The Central Bank of Nigeria (CBN) has called on state governments to cut down on overdrafts and short‑term financing.
According to a statement by the apex bank on Sunday, the advice was given by its Deputy Governor in charge of the Economic Policy Directorate, Mr Muhammad Abdullahi, during an engagement with sub‑national stakeholders, facilitated through the Nigerian Governors Forum Secretariat.
Mr 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.
Mr 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.
Mr 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.
He noted that this principle applies not only at the federal level but equally to State Governments.
He urged the 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.
Under the inflation‑targeting framework, Mr Abdullahi outlined four key responsibilities for state governments: maintaining fiscal discipline and predictability; pursuing responsible borrowing aligned with medium‑term fiscal frameworks; strengthening coordination on cash and debt management; and enhancing internally generated revenue mobilisation.
He warned that unplanned expenditures, excessive supplementary budgets, and unsustainable debt accumulation could trigger liquidity shocks and elevate inflationary risks.
He reiterated that inflation targeting is a collective national commitment to stability, credibility, and long-term prosperity.
While the CBN remains accountable for delivering price stability, he said the framework’s success ultimately depends on disciplined fiscal behaviour across all tiers of government.
By strengthening coordination and embedding price stability as a shared objective, he added, state governments would support the new framework and lay firmer foundations for growth, job creation, and improved social welfare.
On his part, the Director-General of the NGF, Dr Abdullateef Shittu, represented by Mr Olalekan Yunusa, commended the Governor of the apex bank and the bank’s leadership for what he described as the strategic foresight behind the engagement, particularly the decision to involve sub‑national fiscal authorities at an early stage of the transition process.
He noted that the shift from a monetary-targeting framework to inflation targeting reflects a deliberate commitment to price stability as the central anchor of economic policy.
He added that sustainable macroeconomic stability cannot be achieved through monetary policy alone and requires disciplined coordination across all tiers of government.