By Bassey Udo
Sustained price stability in the economy can only be achieved through coordinated fiscal discipline across all tiers of government, the Central Bank of Nigeria (CBN) has said.
The Deputy Governor in charge of the Economic Policy Directorate at the CBN, Dr. Muhammad Sani Abdullahi, emphasised the critical role of State Governments in ensuring a successful transition to an Inflation Targeting (IT) monetary policy framework.
Abdullahi stated this during a sub-national stakeholders engagement in Abuja facilitated by the CBN through the Nigerian Governors Forum Secretariat.
He described the move toward inflation targeting as part of the country’s monetary policy as a shift to a more rule-based, transparent and forward-looking framework that demands close collaboration with state authorities.
While the Central Bank retains the responsibility for deploying monetary policy tools to control inflation, the director said fiscal actions, particularly at the sub-national level, play a significant role in shaping inflation outcomes within a federal system such as Nigeria’s.
Inflation targeting, Dr. Abdullahi explained, was fundamentally about managing expectations, warning that uncoordinated or expansionary fiscal actions by State Governments could either reinforce or undermine monetary policy signals.
The influence of States on inflation, he noted, usually manifest 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 said the absence of fiscal dominance, where government borrowing pressures compel the central bank to monetise deficits, was a core prerequisite for successful inflation targeting.
This principle, he pointed out, was not only applicable at the federal level, but also to State Governments.
Urging States to reduce reliance on overdrafts and short-term financing, he said this would ensure that borrowing decisions aligned 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, namely 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 against unplanned expenditures, excessive supplementary budgets and unsustainable debt accumulation, saying they could trigger liquidity shocks and elevate inflationary risks.
Reiterating that inflation targeting was a collective national commitment to sustainable stability, credibility and long-term prosperity, he said the CBN remained accountable for delivering price stability, while the framework’s success ultimately depended on disciplined fiscal behaviour across all tiers of government.
“By strengthening coordination and embedding price stability as a shared objective, State Governments would support the new framework and lay firmer foundations for growth, job creation and improved social welfare,” he said.
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.
Oboh 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.
He said the engagement with the sub-national stakeholders 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 formed a part of the bank’s broader partnership with the NGF and State Governments, anchored on a shared commitment to embedding macroeconomic stability as a collective national objective.
In 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 CBN Governor, Olayemi Cardoso, 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 reflected a deliberate commitment to price stability as the central anchor of economic policy.
He pointed out that sustainable macroeconomic stability cannot be achieved through monetary policy alone, adding that it required disciplined coordination across all tiers of government.
The engagement, which featured a detailed presentation on Nigeria’s transition to inflation targeting, was attended by Commissioners of Finance and Economic Planning, Accountant Generals, Permanent Secretaries, State Statistician-Generals and Directors from over 20 states of the Federation.
Participants commended the CBN’s reform agenda, particularly the transition to inflation targeting, and reaffirmed their commitment to supporting the Bank’s efforts.