CBN Urges States to Cut Overdraft Reliance for Inflation Targeting

The Central Bank of Nigeria urged state governments on Sunday to reduce their reliance on overdrafts and short-term financing to support the country's transition to an inflation-targeting monetary policy framework. The advice came from CBN Deputy Governor for Economic Policy, Muhammad Abdullahi, during an engagement with subnational stakeholders facilitated by the Nigerian Governors Forum Secretariat in Abuja.

Abdullahi stressed that fiscal actions at the state level significantly influence inflation outcomes in Nigeria's federal system. He warned that uncoordinated or expansionary spending, including through overdrafts, domestic debt accumulation, wage bills, capital projects, salary arrears, and poor coordination on Federation Account Allocation Committee receipts, could undermine monetary policy efforts. "In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the subnational level can significantly undermine price stability," Abdullahi said.

The CBN official outlined four key responsibilities for states: maintaining fiscal discipline and predictability, pursuing responsible borrowing aligned with medium-term frameworks and debt...