An assessment of currency devaluation’s economic consequences in Nigeria: Evidence from fiscal policy responses (2000–2020)
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Background of the Study :
Currency devaluation, the deliberate reduction in the value of a country’s currency, is often used as a policy tool to boost export competitiveness and manage balance-of-payments issues. In Nigeria, episodes of currency devaluation have been met with various fiscal policy responses between 2000 and 2020. These responses include adjustments in public expenditure, taxation reforms, and subsidy cuts aimed at mitigating inflationary pressures and stabilizing the economy (Okonkwo, 2023). While devaluation can improve export performance by making domestic goods cheaper abroad, it can also lead to higher import costs, contributing to inflation and reduced purchasing power (Adeniyi, 2024). This study examines the economic consequences of currency devaluation in Nigeria by analyzing fiscal policy responses, inflation trends, and overall economic performance. The goal is to understand the trade-offs involved in devaluation and provide recommendations to balance export gains with domestic economic stability (Chukwu, 2025).
Statement of the Problem
Currency devaluation in Nigeria has produced mixed economic outcomes. Although it may boost exports, the resulting increase in import prices has often led to inflation and diminished consumer purchasing power. Fiscal policy responses have not consistently managed these adverse effects, leading to overall economic instability. This study seeks to assess the consequences of currency devaluation on key economic indicators and evaluate the effectiveness of fiscal measures in mitigating its negative impacts. Identifying the shortcomings of current responses is essential for formulating strategies that can achieve a better balance between promoting exports and maintaining domestic price stability (Okonkwo, 2023; Adeniyi, 2024).
Objectives of the Study:
1. To evaluate the economic impact of currency devaluation on inflation and growth.
2. To assess the effectiveness of fiscal policy responses.
3. To propose measures for mitigating adverse effects.
Research Questions:
1. What are the economic consequences of currency devaluation in Nigeria?
2. How effective are fiscal policy responses in controlling inflation?
3. What strategies can balance export competitiveness with domestic stability?
Research Hypotheses:
1. H1: Currency devaluation increases inflation.
2. H2: Fiscal policy responses mitigate, but do not fully offset, negative impacts.
3. H3: Improved fiscal measures can stabilize domestic prices.
Significance of the Study (100 words):
This study examines the economic consequences of currency devaluation in Nigeria, focusing on the effectiveness of fiscal policy responses. Its findings will assist policymakers in designing strategies that minimize inflationary effects while harnessing export benefits, thereby promoting overall economic stability (Chukwu, 2025).
Scope and Limitations of the Study:
The study focuses on Nigeria from 2000–2020, analyzing fiscal policy responses to currency devaluation using macroeconomic data. Limitations include external market influences.
Definitions of Terms:
1. Currency Devaluation: A deliberate downward adjustment of a currency’s value.
2. Fiscal Policy Responses: Government measures to adjust public spending and taxation in response to economic conditions.
3. Inflation: The rate at which the general level of prices for goods and services is rising.
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