The Central Bank of Nigeria (CBN) has urged state governments to reduce their dependence on short-term borrowing and overdrafts, warning that unchecked fiscal behaviour at the sub-national level could undermine Nigeria’s transition to an inflation-targeting monetary framework.
This was disclosed in a statement issued by the CBN on Sunday following an engagement with sub-national stakeholders facilitated through the Nigeria Governors’ Forum (NGF) Secretariat.
Deputy Governor in charge of Economic Policy, Dr Muhammad Sani Abdullahi, said inflation targeting would require stronger fiscal coordination between the federal and state governments to ensure price stability.
What the CBN deputy governor said
Abdullahi warned that excessive reliance on overdrafts, supplementary budgets and unsustainable debt could weaken monetary policy signals and fuel inflationary pressures across the economy.
He urged state governments to align borrowing with debt sustainability thresholds, improve revenue forecasting, prioritise spending and synchronise fiscal calendars with prevailing macroeconomic realities.
- The statement read, “The Deputy Governor emphasised that the absence of fiscal dominance, where government borrowing pressures compel the central bank to monetise deficits, is a core prerequisite for successful inflation targeting. He noted that this principle applies not only at the federal level but equally to State Governments.
- “He urged States to reduce reliance on overdrafts and short‑term financing, ensure that borrowing decisions align with debt sustainability thresholds, improve budget realism and revenue forecasting, prioritise expenditure, and better synchronise fiscal calendars with prevailing macroeconomic conditions.”
He noted that while the CBN controls monetary policy tools, state governments influence inflation through borrowing decisions, debt accumulation, expenditure patterns, wage obligations, salary arrears and contractor financing.
According to him, successful inflation targeting also depends on avoiding fiscal dominance, where government borrowing pressures force the central bank to finance deficits.
The CBN outlined four major responsibilities for states under the new framework, including maintaining fiscal discipline, adopting responsible borrowing practices, strengthening debt and cash management coordination, and improving internally generated revenue mobilisation.
Abdullahi described inflation targeting as a “collective national commitment” that requires disciplined fiscal conduct across all levels of government to achieve long-term macroeconomic stability, growth and job creation.
States key to inflation fight
Earlier, Director of Monetary Policy at the CBN, Dr Victor Oboh, described inflation targeting as a “win-win framework” capable of reducing macroeconomic uncertainty and improving policy credibility.
Oboh stated that price stability could not be achieved through monetary policy alone, especially in a federal system where state spending, wage policies and debt accumulation directly affect liquidity and inflation trends.
He said the engagement was aimed at deepening collaboration between the apex bank and state governments on the coordination mechanisms needed for the transition to inflation targeting.
Also speaking, Executive Director of Policy, Strategy and Research at the NGF, Prof Olalekan Yunusa, who represented the Director-General of the NGF, Dr Abdullateef Shittu, commended the CBN for involving sub-national fiscal authorities early in the transition process.
He said sustainable macroeconomic stability could only be achieved through disciplined coordination among all tiers of government.
The engagement featured presentations on Nigeria’s transition to inflation targeting and was attended by officials from more than 20 states, including commissioners of finance, accountants-general, permanent secretaries and statisticians, who pledged support for the CBN’s reform agenda, according to the statement issued on Sunday.
What you should know
Nairametrics earlier reported that the external debt owed by 32 Nigerian states and the Federal Capital Territory (FCT) rose by a combined $944.12 million in 2025, according to data from the Debt Management Office (DMO).
The DMO data also showed that the total external debt stock of states and the FCT increased from $4.80 billion as of December 31, 2024, to $5.68 billion as of December 31, 2025, representing a net increase of $884.66 million or 18.43% year-on-year.
The lower net increase was because four states recorded a combined decline of $59.46 million, partly offsetting the $944.12 million increase recorded by the 32 states and the FCT.
