The Central Bank of Nigeria (CBN) has called on state governments to cut down on overdrafts and short‑term financing.
A statement by the apex bank on Sunday said the advice was given by its Deputy Governor in charge of the Economic Policy Directorate, Dr. Muhammad Abdullahi, while speaking during an engagement with sub‑national stakeholders, facilitated through the Nigerian Governors Forum Secretariat.
Abdullahi advised them to 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.
He emphasised the critical role of State Governments in ensuring a successful transition to an Inflation Targeting (IT) monetary policy framework, stressing that sustained price stability can be achieved only through coordinated fiscal discipline across all tiers of government.
Abdullahi described the move toward inflation targeting as a shift to a more rule‑based, transparent, and forward‑looking monetary framework that demands close collaboration with state authorities.
According to him, while the CBN retains responsibility for deploying monetary policy tools to control inflation, fiscal actions, particularly at the sub-national level, play a significant role in shaping inflation outcomes within a federal system such as Nigeria’s.
Dr. Abdullahi explained that inflation targeting is fundamentally about managing expectations, warning that uncoordinated or expansionary fiscal actions by State Governments could either reinforce or undermine monetary policy signals.
He noted that States influence inflation through multiple channels, including borrowing decisions, domestic debt accumulation, expenditure patterns, wage bills, capital project execution, salary arrears, overdrafts, contractor financing, and weak coordination on the Federation Account Allocation Committee (FAAC) receipts, cash management, and debt servicing.
“In an inflation‑targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub‑national level can significantly undermine price stability,” he said.
The Deputy Governor emphasised that the absence of fiscal dominance, where government borrowing pressures compel the bank to monetise deficits, is a core prerequisite for successful inflation targeting.
