CBN Urges States on Fiscal Discipline for Successful Inflation Targeting Shift

By Ifeyinwa Ike

The Central Bank of Nigeria (CBN) has stressed the vital role of state governments in supporting the transition to an Inflation Targeting (IT) framework,.

The Apex bank emphasised that price stability demands coordinated fiscal restraint across all government tiers.

During a key engagement with sub-national stakeholders through the Nigerian Governors’ Forum (NGF) Secretariat in Abuja, CBN Deputy Governor for Economic Policy Directorate, Dr. Muhammad Sani Abdullahi, described IT as a rule-based, transparent, forward-looking monetary system requiring tight collaboration with states.

Abdullahi clarified that while the CBN handles monetary tools to tame inflation, subnational fiscal moves such as borrowing, debt buildup, spending patterns, wage bills, capital projects, salary arrears, overdrafts, contractor financing, and FAAC coordination directly impact outcomes in Nigeria’s federal setup.

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

He highlighted avoiding fiscal dominance where government borrowing forces deficit monetisation as essential, applying equally to states and the federal level. States should cut overdraft reliance, align borrowing with debt sustainability, improve budget realism and revenue forecasts, prioritize spending, and sync fiscal calendars with macro conditions.

Under IT, Abdullahi outlined four state responsibilities such as fiscal discipline and predictability, responsible borrowing tied to medium-term frameworks; better cash and debt coordination; and boosting internally generated revenue.

He cautioned that unplanned spending, excessive supplementary budgets, and unsustainable debt risk liquidity shocks and inflation spikes.

The Deputy Governor framed IT as a national pact for stability, credibility, and prosperity, with CBN accountable for price targets but success hinging on all tier discipline.
Stronger coordination would build foundations for growth, jobs, and welfare.

In opening remarks, CBN Director of Monetary Policy Department, Dr. Victor Oboh, called IT a win-win for households, businesses, and governments by anchoring expectations, boosting credibility, and curbing uncertainty.

He noted sub-national operations like spending, borrowing, and cash flows shape liquidity and inflation, making coordination crucial in a federal system.

Oboh said the session aimed to build understanding, dialogue, and partnership with states on roles and mechanisms for IT success, given their sway over aggregate demand via wages, capital spends, debt, and revenue.

The event aligns with CBN-NGF ties for shared macro stability goals.

Nigeria’s Governors Forum Executive Director for Policy, Strategy and Research, Prof. Olalekan Yunusa, delivered a goodwill message for Director-General Dr. Abdullateef Shittu, praising CBN Governor and leadership for early sub-national involvement.

He endorsed the shift from monetary targeting to IT as strategic for price stability, requiring multi-tier coordination.

Over 20 states participated, including Finance Commissioners, Accountant-Generals, Permanent Secretaries, State Statistician-Generals, and Directors.

They applauded CBN’s reforms and pledged support for the IT transition.