CBN seeks states’ support to curb inflation

CBN seeks states’ support to curb inflation
By Barbara Bako, Abuja.

The Central Bank of Nigeria (CBN) has called on State Governments to adopt disciplined fiscal practices to support Nigeria’s planned transition to an inflation-targeting monetary policy framework, warning that uncoordinated spending and borrowing at the sub-national level could undermine efforts to stabilise prices.

Speaking during an engagement with sub-national stakeholders facilitated through the Nigeria Governors’ Forum (NGF) Secretariat in Abuja, the Deputy Governor, Economic Policy Directorate, Dr. Muhammad Sani Abdullahi, said inflation targeting represents a shift towards a more transparent, rule-based and forward-looking monetary policy framework that requires strong collaboration between monetary and fiscal authorities.

According to him, while the CBN is responsible for deploying monetary policy tools to control inflation, fiscal decisions by State Governments significantly influence inflation outcomes in a federal system like Nigeria’s.

He explained that inflation targeting is largely about managing expectations, stressing that expansionary fiscal actions at the state level could either reinforce or weaken the effectiveness of monetary policy measures.

“In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” Abdullahi said.

The Deputy Governor identified several channels through which state fiscal operations affect inflation, including borrowing decisions, debt accumulation, expenditure patterns, wage bills, capital project execution, salary arrears, overdrafts, contractor financing, as well as weak coordination in the management of Federation Account Allocation Committee (FAAC) receipts and debt servicing obligations.

He further noted that the absence of fiscal dominance, where government borrowing pressures force the central bank to monetise deficits, remains a critical requirement for successful inflation targeting at both federal and state levels.

Abdullahi urged State Governments to reduce reliance on overdrafts and short-term financing, align borrowing with debt sustainability thresholds, improve revenue forecasting and budget realism, prioritise expenditures and synchronise fiscal calendars with prevailing macroeconomic conditions.

He outlined four major responsibilities for states under the proposed framework, including maintaining fiscal discipline and predictability, pursuing responsible borrowing within medium-term fiscal frameworks, strengthening coordination on cash and debt management, and improving internally generated revenue mobilisation.

According to him, unplanned spending, excessive supplementary budgets and unsustainable debt accumulation could create liquidity shocks and heighten inflationary pressures.

The Deputy Governor described inflation targeting as a collective national commitment aimed at promoting stability, policy credibility and long-term economic prosperity.

He said stronger coordination between the CBN and State Governments would not only support the success of the framework but also create a stronger foundation for growth, job creation and improved welfare.

Earlier, the Director of Monetary Policy Department at the CBN, Dr. Victor Oboh, described inflation targeting as a “win-win framework” capable of benefiting households, businesses and governments through improved policy credibility, anchored inflation expectations and reduced macroeconomic uncertainty.

Oboh noted that price stability cannot be achieved through monetary policy alone, particularly in a federal structure where sub-national spending, borrowing and cash-flow decisions directly affect liquidity and inflation dynamics.

He explained that the engagement was organised to deepen collaboration between the apex bank and State Governments on the coordination mechanisms required for the successful implementation of inflation targeting.

Also speaking, the Executive Director, Policy, Strategy and Research at the Nigeria Governors’ Forum, Prof. Olalekan Yunusa, who represented the Director-General of the NGF, Dr. Abdullateef Shittu, commended the CBN leadership for engaging sub-national fiscal authorities early in the transition process.

According to him, the move from a monetary-targeting framework to inflation targeting reflects a deliberate commitment to making price stability the central anchor of Nigeria’s economic policy.

He added that sustainable macroeconomic stability would require disciplined coordination across all levels of government.

The engagement featured presentations on Nigeria’s transition to inflation targeting and drew participants from more than 20 states, including Commissioners of Finance and Economic Planning, Accountant-Generals, Permanent Secretaries, State Statistician-Generals and Directors.

Participants reportedly commended the CBN’s reform agenda and pledged support for the successful implementation of the inflation-targeting framework.