Deputy governor warns subnational fiscal indiscipline could derail price‑stability drive
The Central Bank of Nigeria (CBN) has stepped up engagement with state governments as it prepares to shift the country to an inflation‑targeting monetary policy framework, officials said on Sunday.
Speaking at a meeting with state representatives convened through the Nigeria Governors’ Forum (NGF) Secretariat in Abuja, Deputy Governor in charge of the Economic Policy Directorate, Muhammad Sani Abdullahi, said the success of the new regime hinges on strict fiscal discipline and coordinated policy action across all tiers of government.
“Inflation targeting is a more transparent, forward‑looking and rule‑based framework intended to anchor expectations and strengthen economic stability,” Abdullahi said. “But while the CBN is responsible for monetary policy implementation, fiscal operations by state governments — borrowing, spending, debt accumulation and cash management — have direct implications for inflation outcomes.”
Abdullahi warned that persistent, unpredictable or expansionary fiscal behaviour at the subnational level could weaken monetary policy signals and frustrate efforts to control inflation. He identified key transmission channels through which states influence inflation to include borrowing decisions, wage bills, capital project execution, salary arrears, contractor financing and poor coordination over Federation Account receipts and debt servicing.
He urged states to reduce reliance on overdrafts and short‑term financing, align borrowing with debt‑sustainability thresholds, improve budget realism, enhance revenue forecasting, prioritise expenditures and better synchronise fiscal activity with macroeconomic conditions.
Under the new framework, Abdullahi said, state governments are expected to:
• maintain fiscal discipline and predictability;
• pursue responsible borrowing practices;
• strengthen coordination on cash and debt management; and
• accelerate mobilisation of internally generated revenue (IGR).
“The absence of fiscal dominance — where government borrowing pressures compel the central bank to monetise deficits — is critical for successful inflation targeting,” he added.
Victor Oboh, Director of the CBN’s Monetary Policy Department, described inflation targeting as a “win‑win framework” that can benefit households, businesses and governments by improving policy credibility and reducing economic uncertainty. He emphasised that in a federal system like Nigeria’s, price stability cannot be achieved by monetary policy alone and depends on state fiscal conduct.
Delivering a goodwill message for the NGF, Olalekan Yunusa, Executive Director, Policy, Strategy and Research, commended the CBN for involving sub‑national authorities early in the transition. “The shift reflects a deliberate commitment to making price stability the central anchor of economic policy,” he said, noting that disciplined coordination among all levels of government is essential for sustainable macroeconomic stability.
More than 20 states were represented at the engagement by commissioners of finance and economic planning, accountant‑generals, permanent secretaries and state statistician‑generals. Participants reportedly pledged support for the CBN’s reform agenda and the successful implementation of the inflation‑targeting framework.
