The Central Bank of Nigeria, CBN, has cautioned state governments in the country on their reliance on short-term borrowing and overdrafts, which it said is affecting its plan to control inflation.
The CBN said the action is having serious impacts on its monetary policy, citing debt accumulation, spending patterns, wage bills, capital project execution, salary arrears, contractor financing as some of the actions of sub-nationals driving high inflation in the country.
CBN’s Deputy Governor, Economic Policy Directorate, Dr Muhammad Abdullahi made the remark in a statement issued by the apex bank, on Sunday after a meeting with state government officials under the aegis of the Nigerian Governors Forum, NGF.
Abdullahi said the expenditure and borrowing pattern of state governments must align with the “prevailing macroeconomic conditions” in the country, calling on sub-nationals to collaborate with he CBN on these issues as their actions will greatly affect inflation outcomes.
Part of the statement: “The Deputy Governor emphasised that the absence of fiscal dominance, where government borrowing pressures compel the central bank to monetise deficits, is a core prerequisite for successful inflation targeting. He noted that this principle applies not only at the federal level but equally to State Governments.
“He urged States to reduce reliance on overdrafts and short‑term financing, ensure that borrowing decisions align with debt sustainability thresholds, improve budget realism and revenue forecasting, prioritise expenditure, and better synchronise fiscal calendars with prevailing macroeconomic conditions.”
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