The impact off the International Monetary Fund (IMF) stabilization programme has been a subject of great controversies. This study therefore investigated the impact of policy recommendations contained in the IMF stabilization Programme on the development of Nigeria’s external sector. In specific terms, the study examined the impact of fiscal deficit, exchange rate, foreign direct investment (FDI), degree of trade openness, interest rate and bank credit to the domestic economy on two indicators of external sector development namely; balance of payments (BOPs) and external reserves. A variety of analystical techniques including Phillips-Perron unit root test, autoregressive distributed lag (ARDL) model, error correction model (ECM) and Granger causality test was applied on annual time-series data from 1986 to 2021. The findings indicated that fiscal deficit has significant negative impact on balance of payments while exchange rate and interest rate have insignificant negative impact on BOPs. Also, degree of trade openness has significant positive impact on BOPs while FDI and bank credit to the domestic economy have insignificant positive impact on BOPs performance. Similarly, fiscal deficit, exchange rate and interest rate have insignificant negative impact on external reserves while foreign direct investment, degree of trade openness and bank credit to the domestic economy have insignificant positive impact on external reserves. In line with the IMF recommendations, the study recommended that the Nigerian government should reduce the size of its fiscal deficit; encourage the inflow of FDI and open up the economy to international trade. However, against the IMF recommendations, the study recommended that a managed free floating exchange rate policy should be adopted while the interest rate should be lowered. It is also recommended that bank credit to the private sector should be expanded.
Keywords: IMF, programme external, sector development
