The Central Bank of Nigeria has called on state governments to significantly cut down dependence on overdrafts and short-term borrowing, warning that unchecked fiscal behaviour at sub-national level could weaken Nigeria’s move toward an inflation-targeting monetary policy system.
The warning was issued during an engagement with state officials facilitated by the Nigerian Governors’ Forum Secretariat in Abuja, where the apex bank stressed the need for stronger coordination between fiscal and monetary authorities.
According to the CBN, states must adopt stricter financial discipline by aligning borrowing decisions with debt sustainability limits, improving budget planning and revenue projections, prioritising essential spending, and synchronising fiscal activities with broader economic conditions.
The Deputy Governor in charge of Economic Policy, Dr Muhammad Abdullahi, explained that inflation targeting requires a transparent and forward-looking framework where both federal and state governments play key roles in maintaining price stability.
He noted that while monetary policy is the responsibility of the central bank, state-level spending, borrowing, wage obligations, and project financing have direct impacts on inflation trends in Nigeria’s federal structure.
Abdullahi further warned that inconsistent or expansionary spending patterns by states could weaken the effectiveness of monetary policy, stressing that persistent fiscal pressure on the system may trigger liquidity challenges and inflationary shocks.
He also highlighted that excessive supplementary budgets, rising debt accumulation, and poor cash management practices could distort economic stability and undermine national reform efforts.
The CBN outlined key expectations from state governments under the new framework, including disciplined borrowing, improved revenue generation, better debt coordination, and more realistic budgeting processes aimed at long-term sustainability.
Speaking at the engagement, the Director of the Monetary Policy Department, Dr Victor Oboh, described inflation targeting as a reform designed to improve economic stability, reduce uncertainty, and strengthen policy credibility across all levels of government.
He emphasised that achieving price stability in a federal system requires cooperation beyond the central bank, noting that state fiscal decisions significantly influence liquidity conditions and inflation outcomes.
Representatives of the Nigerian Governors’ Forum also welcomed the initiative, describing it as a timely effort to deepen coordination between federal and state authorities in managing macroeconomic stability.
Recent data from the Debt Management Office further shows a steady rise in external borrowing by states and the Federal Capital Territory, reflecting growing fiscal pressures despite increased federal allocations, with most sub-national governments recording higher debt levels over the past year.
