Nigerian Journal of Banking and Financial Issues (NJBFI)
MONETARY TIGHTENING AND DEVELOPMENT FINANCE FLOWS IN NIGERIA
Keywords:
Monetary Tightening, Development Finance, MPR, ODA,, ARDL, Money Supply, NigeriaAbstract
This study investigates the effect of monetary tightening on development finance flows in Nigeria (1986-2023). Annual data on monetary tightening is proxied by Monetary Policy Rate (MPR), Lending Rate (LR), Cash Reserve Ratio (CRR), Inflation (INFL), and Broad Money Supply (M2) as well as Credit to the Private Sector (CPS) and Exchange Rate (EXCR), included to reflect domestic financial depth and external sector fluctuation were sourced from the Central Bank of Nigeria (CBN) while Official Development Assistance (ODA) measure with development finance flows was culled from World Bank.
The results reveal that M2 (at second lag) exerts a statistically significant negative effect on ODA, with a coefficient of -3.0521 and a p-value of 0.0880, meaning that an increase in money supply is associated with a subsequent decline in ODA. Conversely, CRR, LR, MPR, and INFL all exhibited an insignificant impact on ODA. Similarly, CPS and EXCR also remained insignificant, reinforcing the notion that domestic credit dynamics and exchange fluctuations may not be primary determinants of aid flows unless tied to broader institutional or policy reforms.
The study concludes that monetary tightening through liquidity expansion influences development finance in Nigeria. It recommends aligning monetary interventions with aid disbursement cycles and promoting targeted liquidity policies that support macroeconomic stability without undermining external concessional financing.
