CBN Blames State Spending, Debt for Rising Inflation as New Policy Begins

The Central Bank of Nigeria (CBN) has stepped up engagement with state governments as part of ongoing reforms to introduce an inflation-targeting monetary policy framework aimed at stabilising prices and reducing economic uncertainty across the country.

This was discussed at a high-level meeting in Abuja between the apex bank and sub-national governments, organised through the Nigeria Governors’ Forum Secretariat.

Speaking at the engagement, the Deputy Governor of the CBN in charge of Economic Policy, Muhammad Sani Abdullahi, said the success of the new framework would depend heavily on how well fiscal authorities at all levels align their policies with national monetary objectives.

He explained that inflation targeting is designed to create a more transparent and forward-looking system that helps anchor inflation expectations and improve overall economic stability.

According to him, while the CBN is responsible for monetary policy, actions by state governments—such as spending decisions, borrowing patterns, debt levels, and cash management—have a direct impact on inflation outcomes.

Abdullahi warned that inconsistent or expansionary fiscal behaviour at the sub-national level could weaken the effectiveness of monetary policy and make inflation harder to control.

He highlighted key areas where state governments influence price levels, including wage bills, borrowing choices, capital project execution, salary arrears, contractor financing, and coordination of federal allocations and debt servicing.

The CBN official stressed that avoiding “fiscal dominance,” where excessive government borrowing forces the central bank into indirect financing of deficits, is essential for the success of inflation targeting.

He urged states to reduce reliance on overdrafts and short-term loans, maintain sustainable debt levels, and improve the realism of their budgets through better revenue forecasting and spending prioritisation.

Abdullahi also outlined key expectations from state governments under the new policy framework, including stronger fiscal discipline, responsible borrowing, improved debt and cash coordination, and enhanced internally generated revenue.

He cautioned that unchecked spending, repeated supplementary budgets, and rising debt burdens could trigger liquidity pressures and worsen inflation across the economy.

Describing inflation targeting as a collective national responsibility, he said achieving price stability and economic growth would require strong cooperation between the federal and sub-national governments.

Also speaking, Director of the Monetary Policy Department at the CBN, Victor Oboh, described the framework as a “win-win approach” that could improve policy credibility, reduce uncertainty, and benefit households, businesses, and governments alike.

He noted that in a federal system like Nigeria, monetary policy alone cannot control inflation without the support of disciplined fiscal actions from state governments.

Representing the Nigeria Governors’ Forum, Executive Director of Policy, Strategy and Research, Olalekan Yunusa, commended the CBN for involving state authorities early in the reform process.

He said the shift toward inflation targeting reflects a stronger commitment to making price stability the core focus of economic management in Nigeria.

Yunusa added that sustained macroeconomic stability would depend on effective coordination and discipline across all tiers of government.

Participants at the meeting, including officials from over 20 states, reportedly expressed support for the initiative and pledged cooperation toward the successful implementation of the new inflation-targeting framework.