The Central Bank of Nigeria (CBN) has emphasised the critical role of State Governments in ensuring a successful transition to an Inflation Targeting (IT) monetary policy framework, stressing that sustained price stability can be achieved only through coordinated fiscal discipline across all tiers of government.
Speaking during an engagement with subnational stakeholders, facilitated through the Nigerian Governors Forum Secretariat, the Deputy Governor in charge of the Economic Policy Directorate, Dr. Muhammad Sani Abdullahi, described the move toward inflation targeting as a shift to a more rulebased, transparent and
forward-looking monetary framework that demands close collaboration with state authorities.
According to him, while the Central Bank retains responsibility for deploying
monetary policy tools to control inflation, fiscal actions, particularly at the sub-
national level, 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 multiple channels, including borrowing
decisions, domestic debt accumulation, expenditure patterns, wage bills, capital
project execution, salary arrears, overdrafts, contractor financing, and weak
coordination on the Federation Account Allocation Committee (FAAC) receipts, cash
management and debt servicing.
“In an inflationtargeting regime, persistent, unpredictable or expansionary fiscal
behaviour at the subnational level can significantly undermine price stability,” he
said.
The Deputy Governor emphasised that the absence of fiscal dominance, where
government borrowing pressures compel the central bank to monetise deficits, is a
core prerequisite for successful inflation targeting. He noted that this principle applies
not only at the federal level but equally to State Governments.
He urged States to reduce reliance on overdrafts and shortterm financing, ensure
that borrowing decisions align with debt sustainability thresholds, improve budget
realism and revenue forecasting, prioritise expenditure, and better synchronise fiscal
calendars with prevailing macroeconomic conditions.
Under the inflationtargeting framework, Dr. Abdullahi outlined four key
responsibilities for State Governments: maintaining fiscal discipline and predictability;
pursuing responsible borrowing aligned with mediumterm 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 elevate inflationary risks.
He reiterated that inflation targeting is a collective national commitment to stability,
credibility and long-term prosperity. While the CBN remains accountable for
delivering price stability, he said the framework’s success ultimately depends on
disciplined fiscal behaviour across all tiers of government.
By strengthening coordination and embedding price stability as a shared objective,
he added, State Governments would support the new framework and lay firmer
foundations for growth, job creation and improved social welfare.
Earlier, in his opening remarks, the Director, Monetary Policy Department, Dr. Victor
Oboh, described inflation targeting as a “winwin framework” that benefits
households, businesses and governments by anchoring inflation expectations,
enhancing policy credibility and reducing macroeconomic uncertainty.
He stressed that price stability cannot be achieved through monetary policy alone,
particularly in a federal system, noting that subnational fiscal operations, especially
spending, borrowing and cashflow decisions have direct implications for liquidity
conditions and inflation outcomes.
According to Dr. Oboh, the engagement was designed to foster mutual
understanding, promote open dialogue and deepen collaboration between the apex
bank and State Governments on the roles, expectations and coordination
mechanisms required for the success of inflation targeting.
He further noted that subnational 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 reaffirmed that the engagement forms part of the bank’s broader
partnership with the Nigeria Governors’ Forum (NGF) 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, NGF, Dr.
Abdullateef Shittu, the Executive Director, Policy, Strategy and Research at the
NGF, Prof. Olalekan Yunusa, commended the Governor of the Central Bank of
Nigeria and the Bank’s leadership for what he described as the strategic foresight
behind the engagement, particularly the decision to involve subnational fiscal
authorities at an early stage of the transition process.
He noted that the shift from a monetary-targeting framework to inflation targeting
reflects a deliberate commitment to price stability as the central anchor of economic
policy. He added that sustainable macroeconomic stability cannot be achieved
through monetary policy alone and requires disciplined coordination across all tiers
of government.
The engagement featured a detailed presentation on Nigeria’s transition to inflation
targeting. Participants drawn from over 20 states of the Federation, comprising
Commissioners of Finance and Economic Planning, Accountant Generals,
Permanent Secretaries, State Statistician-Generals and Directors amongst others,
commended the CBN’s reform agenda, particularly the transition to inflation
targeting, and reaffirmed their commitment to supporting the Bank’s efforts.
