The Central Bank of Nigeria has urged state governments across the country to reduce their reliance on overdrafts and short-term borrowing as part of broader efforts to strengthen fiscal discipline and support the country’s transition to an inflation-targeting monetary framework.
The call was made during an engagement between the apex bank and sub-national stakeholders organised through the Nigeria Governors’ Forum Secretariat.
Speaking at the meeting, the CBN Deputy Governor in charge of Economic Policy, Muhammad Abdullahi, said state governments have a critical role to play in ensuring price stability and the success of ongoing monetary reforms.
According to him, inflation targeting requires a more transparent, rule-based, and forward-looking policy structure that can only succeed through close coordination between monetary authorities and fiscal policymakers at all levels of government.
Abdullahi warned that excessive borrowing, unplanned spending, and weak fiscal coordination by states could undermine the CBN’s efforts to stabilise inflation and maintain macroeconomic balance.
He explained that sub-national governments significantly influence inflation through borrowing patterns, domestic debt accumulation, wage obligations, contractor financing, expenditure management, and handling of Federation Account Allocation Committee receipts.
“In an inflation-targeting environment, expansionary and unpredictable fiscal behaviour at the state level can weaken monetary policy outcomes and create additional inflationary pressure,” he stated.
The deputy governor stressed that one of the key conditions for successful inflation targeting is the absence of fiscal dominance — a situation where government borrowing pressures force the central bank to finance deficits.
He noted that this principle should apply not only to the Federal Government but also to state governments.
To improve fiscal sustainability, Abdullahi advised states to align borrowing with debt sustainability limits, strengthen revenue forecasting, improve budget realism, and better coordinate fiscal calendars with prevailing economic realities.
He also encouraged sub-national governments to increase internally generated revenue and adopt more responsible debt management practices.
The CBN official outlined four major responsibilities expected from state governments under the inflation-targeting framework, including maintaining fiscal discipline, ensuring responsible borrowing, strengthening debt and cash management coordination, and enhancing revenue mobilisation.
He warned that excessive supplementary budgets, uncontrolled spending, and unsustainable debt accumulation could trigger liquidity shocks and worsen inflationary trends.
Also speaking at the engagement, Director of the CBN’s Monetary Policy Department, Victor Oboh, described inflation targeting as a beneficial framework capable of improving economic stability, boosting investor confidence, and reducing uncertainty for businesses and households.
Oboh said price stability cannot be achieved through monetary policy alone, especially within a federal structure like Nigeria’s, where state-level fiscal decisions directly affect aggregate demand and inflation levels.
He explained that the meeting was organised to deepen collaboration between the central bank and state governments and to improve understanding of the roles required for the successful implementation of the policy transition.
Representing the Director-General of the Nigeria Governors’ Forum, Olalekan Yunusa commended the CBN leadership for involving state fiscal authorities early in the reform process.
He noted that the transition from monetary targeting to inflation targeting demonstrates the country’s commitment to making price stability the central focus of economic management.
The engagement featured presentations on the proposed framework and attracted participants from more than 20 states, including commissioners of finance, commissioners of economic planning, accountants-general, statisticians-general, permanent secretaries, and other senior government officials.
Participants reportedly expressed support for the reform agenda and pledged collaboration with the apex bank in achieving long-term macroeconomic stability, economic growth, and improved social welfare.
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