By Oluwkemi Kindness
The Central Bank of Nigeria has warned that reckless borrowing, unplanned spending, and poor fiscal coordination by State Governments could undermine Nigeria’s planned transition to an Inflation Targeting monetary policy framework.
Speaking during an engagement with sub-national stakeholders organised through the Nigeria Governors’ Forum Secretariat, the Deputy Governor in charge of Economic Policy Directorate, Muhammad Sani-Abdullahi, said sustained price stability can only be achieved through disciplined fiscal management across all levels of government.
According to a statement on Sunday by the bank, he noted that inflation targeting represents a major shift toward a more transparent, rule-based and forward-looking monetary policy system that requires strong collaboration between the apex bank and State Governments.
Dr. Abdullahi explained that although the CBN is responsible for controlling inflation through monetary policy tools, fiscal activities at the sub-national level significantly influence inflation outcomes in Nigeria’s federal structure.
He warned that excessive borrowing, rising debt accumulation, uncontrolled spending, wage pressures, contractor financing, overdrafts, and weak coordination in managing Federation Account Allocation Committee receipts could weaken efforts to stabilise prices.
“Persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” he said.
The Deputy Governor stressed that successful inflation targeting depends on eliminating fiscal dominance, where government borrowing pressures force the central bank to finance deficits.
He urged State Governments to reduce dependence on short-term borrowing, improve revenue forecasting, align borrowing with debt sustainability limits, and prioritise prudent expenditure management.
Under the proposed framework, the CBN outlined four major responsibilities for State Governments, including maintaining fiscal discipline, ensuring responsible borrowing, strengthening debt and cash management coordination, and boosting internally generated revenue.
Also speaking, the Director of Monetary Policy at the CBN, Victor Oboh, described inflation targeting as a “win-win framework” capable of reducing economic uncertainty, improving policy credibility, and stabilising inflation expectations.
Representatives from more than 20 states, including Commissioners of Finance, Accountant-Generals, Permanent Secretaries and State Statisticians, attended the engagement and pledged support for the CBN’s ongoing economic reform agenda.
