Yemisi Izuora
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 sub‑national 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 rule‑based, 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 inflation‑targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub‑national 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 short‑term 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 inflation‑targeting framework, Dr. Abdullahi outlined four key 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 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 “win‑win 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 sub‑national fiscal operations, especially spending, borrowing and cash‑flow 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 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 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 sub‑national 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.