Lilian Ugwu
The Central Bank of Nigeria (CBN) has reaffirmed its commitment to transitioning Nigeria to an inflation targeting monetary policy framework, stressing that collaboration with state governments is critical to achieving sustainable price stability.
The apex bank made this known during a high-level engagement with sub-national stakeholders facilitated by the Nigeria Governors’ Forum (NGF) Secretariat in Abuja.
Speaking at the event, the Deputy Governor in charge of the Economic Policy Directorate, Dr. Muhammad Sani Abdullahi, described inflation targeting as a rule-based, transparent and forward-looking monetary policy framework designed to manage inflation expectations and enhance economic stability.
According to Abdullahi, while the CBN is responsible for deploying monetary policy tools to control inflation, fiscal actions by state governments significantly influence inflation outcomes, especially within a federal system like Nigeria.
He warned that uncoordinated or expansionary fiscal policies at the sub-national level could weaken the effectiveness of monetary policy efforts.
“In an inflation-targeting regime, persistent and unpredictable fiscal behaviour by state governments can undermine price stability,” Abdullahi said.
He explained that state governments impact inflation through several channels, including borrowing decisions, domestic debt accumulation, wage bills, capital expenditure, salary arrears, and contractor financing. He also pointed to weak coordination in Federation Account Allocation Committee (FAAC) receipts, cash management, and debt servicing as factors capable of fueling inflationary pressures.
The Deputy Governor highlighted fiscal discipline as a core requirement for successful inflation targeting, noting that the absence of fiscal dominance where government borrowing forces the central bank to finance deficits is essential.
He urged state governments to adopt prudent financial practices, including reducing reliance on overdrafts and short-term borrowing, aligning borrowing decisions with debt sustainability thresholds, and improving revenue forecasting and budget realism.
Abdullahi further outlined four key responsibilities for state governments under the inflation targeting framework: maintaining fiscal discipline and predictability, ensuring responsible borrowing aligned with medium-term fiscal frameworks, strengthening coordination on cash and debt management, and boosting internally generated revenue.
He cautioned that excessive supplementary budgets, unplanned expenditures, and unsustainable debt accumulation could trigger liquidity shocks and worsen inflationary trends.
The CBN official reiterated that inflation targeting represents a collective national responsibility, adding that its success depends on coordinated fiscal and monetary policies across all levels of government.
Also speaking, the Director of the Monetary Policy Department at the CBN, Dr. Victor Oboh, described inflation targeting as a “win-win framework” that benefits households, businesses, and governments.
Oboh noted that the framework helps anchor inflation expectations, improve policy credibility, and reduce macroeconomic uncertainty.
He stressed that price stability cannot be achieved through monetary policy alone, especially in a federal system where sub-national fiscal decisions including spending, borrowing, and cash flow management directly affect inflation dynamics.
According to him, the engagement was aimed at fostering dialogue, strengthening collaboration, and enhancing mutual understanding between the CBN and state governments on the requirements for successful implementation of inflation targeting.
He added that sub-national governments play a crucial role in Nigeria’s macroeconomic environment, as their policies on wages, capital projects, debt, and revenue generation significantly influence aggregate demand.
In a goodwill message, the Executive Director of Policy, Strategy and Research at the NGF, Prof. Olalekan Yunusa, commended the CBN leadership for involving state governments early in the transition process.
Yunusa, who represented the NGF Director-General, Dr. Abdullateef Shittu, described the move to inflation targeting as a strategic shift aimed at prioritising price stability as the foundation of economic policy.
He emphasised that achieving macroeconomic stability requires strong coordination between monetary and fiscal authorities across all tiers of government.
Participants at the engagement, drawn from over 20 states and including Commissioners of Finance, Accountant-Generals, Permanent Secretaries, and State Statisticians, expressed support for the CBN’s reform agenda.
They commended the transition to inflation targeting and pledged to align their fiscal policies with the framework to ensure its success.
The CBN noted that the engagement forms part of its broader collaboration with the Nigeria Governors’ Forum and state governments, aimed at strengthening macroeconomic stability, promoting economic growth, creating jobs, and improving social welfare across the country.
As Nigeria moves toward adopting inflation targeting, analysts say sustained coordination between fiscal and monetary authorities will be crucial in stabilising prices and restoring investor confidence in the economy.