Do Exchange Rate Fluctuations Amplify Multidimensional Poverty? The Moderating Role of Fiscal Sustainability in Nigeria

Toyin Joseph Olufolahan; Fisayo Fagbemi

doi:10.55047/transekonomika.v6i4.1235

Authors

Toyin Joseph Olufolahan Department of Economics, Faculty of Social and Management Sciences, Federal University of Agriculture and Development Studies, Iragbiji, Osun State, Nigeria
Fisayo Fagbemi* Department of Economic and Social Research, National Institute for Legislative and Democratic Studies, National Assembly, Abuja, Nigeria https://orcid.org/0000-0002-5742-1514

DOI:

https://doi.org/10.55047/transekonomika.v6i4.1235

Keywords:

Asymmetric (NARDL) Effects, Exchange Rate Depreciation, Fiscal Sustainability, Moderation Inversion, Multidimensional Poverty

Abstract

Backgrounds: More than one billion people in low- and middle-income countries experience multidimensional poverty, yet the macroeconomic forces driving it remain insufficiently understood, particularly in Nigeria following the 2023 exchange rate reforms.

Objectives: This study examines the effect of exchange rate fluctuations on multidimensional poverty and investigates whether fiscal sustainability moderates this relationship.

Methods: Using annual data over the period 1990-2025, the study estimates a Nonlinear Autoregressive Distributed Lag (NARDL) model with a fiscal sustainability interaction term, while measuring welfare using the Alkire-Foster Multidimensional Poverty Index (MPI).

Results: Results reveal significant asymmetric effects: exchange rate depreciation increases multidimensional poverty by nearly three times more than the poverty-reducing effect of an equivalent appreciation. Fiscal sustainability independently lowers poverty; however, its interaction with exchange rate depreciation is positive and statistically significant, indicating that depreciation worsens poverty nearly threefold compared to appreciation, and fiscal fragility amplifies that effect instead of easing it. The error-correction results further show that only about 58% of short-run disequilibrium is corrected annually, implying persistent welfare losses following major exchange rate shocks.

Conclusion: The study posits that combining exchange rate stabilisation with broad-based fiscal reforms that strengthen non-oil revenues is central for protecting social expenditure to achieve sustained reductions in multidimensional poverty.

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