The Central Bank of Nigeria has cautioned state governments against excessive reliance on short-term borrowing and overdrafts, warning that poor fiscal practices at the sub-national level could threaten Nigeria’s transition to an inflation-targeting monetary policy framework.
The warning was contained in a statement issued by the apex bank on Sunday following an engagement with state government representatives facilitated through the Nigeria Governors’ Forum Secretariat.
Speaking during the engagement, the CBN Deputy Governor in charge of Economic Policy, Muhammad Sani Abdullahi, stressed the need for stronger fiscal coordination between the federal and state governments to maintain price stability and support macroeconomic growth.
According to Abdullahi, excessive dependence on overdrafts, supplementary budgets, and unsustainable debt accumulation could weaken monetary policy measures and worsen inflationary pressures across the economy.
He urged state governments to adopt prudent fiscal practices by aligning borrowing with debt sustainability thresholds, improving revenue forecasting, prioritising critical expenditures, and synchronising fiscal calendars with prevailing economic conditions.
“The absence of fiscal dominance, where government borrowing pressures compel the central bank to monetise deficits, is a core prerequisite for successful inflation targeting,” the statement quoted him as saying.
He added that the principle applies not only to the federal government but also to state administrations, whose fiscal decisions significantly affect inflation and economic stability.
The deputy governor noted that although the CBN manages monetary policy instruments, state governments also influence inflation through borrowing patterns, debt levels, wage obligations, salary arrears, spending decisions, and contractor financing arrangements.
As part of the proposed inflation-targeting framework, the apex bank outlined four key responsibilities for state governments, including maintaining fiscal discipline, adopting responsible borrowing practices, strengthening debt and cash management coordination, and improving internally generated revenue.
Abdullahi described inflation targeting as a “collective national commitment,” emphasising that disciplined fiscal conduct at all levels of government was essential for achieving sustainable economic growth, price stability, and job creation in the country.
