Financial sector reforms, macroeconomic instability and the order of economic liberalization: The evidence from Nigeria

Abstract

Financial sector reforms began in Nigeria with the deregulation of interest rates in August 1987. Since then, far-reaching policy measures including the chartering of new banks, reform of the capital market and a move from direct to indirect monetary controls have been undertaken. The results from the implementation of the reforms have been disappointing, however. Bank insolvency, high inflation and excessively high interest rates have become common phenomena in the economy. This study uses discriminant analysis to demonstrate that the health of banks deteriorated following reforms in Nigeria. The study cautiously identifies a wrong sequencing process as a major factor in the poor performance of the financial sector reforms, but agrees that a lot more research needs to be done in this area.

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