomic objectives (Oladipo, 2024). This study aims to analyze the relationship between government spending and exchange rate movements, identifying the key channels through which fiscal imbalances impact currency stability. It will assess whether periods of fiscal expansion are followed by significant depreciations of the naira and determine the extent to which external factors mediate this relationship. Addressing these issues is critical for devising fiscal strategies that can mitigate exchange rate volatility and enhance macroeconomic stability.
Objectives of the Study
Research Questions
Research Hypotheses
Scope and Limitations of the Study
The study focuses on macroeconomic data from Nigerian fiscal years over the past decade. Limitations include the challenge of isolating government spending effects from external economic shocks.
Definitions of Terms
• Government Spending: Public expenditure by the government on goods, services, and capital projects.
• Exchange Rate Movements: Fluctuations in the value of a country's currency relative to foreign currencies.
• Fiscal Deficit: The shortfall when government spending exceeds revenue.
• Currency Volatility: The degree of variation in the exchange rate over time.
ABSTRACT
The visco-elastic properties of Khayasenegalensis (KS gum), Anacardium occidentale (AO gum) and Acacia senegal (AS gum) blends i...
ABSTRACT
This study assessed the availability and used of Instructional Materials by secondary school Economics teacher...
Background of the Study
In the age of technological advancement, Artificial Intelligence (AI) has emerged as a game-changer...
Background of the Study
Adverse drug reactions (ADRs) are unintended and harmful effects of medications...
Background of the Study
Diabetic foot ulcers (DFUs) are a common and debilitating complication of diabetes mellitus, con...
Background of the Study
Campus navigation is an essential aspect of ensuring that students, faculty, and visitors can effi...
Abstract
The boom in the use of social media in our time has no doubt brought a lot alteration in different language con...
Background of the Study
University library cataloging is an essential function that underpins academic research and resour...
Background of the Study
Clinical performance is a key determinant of nursing students’ readiness for professional practice, influen...
Background of the Study
Market deregulation has emerged as a significant force reshaping the financial landscape, particul...