FG, CBN sign MoU to formalise fiscal-monetary policy coordination

The Federal Government and the Central Bank of Nigeria (CBN) have signed a Memorandum of Understanding (MoU) to formalise coordination between fiscal and monetary authorities, with a focus on improving macroeconomic management and policy consistency.

The agreement, signed by the Federal Ministry of Finance and the CBN in Auja on Friday, establishes a structured framework for regular consultations, information sharing and joint policy assessments.

CBN Governor Olayemi Cardoso said the MoU would institutionalise a longstanding relationship between both institutions, strengthening their ability to respond to economic challenges and support stability.

What the MoU provides

Cardoso said fiscal and monetary policies are complementary tools for managing the economy, with government spending, taxation and borrowing decisions interacting with monetary policy decisions on liquidity, interest rates and financial conditions.

He stressed that the agreement does not establish a new relationship between the institutions, which have collaborated on issues including inflation, debt sustainability, budget financing, exchange rate stability and responses to domestic and global shocks.

• “What distinguishes today’s event is the formal institutionalisation of that collaboration,” Cardoso said.
• Under the framework, both institutions will strengthen cooperation in government cash management, debt issuance planning, liquidity forecasting, macroeconomic analysis and periodic policy consultations.

Cardoso said the arrangement would provide more predictable channels for engagement and improve the quality of economic decision-making.

• “It transforms a relationship built on practice into one anchored by clear processes and enduring institutional commitment,” he said.
• The CBN governor said the agreement was particularly timely as the apex bank advances its transition towards an inflation-targeting framework.

He noted that inflation targeting depends not only on effective monetary policy but also on a supportive fiscal environment.

Through regular dialogue and coordinated assessments, the institutions are expected to better align their actions, reduce policy trade-offs and develop an operational framework for implementing the MoU.

Finance Minister and Coordinating Minister of the Economy, Taiwo Oyedele, said the agreement recognises the need for coordination while preserving the distinct mandates of fiscal and monetary authorities.

• “Good economic management requires independence of institutions but independence must not mean isolation,” Oyedele said.

He explained that the policies of both institutions are closely interconnected, as government borrowing influences liquidity and interest rates, while monetary policy affects government financing costs.

• “Tariffs and exchange rate affect prices and revenues. Spendings affect demands. Our mandates are distinct but our outcomes are interconnected,” he said.

Oyedele said the MoU was designed to formalise coordination rather than create collaboration from scratch, noting that existing mechanisms include the Economic Management Team, the National Economic Council and legal links between the ministry and the CBN.

Get up to speed

Recently, the International Monetary Fund (IMF) called on Nigeria and other major African economies to deepen reforms across fiscal policy, monetary and financial sectors, and governance to strengthen macroeconomic stability and support more inclusive growth.

The Fund also identified strengthening monetary policy frameworks and transmission as a priority for Nigeria, Egypt and Ethiopia, while governance reforms in Nigeria and other major economies should focus on greater fiscal transparency, stronger public financial management and improved anti-corruption practices.

For Nigeria, the recommendations come as the Federal Government continues to implement a broad tax reform programme designed to simplify the tax system, improve compliance and expand the country’s revenue base.

• The reforms, which took effect in January 2026, established a new framework through the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act and Joint Revenue Board (Establishment) Act.
• Recently, Presidential aide Tope Fasua called for a rethink of the tight monetary policy stance, arguing that prolonged high interest rates could constrain economic growth without necessarily producing the desired reduction in inflation.

What you should know

The Monetary Policy Rate stood at 18.75% in 2023 before the CBN began a series of increases in 2024. The benchmark rate was raised to 22.75% in February 2024 and subsequently reached 27.5% by the end of the year.

The CBN also tightened liquidity through changes to banks’ Cash Reserve Ratio, raising it from 32.5% to 45% in early 2024 and subsequently to 50% as part of efforts to absorb excess liquidity.

The tightening cycle has since given way to a gradual easing phase as inflationary pressures moderated and economic conditions improved.