Undisciplined borrowing of States threatens Nigeria’s inflation-targeting framework — CBN

The Central Bank of Nigeria (CBN) has cautioned state governments against their growing reliance on short-term borrowing and bank overdrafts.

In a statement released on Sunday, the apex bank warned that undisciplined fiscal behavior at the sub-national level poses a significant threat to Nigeria’s transition toward an inflation-targeting monetary framework.

The warning followed a strategic engagement between the CBN and state stakeholders, facilitated by the Nigeria Governors’ Forum (NGF).

Dr. Muhammad Sani Abdullahi, the Deputy Governor for Economic Policy, emphasized that achieving price stability is not solely the responsibility of the federal government.

He noted that fiscal dominance where the central bank is pressured to fund government deficits must be eliminated at both federal and state levels for inflation targeting to succeed.

While the CBN manages monetary tools, state governments wield significant influence over the economy through borrowing patterns, high levels of unsustainable debt, and supplementary budgets.

Dr. Abdullahi urged states to align their financial activities with debt sustainability thresholds and prioritize essential spending.

He stressed that excessive reliance on overdrafts weakens monetary signals, effectively fueling the inflationary pressures the CBN is trying to curb.

In his remarks, Dr. Victor Oboh, the CBN’s Director of Monetary Policy, described the shift to inflation targeting as a win-win strategy aimed at reducing macroeconomic uncertainty.

However, he maintained that price stability is impossible without a coordinated approach, especially given how state-level wage policies and debt accumulation impact national liquidity.

Prof. Olalekan Yunusa, representing the Nigeria Governors’ Forum, welcomed the early involvement of sub-national authorities in this policy shift.

Officials from over 20 states, including Finance Commissioners and Accountants-General, have reportedly pledged their support for the reform agenda.

This fiscal crackdown comes on the heels of concerning data from the Debt Management Office (DMO).

According to news reports, the external debt of 32 states and the Federal Capital Territory (FCT) surged by $944.12 million in 2025 alone. The total external debt stock for sub-nationals rose from $4.80 billion at the end of 2024 to $5.68 billion by December 2025, marking an 18.43% year-on-year increase.

The CBN’s new framework now mandates four key responsibilities for states including maintaining strict fiscal discipline, adopting responsible borrowing, strengthening cash management coordination, and aggressively improving internally generated revenue (IGR).