Governor of the Central Bank of Nigeria, Olayemi Cardoso | Credit: CBN The Central Bank of Nigeria has urged state governments to reduce their reliance on overdrafts and short-term borrowing, warning that reckless fiscal behaviour at the sub-national level could undermine the country’s transition to an inflation-targeting monetary policy framework.
“He urged states to reduce reliance on overdrafts and short-term financing, ensure that borrowing decisions align with debt sustainability thresholds, improve budget realism and revenue forecasting, prioritise expenditure, and better synchronise fiscal calendars with prevailing macroeconomic conditions,” the statement said.
Abdullahi described the transition to inflation targeting as a shift towards a more transparent, rule-based, and forward-looking monetary framework that requires close collaboration between the central bank and state authorities. According to him, while the CBN remains responsible for monetary policy decisions aimed at controlling inflation, fiscal actions by state governments also significantly influence inflation outcomes in a federal system like Nigeria’s.
He warned that inflation targeting largely depends on managing economic expectations, stressing that expansionary fiscal activities by states could weaken the effectiveness of monetary policy signals. The deputy governor noted that state governments influence inflation through borrowing decisions, debt accumulation, spending patterns, wage bills, capital project execution, salary arrears, contractor financing, and cash management practices linked to Federation Account Allocation Committee receipts.
“In an inflation targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” Abdullahi said. He added that the absence of fiscal dominance, where governments pressure the central bank to monetise deficits, remains a major condition for successful inflation targeting, noting that the principle applies to both federal and state governments.
Abdullahi further outlined four responsibilities expected of state governments under the inflation-targeting framework, including maintaining fiscal discipline and predictability, pursuing responsible borrowing, improving coordination on cash and debt management, and strengthening internally generated revenue mobilisation.
He warned that excessive supplementary budgets, unplanned spending, and unsustainable debt accumulation could trigger liquidity shocks and worsen inflationary pressures. Related News States’ capital spending plunges 58% as 2027 politics intensifies FirstHoldCo Seeks Shareholders Approval on N1 Trillion Capital Base in Bold Balance Sheet Fortification Shareholders praise Custodian Investment over earnings surge The deputy governor stressed that inflation targeting should be seen as a collective national commitment aimed at achieving long-term stability, economic credibility, and sustainable growth.
Also speaking, the Director of the Monetary Policy Department, Dr Victor Oboh, described inflation targeting as a “win-win framework” capable of benefiting households, businesses, and governments by improving policy credibility and reducing macroeconomic uncertainty.
Oboh stated that price stability could not be achieved through monetary policy alone, especially in a federal system where state spending, borrowing, and cash flow decisions directly affect inflation and liquidity conditions. According to him, the engagement was organised to deepen collaboration and mutual understanding between the CBN and state governments regarding the expectations and coordination required for the successful implementation of inflation targeting.
Delivering a goodwill message on behalf of the Director-General of the Nigerian Governors’ Forum, Dr Abdullateef Shittu, the Executive Director of Policy, Strategy and Research at the forum, Prof Olalekan Yunusa, commended the CBN for involving sub-national authorities early in the transition process.