The Central Bank of Nigeria (CBN) has called on state governments to embrace fiscal discipline and stronger coordination with monetary authorities as the country moves toward an Inflation Targeting (IT) framework aimed at achieving lasting price stability.
Speaking during an engagement with sub-national stakeholders facilitated by the Nigeria Governors’ Forum (NGF) Secretariat in Abuja, the CBN reaffirmed its commitment to inflation targeting, describing it as a transparent, rule-based and forward-looking monetary policy framework.
Deputy Governor in charge of the Economic Policy Directorate, Dr. Muhammad Sani Abdullahi, said the success of the framework would depend heavily on the cooperation of state governments, warning that uncoordinated fiscal actions could undermine efforts to stabilise prices.
According to him, inflation targeting goes beyond monetary policy tools and requires disciplined fiscal behaviour across all tiers of government.
“In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” Abdullahi said.
He explained that state governments influence inflation through borrowing patterns, debt accumulation, expenditure decisions, wage obligations, contractor financing and management of Federation Account Allocation Committee (FAAC) receipts.
The Deputy Governor stressed that excessive reliance on overdrafts, unsustainable debt accumulation and unplanned expenditures could trigger liquidity shocks and worsen inflationary pressures.
He urged states to adopt responsible borrowing practices, improve budget realism, strengthen internally generated revenue and align fiscal policies with prevailing macroeconomic realities.
Abdullahi further noted that the absence of “fiscal dominance” — where government borrowing pressures force the central bank to finance deficits — remains critical to the success of inflation targeting.
He maintained that the framework represents a collective national commitment to economic stability and long-term growth.
“While the CBN remains accountable for delivering price stability, the success of the framework ultimately depends on disciplined fiscal behaviour across all tiers of government,” he added.
Earlier, the Director of Monetary Policy Department, Dr. Victor Oboh, described inflation targeting as a “win-win framework” capable of reducing macroeconomic uncertainty and strengthening confidence in economic management.
He noted that sub-national governments play a major role in shaping inflation outcomes through spending decisions, debt management and revenue mobilisation.
Oboh said the engagement was designed to deepen collaboration between the apex bank and state governments as Nigeria transitions from a monetary-targeting framework to inflation targeting.
Also speaking, the Executive Director, Policy, Strategy and Research at the NGF, Prof. Olalekan Yunusa, who represented the Director-General of the Forum, commended the CBN for involving state governments early in the reform process.
He said sustainable macroeconomic stability could only be achieved through coordinated efforts among all levels of government.
Participants at the engagement, drawn from over 20 states and comprising Commissioners of Finance, Economic Planning officials, Accountant-Generals and other senior government officers, pledged support for the CBN’s inflation-targeting reform agenda.
