CBN Urges States To Reduce Reliance On Overdrafts
The Central Bank of Nigeria, CBN, has urged state governments to cut down on overdrafts and short‑term borrowing to finance projects.
The Central Bank of Nigeria, CBN, has urged state governments to cut down on overdrafts and short‑term borrowing to finance projects.
The advice was contained in a statement by the CBN Deputy Governor in charge of the Economic Policy Directorate, Dr. Muhammad Abdullahi, on Sunday.
According to the statement, Abdullahi gave the advice while speaking during an engagement with sub‑national stakeholders, facilitated through the Nigerian Governors Forum Secretariat.
Abdullahi urged them to ensure that borrowing decisions align with debt sustainability thresholds, improvement of budget realism and revenue forecasting, as well as prioritising of expenditure in a bid to synchronise fiscal calendars with prevailing macroeconomic conditions.
He emphasised the critical role of state governments in ensuring successful transition to an Inflation Targeting (IT) monetary policy framework, adding that sustained price stability could be achieved only through coordinated fiscal discipline across all tiers of government.
Abdullahi described the move toward inflation targeting as a shift to a more rule‑based, transparent, and forward‑looking monetary framework that demands close collaboration with state authorities.
According to him, while the CBN retains responsibility for deploying monetary policy tools to control inflation, fiscal actions, particularly at the sub-national level, play a significant role in shaping inflation outcomes within a federal system such as Nigeria’s, noting that
inflation targeting is fundamentally about managing expectations.
He emphasised the critical role of state governments in ensuring successful transition to an Inflation Targeting (IT) monetary policy framework, adding that sustained price stability could be achieved only through coordinated fiscal discipline across all tiers of government.
Abdullahi described the move toward inflation targeting as a shift to a more rule‑based, transparent, and forward‑looking monetary framework that demands close collaboration with state authorities.
According to him, while the CBN retains responsibility for deploying monetary policy tools to control inflation, fiscal actions, particularly at the sub-national level, play a significant role in shaping inflation outcomes within a federal system such as Nigeria’s, noting that
inflation targeting is fundamentally about managing expectations.
He also, warned that uncoordinated or expansionary fiscal actions by state governments could either reinforce or undermine monetary policy signals, stressing that states influence inflation 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.
“In an inflation‑targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub‑national level can significantly undermine price stability,” he said.
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