The study estimates the optimum level of reserve Nigeria will require to cushion the effect of any economic/financial crisis of the magnitude of the 2016 recession the country experienced and Covid-19 pandemic and examines the determinants of Nigeria’s default risk. The study covers the period 201Q1 to 2022Q4 Findings reveal that in the event of a crisis such as the 2016 economic recession that leads to about 8 per cent output loss Nigeria will require a minimum of US$12.35 billion in reserves to cushion the effect and will require much more (US$1061.85 billion) for a crisis such as the covid-19 pandemic that leads to about 12 per cent output loss. Also, the study showed the key driver of default risk to be fiscal deficit-GDP ratio. The country’s increasing fiscal deficit to GDP ratio increases the risk of defaulting in debt obligations. The study recommended ramping up of efforts to refine crude oil domestically as way of reserve accretion and reducing government borrowing to enhance the country’s risk outlook.
Key words: Default risk, economic crisis, fiscal deficit, output loss, reserves. JEL Codes: F34, G01 Article Language: EnglishTurkish
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