CBN Urges States to Curb Overdraft Dependence as Inflation Targeting Reform Intensifies

The Central Bank of Nigeria (CBN) has called on state governments to reduce their dependence on overdrafts and short-term borrowing, warning that unchecked fiscal behaviour at the sub-national level could threaten Nigeria’s shift toward an inflation-targeting monetary policy framework.

The appeal was made during a stakeholder engagement session in Abuja facilitated through the Nigerian Governors’ Forum Secretariat. According to the CBN, the meeting was designed to strengthen coordination between monetary authorities and state governments as the country moves toward a more rules-based approach to inflation control.

Speaking at the event, the Deputy Governor of the CBN’s Economic Policy Directorate, Dr. Muhammad Abdullahi, stressed that states must adopt stronger fiscal discipline to support price stability and ongoing macroeconomic reforms. He cautioned that borrowing decisions should remain within sustainable debt limits while budget planning and revenue forecasting must be more realistic and coordinated.

Dr. Abdullahi explained that inflation targeting requires not only central bank action but also responsible fiscal conduct from state governments. He noted that spending patterns, wage bills, debt accumulation, and cash flow management at the sub-national level directly influence inflation outcomes in a federal system like Nigeria’s. According to him, unpredictable or expansionary spending could weaken monetary policy effectiveness and fuel price instability.

Also speaking, Director of the Monetary Policy Department, Dr. Victor Oboh, described inflation targeting as a “win-win framework” that enhances policy credibility and reduces economic uncertainty for households, businesses, and governments. He emphasized that price stability cannot be achieved through monetary policy alone, especially in a system where state-level fiscal decisions significantly affect liquidity conditions.

The engagement also featured representatives from over 20 states, including finance commissioners, accountants-general, and policy directors, who expressed support for the CBN’s reform agenda. Meanwhile, recent data from the Debt Management Office shows rising external borrowing among states, with total subnational foreign debt climbing to about $5.68 billion in 2025, highlighting continued reliance on external financing amid fiscal pressures and infrastructure demands.