The Central Bank of Nigeria (CBN) has cautioned state governments against excessive short-term borrowing and overreliance on overdrafts.
The CBN said in a statement that reckless fiscal behaviour at the sub-national level could undermine the country’s transition to an inflation-targeting monetary policy framework.
The warning from the CBN followed an engagement with sub-national stakeholders facilitated through the Nigerian Governors’ Forum Secretariat in Abuja.
According to the statement, the Deputy Governor in charge of the Economic Policy Directorate, Dr Muhammad Abdullahi, said state governments must adopt stricter fiscal discipline to support price stability and ongoing macroeconomic reforms.
He urged states to 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.
According to Abdullahi, the transition to inflation targeting is a shift towards a more transparent, rule-based, and forward-looking monetary framework that requires close collaboration between the central bank and state authorities.
He pointed out while the CBN remains responsible for monetary policy decisions aimed at controlling inflation, fiscal actions by state governments also significantly influence inflation outcomes in a federal system like Nigeria’s.
He warned that inflation targeting largely depends on managing economic expectations, stressing that expansionary fiscal activities by states could weaken the effectiveness of monetary policy signals.
