The Central Bank of Nigeria (CBN) has warned state governments that excessive borrowing and overdraft dependence could derail Nigeria’s transition to an inflation-targeting framework.
The warning was delivered on Sunday following an engagement with sub-national fiscal stakeholders facilitated through the Nigeria Governors’ Forum Secretariat, attended by officials from more than 20 states, including commissioners of finance, accountants-general, and permanent secretaries.
Speaking at the engagement, CBN Deputy Governor for Economic Policy, Dr. Muhammad Sani Abdullahi, stressed that successful inflation targeting demands strict fiscal coordination between federal and state governments.
He warned that fiscal dominance, a situation where government borrowing pressures force the central bank to finance deficits, remains one of the greatest threats to the reform’s success and that this risk exists at both the federal and state levels.
Abdullahi specifically urged states to reduce overdraft dependence, align borrowing with debt sustainability thresholds, improve revenue forecasting, prioritize expenditure, and synchronize fiscal calendars with macroeconomic realities.
He noted that state decisions on wages, debt accumulation, contractor financing, and expenditure patterns directly influence inflation and cannot be separated from the CBN’s monetary policy objectives.
The CBN outlined four core responsibilities for states under the new framework—fiscal discipline, responsible borrowing, stronger debt and cash management, and improved internally generated revenue mobilization.
Director of Monetary Policy Dr. Victor Oboh reinforced the message, describing inflation targeting as a “win-win framework” but emphasizing that price stability cannot be achieved through monetary policy alone in a federal system where state-level spending directly affects liquidity and inflation trends.
Representing the NGF Director-General, Prof. Olalekan Yunusa commended the CBN for engaging sub-national authorities early, noting that lasting macroeconomic stability requires disciplined coordination across all tiers of government.
Abdullahi concluded by describing the reform as a “collective national commitment,” warning that without fiscal discipline at every level of government, Nigeria’s long-term goals of macroeconomic stability, growth, and job creation would remain out of reach.
WHAT YOU SHOULD KNOW
The CBN’s message is clear: monetary policy reform cannot work in isolation. As Nigeria moves toward inflation targeting, state governments must urgently fix their fiscal habits, cutting overdraft dependency, borrowing responsibly, and managing expenditure realistically.
The CBN can control interest rates, but it cannot control inflation alone if state governments keep fueling it through reckless borrowing and spending. Every tier of government must pull its weight, or the reform fails for everyone.
