The Central Bank of Nigeria has urged state governments to curb reliance on overdrafts and short‑term financing as the country prepares to shift to an inflation‑targeting monetary framework. In a statement released on Sunday, Deputy Governor for Economic Policy Dr Muhammad Abdullahi said the advice was delivered during a meeting with sub‑national officials convened by the Nigeria Governors Forum (NGF).
Abdullahi warned that unchecked borrowing at the state level could undermine the central bank’s efforts to anchor inflation expectations. He urged governors, finance commissioners and other fiscal officials to align borrowing decisions with debt‑sustainability thresholds, improve the realism of budgets and revenue forecasts, prioritise spending, and synchronize fiscal calendars with prevailing macro‑economic conditions.
“The success of an inflation‑targeting regime depends on the absence of fiscal dominance, where government borrowing forces the central bank to monetise deficits,” the deputy governor said. He outlined four core responsibilities for state governments under the new framework: maintain fiscal discipline and predictability; pursue responsible borrowing consistent with medium‑term fiscal plans; strengthen cash‑ and debt‑management coordination; and boost internally generated revenue.
The transition to inflation targeting represents a move toward a more rule‑based, transparent monetary policy that relies heavily on expectations management. While the CBN retains the primary tools for price stability, Abdullahi stressed that fiscal actions—especially at the sub‑national level—are equally pivotal in shaping inflation outcomes in a federal system like Nigeria’s. Uncoordinated or expansionary state spending, wage bills, capital projects, contractor financing, and delays in salary arrears could generate liquidity shocks and fuel price pressures.
The discussion, facilitated by the NGF Secretariat, also featured remarks from Dr Victor Oboh, Director of the Monetary Policy Department. Oboh described inflation targeting as a “win‑win framework” that benefits households, businesses and governments by anchoring expectations, enhancing policy credibility and reducing macro‑economic uncertainty. He reiterated that price stability cannot be achieved through monetary policy alone and called for deeper collaboration between the CBN and state authorities.
Representatives from more than 20 states, including finance commissioners, accountant generals, permanent secretaries and statisticians, attended the engagement. They expressed support for the CBN’s reform agenda and reaffirmed commitment to the coordinated fiscal approach required for the new policy regime.
Prof Olalekan Yunusa, Executive Director for Policy, Strategy and Research at the NGF, commended the central bank’s proactive outreach, noting that early involvement of sub‑national fiscal actors is essential for a smooth transition. He added that disciplined fiscal behaviour across all tiers of government is indispensable for sustainable macro‑economic stability.
The central bank’s appeal comes as Nigeria grapples with high inflation and external debt vulnerabilities. By urging states to reduce overdraft usage and adopt more prudent borrowing practices, the CBN aims to reinforce the credibility of its forthcoming inflation‑targeting framework and lay a firmer foundation for growth, job creation and social welfare across the federation.
