Juliet Ezeh
The Central Bank of Nigeria (CBN) has called on state governments to play an active role in ensuring the success of its planned transition to an inflation targeting monetary policy framework, stressing that price stability requires coordinated fiscal discipline across all levels of government.
The Deputy Governor in charge of the Economic Policy Directorate, Muhammad Sani Abdullahi, made this known during an engagement with sub-national stakeholders facilitated by the Nigeria Governors’ Forum Secretariat.
He explained that inflation targeting represents a shift toward a more transparent, rule-based, and forward-looking monetary policy framework, which depends heavily on collaboration between the central bank and fiscal authorities, particularly at the state level.
According to Abdullahi, while the CBN is responsible for implementing monetary policies to control inflation, the fiscal activities of state governments such as borrowing, spending, and debt management significantly influence inflation outcomes in a federal system like Nigeria.
He warned that uncoordinated or expansionary fiscal actions by states could weaken the effectiveness of monetary policy, noting that inflation targeting is largely about managing public expectations.
“In an inflation-targeting regime, persistent or unpredictable fiscal behaviour at the subnational level can undermine price stability,” he said.
The Deputy Governor highlighted fiscal discipline as a key requirement for the policy’s success, stressing the need to avoid fiscal dominance a situation where government borrowing pressures force the central bank to finance deficits.
He urged state governments to align borrowing with sustainable debt levels, reduce reliance on short-term financing and overdrafts, improve budget credibility, and enhance internally generated revenue.
Abdullahi outlined four major responsibilities for states under the framework: maintaining fiscal discipline, ensuring responsible borrowing, improving coordination in cash and debt management, and boosting revenue generation. He added that excessive spending, supplementary budgets, and rising debt levels could increase inflation risks.
Also speaking, the Director of the Monetary Policy Department at the CBN, Victor Oboh, described inflation targeting as a “win-win” framework that benefits households, businesses, and governments by stabilising prices and reducing economic uncertainty.
Oboh noted that monetary policy alone cannot guarantee price stability, especially in a federal system, adding that state-level fiscal decisions particularly in spending and borrowing directly impact inflation and liquidity conditions.
He said the engagement was aimed at strengthening collaboration and fostering a shared understanding between the CBN and state governments on their respective roles in achieving macroeconomic stability.
Delivering a goodwill message on behalf of the NGF Director-General, Abdullateef Shittu, the Executive Director for Policy, Strategy and Research at the forum, Olalekan Yunusa, commended the CBN for involving sub-national authorities early in the policy transition process.
Yunusa said the shift to inflation targeting reflects a strong commitment to making price stability the central focus of economic policy, noting that sustainable macroeconomic stability requires coordinated efforts across all tiers of government.
Participants at the meeting, drawn from over 20 states and including Commissioners of Finance, Accountant Generals, Permanent Secretaries, and other senior officials, expressed support for the CBN’s reform agenda and pledged to collaborate in ensuring the successful implementation of the inflation targeting framework.
