The Central Bank of Nigeria has raised concerns over the impact of state governments’ financial decisions on the country’s inflation rate, cautioning that weak fiscal management at the sub-national level could undermine ongoing efforts to stabilise prices and strengthen the economy.
The apex bank disclosed this during an engagement with state government officials organised through the Nigeria Governors’ Forum Secretariat. Speaking at the meeting, the Deputy Governor in charge of the Economic Policy Directorate, Muhammad Sani Abdullahi, stressed that effective inflation control in Nigeria requires close collaboration between federal and state authorities.
In a statement released by the CBN on Sunday, Abdullahi identified several ways states contribute to inflationary pressures. These include borrowing practices, increasing domestic debt, spending habits, wage commitments, salary arrears, contractor financing arrangements, and poor coordination in handling Federation Account Allocation Committee receipts, debt servicing and public cash flows.
He noted that excessive spending and poor fiscal coordination by state governments could hinder the success of the CBN’s proposed transition to an inflation-targeting monetary policy framework.
Abdullahi explained that the inflation-targeting framework is designed to achieve price stability through a more transparent and forward-looking monetary system. However, he emphasised that the policy would only succeed if all levels of government maintain fiscal discipline.
According to him, while the CBN is responsible for monetary policy implementation, the fiscal actions of state governments significantly influence inflation outcomes within Nigeria’s federal structure.
“In an inflation targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the subnational level can significantly undermine price stability,” he said.
The Deputy Governor further explained that inflation targeting extends beyond interest rate adjustments, noting that it also involves managing public expectations and ensuring that government borrowing and spending do not place unnecessary pressure on prices.
He added that the absence of fiscal dominance — a situation where government borrowing compels the central bank to finance deficits — remains one of the critical requirements for a successful inflation-targeting system.
Abdullahi also warned that unplanned spending, excessive supplementary budgets and rising unsustainable debts by states could inject excess liquidity into the economy and worsen inflationary pressures.
He advised state governments to reduce dependence on overdrafts and short-term loans, keep borrowing within sustainable limits, strengthen budgeting and revenue projections, prioritise spending and align fiscal activities with prevailing economic conditions.
The CBN official outlined four major expectations for states under the inflation-targeting framework. These include maintaining fiscal discipline and predictable spending patterns, ensuring responsible borrowing within medium-term fiscal plans, improving debt and cash management coordination, and strengthening internally generated revenue.
He added that inflation targeting should be regarded as a shared national responsibility aimed at promoting long-term economic growth, stability and improved living conditions for citizens.
According to Abdullahi, stronger fiscal coordination between the federal and state governments would help boost investor confidence, support job creation and encourage sustainable economic development.
Earlier, the Director of the CBN’s Monetary Policy Department, Victor Oboh, described inflation targeting as a “win-win framework” capable of benefiting households, businesses and governments by improving confidence in economic policies and reducing uncertainty.
Oboh stated that monetary policy alone cannot guarantee price stability, especially within a federal structure where state governments control substantial spending, borrowing and revenue mobilisation activities.
He explained that the engagement with state officials was aimed at deepening collaboration between the apex bank and sub-national governments to ensure effective coordination for the successful implementation of inflation targeting.
According to him, state governments significantly shape inflation trends through decisions relating to salaries, capital projects, debt accumulation and revenue generation.
He added that the meeting forms part of the CBN’s broader partnership with the Nigeria Governors’ Forum and state governments to strengthen macroeconomic stability nationwide.
Representing the Director-General of the Nigeria Governors’ Forum, the Executive Director for Policy, Strategy and Research, Olalekan Yunusa, praised the CBN leadership for involving state governments early in the transition process.
Yunusa stated that the shift from monetary targeting to inflation targeting reflects a deliberate policy effort to make price stability the core focus of Nigeria’s economic management strategy.
He also stressed that sustainable economic stability cannot be achieved through monetary policy alone, noting that fiscal discipline and cooperation from all levels of government remain essential.
The engagement featured presentations on Nigeria’s transition to inflation targeting and attracted participants from more than 20 states, including Commissioners for Finance and Economic Planning, Accountant-Generals, Permanent Secretaries, state statisticians and other senior government officials.
Participants at the meeting reportedly expressed support for the CBN’s reform agenda and welcomed the transition to inflation targeting as part of wider efforts to strengthen economic stability across the country.
