The Central Bank of Nigeria (CBN) has reaffirmed the critical role of State Governments in ensuring the successful transition to an inflation-targeting monetary policy framework, stressing that sustained price stability can only be achieved through coordinated fiscal discipline 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 shift to inflation targeting as a move toward a more rule-based, transparent and forward-looking monetary framework that requires close collaboration with state authorities.
According to him, while the apex bank retains responsibility for deploying monetary policy tools to control inflation, fiscal actions at the sub-national level also play a significant role in shaping inflation outcomes within a federal system such as Nigeria’s.
Dr. Abdullahi explained that inflation targeting is fundamentally about managing expectations, warning that uncoordinated or expansionary fiscal actions by State Governments could either reinforce or undermine monetary policy signals. He noted that states influence inflation through borrowing decisions, domestic debt accumulation, expenditure patterns, wage bills, capital project execution, salary arrears, overdrafts, contractor financing, and weak coordination on Federation Account Allocation Committee receipts, cash management and debt servicing.
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“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 further emphasised that the absence of fiscal dominance, where government borrowing pressures compel the central bank to monetise deficits, remains a core prerequisite for successful inflation targeting, noting that the principle applies equally to State Governments.
He urged states to reduce reliance on overdrafts and short-term financing, align borrowing decisions with debt sustainability thresholds, improve budget realism and revenue forecasting, prioritise expenditure, and better synchronise fiscal calendars with prevailing macroeconomic conditions.
Under the inflation-targeting framework, he outlined four major responsibilities for State Governments: maintaining fiscal discipline and predictability; pursuing responsible borrowing aligned with medium-term fiscal frameworks; strengthening coordination on cash and debt management; and enhancing internally generated revenue mobilisation. He warned that unplanned expenditures, excessive supplementary budgets and unsustainable debt accumulation could trigger liquidity shocks and heighten inflationary risks.
Dr. Abdullahi reiterated that inflation targeting represents a collective national commitment to stability, credibility and long-term prosperity, stressing that while the CBN remains accountable for delivering price stability, the framework’s success ultimately depends on disciplined fiscal behaviour across all tiers of government.
He added that stronger coordination and a shared commitment to price stability would help lay firmer foundations for economic growth, job creation and improved social welfare.
Earlier, the Director of the Monetary Policy Department, Victor Oboh, described inflation targeting as a “win-win framework” capable of benefiting households, businesses and governments by anchoring inflation expectations, enhancing policy credibility and reducing macroeconomic uncertainty.
Dr. Oboh stressed that price stability cannot be achieved through monetary policy alone, particularly in a federal system, noting that sub-national spending, borrowing and cash-flow decisions have direct implications for liquidity conditions and inflation outcomes.
According to him, the engagement was organised to deepen collaboration between the apex bank and State Governments on the roles, expectations and coordination mechanisms required for the success of inflation targeting.
He added that sub-national governments play a pivotal role in Nigeria’s macroeconomic landscape, as decisions on wage policies, capital spending, debt accumulation and revenue mobilisation directly shape aggregate demand and inflation dynamics.
The Director also reaffirmed that the engagement forms part of the bank’s broader partnership with the Nigeria Governors’ Forum and State Governments, anchored on a shared commitment to embedding macroeconomic stability as a collective national objective.
Delivering a goodwill message on behalf of the Director-General of the NGF, Abdullateef Shittu, the Executive Director, Policy, Strategy and Research at the forum, Olalekan Yunusa, commended the leadership of the CBN for involving sub-national fiscal authorities early in the transition process.
Prof. Yunusa noted that the transition from a monetary-targeting framework to inflation targeting reflects a deliberate commitment to making price stability the central anchor of economic policy, adding that sustainable macroeconomic stability requires disciplined coordination across all levels of government.
The engagement featured a detailed presentation on Nigeria’s transition to inflation targeting. Participants drawn from more than 20 states, including Commissioners of Finance and Economic Planning, Accountant-Generals, Permanent Secretaries, State Statistician-Generals and directors, commended the CBN’s reform agenda and pledged support for the successful implementation of the framework.
