The Central Bank of Nigeria (CBN) has urged state governments to reduce their reliance on overdrafts and short-term financing as the country prepares to transition to an inflation-targeting monetary framework. In a statement released on Sunday, Deputy Governor for Economic Policy Dr. Muhammad Abdullahi conveyed this advice during a meeting with sub-national officials organized by the Nigeria Governors Forum (NGF). He cautioned that unchecked borrowing at the state level could undermine the central bank’s efforts to stabilize inflation expectations.
Dr. Abdullahi encouraged governors, finance commissioners, and other fiscal officials to align their borrowing decisions with debt sustainability thresholds. He emphasized the importance of improving the realism of budgets and revenue forecasts, prioritizing spending, and synchronizing fiscal calendars with prevailing macroeconomic conditions. He stated, “The success of an inflation-targeting regime depends on the absence of fiscal dominance, where government borrowing forces the central bank to monetize deficits.” To support the new framework, he outlined four core responsibilities for state governments: maintaining fiscal discipline and predictability, pursuing responsible borrowing aligned with medium-term fiscal plans, strengthening cash and debt management coordination, and boosting internally generated revenue.
The shift to an inflation-targeting regime signifies a move toward a more rule-based and transparent monetary policy that heavily relies on managing expectations. While the CBN retains the primary tools for ensuring price stability, Abdullahi stressed that fiscal actions—especially at the sub-national level—are crucial in influencing inflation outcomes within Nigeria’s federal system. He warned that uncoordinated or expansionary state spending, including wage bills, capital projects, contractor financing, and delays in salary payments, could lead to liquidity shocks and exacerbate price pressures.
The discussion, facilitated by the NGF Secretariat, also included remarks from Dr. Victor Oboh, Director of the Monetary Policy Department. Oboh characterized inflation targeting as a “win-win framework” that benefits households, businesses, and governments by anchoring expectations, enhancing policy credibility, and reducing macroeconomic uncertainty. He reiterated that achieving price stability cannot rely solely on monetary policy and called for deeper collaboration between the CBN and state authorities.
Representatives from over 20 states, including finance commissioners, accountant generals, permanent secretaries, and statisticians, attended the meeting. They expressed their support for the CBN’s reform agenda and reaffirmed their commitment to the coordinated fiscal approach necessary for the new policy regime. Prof. Olalekan Yunusa, Executive Director for Policy, Strategy, and Research at the NGF, praised the central bank’s proactive outreach, noting that the early involvement of sub-national fiscal actors is vital for a smooth transition. He added that disciplined fiscal behavior across all tiers of government is essential for achieving sustainable macroeconomic stability.
The central bank’s appeal comes at a time when Nigeria is facing high inflation and vulnerabilities related to external debt. By encouraging states to minimize their use of overdrafts and adopt more prudent borrowing practices, the CBN aims to strengthen the credibility of its forthcoming inflation-targeting framework and establish a more solid foundation for growth, job creation, and social welfare throughout the federation.
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