ABSTRACT
The study examines the relationship between Nigeria's foreign reserve and external debt. Descriptive and correlation analyses were used to evaluate the initial analysis of the data. Ordinary Least Squares was adopted for the regression.
The outcome of the study revealed that there is a negative and significant relationship between external debt and foreign reserves. There is a positive and insignificant relationship between external debt servicing and foreign reserves. Exchange rate has a positive and significant impact on foreign reserves.
The study however recommends that in order to gain from external debt and reduce the debt burden, the Nigerian government must secure political and economic stability. Nigeria's foreign reserves will boost as a result. Rather than for political or social grounds, the Nigerian government should take loans abroad mainly for economic purposes. This would boost Nigeria's productivity and help the country's foreign exchange reserves. Furthermore, the Nigerian government should work to maintain exchange rate stability and prevent the devaluation of the naira. An improvement in foreign reserve will be brought about by a favorable balance of payments and a rise in foreign exchange revenues. The Nigeria Debt Management Office should establish sound standards for public loans that stipulate the objective, timeframe, mediation costs, requirements and commitments for moratoria, among other things, as well as the circumstances under which the government can accept and guarantee loans, especially for external debt. It is crucial to use a new and improved technique to assign fixed interest payments and volatile amortization schemes. To avoid long-term misappropriation, funds from external debt must be directed toward significant initiatives with large returns. Finally, in order to prevent the debt overhang issue, the Nigerian government should push for sustainable debt relief. The impact on Nigeria's foreign reserves will be significant.
