The Central Bank of Nigeria has reaffirmed the critical role of state governments in the successful implementation of its planned Inflation Targeting (IT) monetary policy framework, stressing that sustained price stability can only be achieved through stronger fiscal discipline and coordination across all tiers of government.
Speaking during an engagement with sub-national stakeholders facilitated through the Nigeria Governors’ Forum Secretariat, the Deputy Governor in charge of the Economic Policy Directorate, Muhammad Sani Abdullahi, described the transition to inflation targeting as a shift toward a more rule-based, transparent and forward-looking monetary policy framework that requires close collaboration between the apex bank and state authorities.
According to him, while the CBN retains responsibility for deploying monetary policy tools to manage inflation, fiscal actions at the sub-national level significantly influence inflation outcomes in a federal system such as Nigeria’s.
Dr. Abdullahi explained that inflation targeting is fundamentally about managing economic expectations, warning that uncoordinated or expansionary fiscal activities by state governments could weaken monetary policy effectiveness.
He identified several channels through which state governments affect inflation, including borrowing decisions, domestic debt accumulation, expenditure patterns, wage obligations, capital project execution, salary arrears, contractor financing, and coordination on Federation Account Allocation Committee (FAAC) receipts, cash management and debt servicing.
“In an inflation targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” he said.
The Deputy Governor noted that the absence of fiscal dominance — where government borrowing pressures force the central bank to monetise deficits — remains a key requirement for a successful inflation-targeting framework.
He urged state governments to reduce dependence on overdrafts and short-term financing, align borrowing with debt sustainability thresholds, improve budget realism and revenue forecasting, prioritise expenditure and better synchronise fiscal operations with prevailing macroeconomic conditions.
Under the proposed framework, Dr. Abdullahi outlined four major responsibilities for state governments: maintaining fiscal discipline and predictability; ensuring responsible borrowing within medium-term fiscal frameworks; strengthening coordination on cash and debt management; and improving internally generated revenue mobilisation.
He warned that excessive supplementary budgets, unplanned expenditures and unsustainable debt accumulation could trigger liquidity shocks and intensify inflationary pressures.
According to him, inflation targeting should be viewed as a collective national commitment aimed at strengthening macroeconomic stability, policy credibility and long-term economic prosperity.
Earlier in his remarks, the Director of the Monetary Policy Department at the CBN, Victor Oboh, described inflation targeting as a “win-win framework” capable of benefiting households, businesses and governments by anchoring inflation expectations and reducing macroeconomic uncertainty.
He stressed that price stability cannot be achieved through monetary policy alone, particularly in a federal structure where sub-national spending, borrowing and liquidity decisions directly affect aggregate demand and inflation trends.
Dr. Oboh explained that the engagement was designed to deepen collaboration, foster dialogue and improve mutual understanding between the CBN and state governments regarding the coordination mechanisms required for the successful implementation of inflation targeting.
He added that sub-national governments play a central role in Nigeria’s macroeconomic landscape, given that their decisions on wage policies, capital spending, debt accumulation and revenue mobilisation directly influence inflation dynamics.
Delivering a goodwill message on behalf of the Director-General of the Nigeria Governors’ Forum, the Executive Director of Policy, Strategy and Research at the NGF, Olalekan Yunusa, commended the leadership of the CBN for involving sub-national fiscal authorities early in the transition process.
He noted that the shift from a monetary-targeting framework to inflation targeting reflects Nigeria’s broader commitment to making price stability the central anchor of economic policy.
Prof. Yunusa also emphasised that sustainable macroeconomic stability cannot be achieved through monetary policy alone, but requires disciplined fiscal coordination across all levels of government.
The engagement featured detailed presentations on Nigeria’s transition to inflation targeting and attracted participants from more than 20 states, including Commissioners of Finance and Economic Planning, Accountant-Generals, Permanent Secretaries, State Statistician-Generals and other senior officials.
Participants commended the CBN’s reform agenda and pledged support for the bank’s efforts to strengthen macroeconomic stability and improve policy coordination nationwide.
