In Nigeria’s ongoing battle against rising prices, the spotlight is gradually shifting from Abuja to the states.
While the Central Bank of Nigeria (CBN) has long been seen as the primary driver of monetary stability, a new reality is emerging—one that places sub-national governments at the heart of the country’s inflation management strategy.
At a recent high-level engagement with state actors, facilitated through the Nigeria Governors’ Forum, the CBN made a compelling case: inflation targeting cannot succeed without fiscal discipline across all tiers of government.
A Shift in Strategy
Nigeria is transitioning toward an inflation targeting framework—a system that focuses on controlling price increases through clear, forward-looking policies. Unlike previous approaches, this framework depends heavily on managing expectations, transparency, and coordination.
For Muhammad Sani Abdullahi, the message is clear: monetary policy alone is not enough.
“In an inflation-targeting regime, persistent or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability,” he warned.
This marks a shift from the traditional view where inflation control was largely the responsibility of the central bank. Instead, it introduces a shared accountability model—one where states must align their fiscal decisions with national economic goals.
How States Shape Inflation
The influence of state governments on inflation is often underestimated. Yet, their decisions ripple across the economy in ways that directly affect price stability.
From borrowing and debt accumulation to wage bills, project execution, and cash management, state-level fiscal actions determine how much money circulates in the economy. Poor coordination or excessive spending can inject liquidity into the system, driving prices upward.
Even administrative processes—like delays in salary payments or unplanned supplementary budgets—can create shocks that destabilise inflation expectations.
The implication is profound: inflation is not just a monetary phenomenon; it is also a fiscal one.
The Risk of Fiscal Dominance
A major concern highlighted during the engagement is the risk of fiscal dominance—a situation where government borrowing pressures force the central bank to finance deficits, weakening its ability to control inflation.
While this risk is often discussed at the federal level, the CBN emphasised that it is equally relevant for states. Heavy reliance on overdrafts and short-term financing at the sub-national level can collectively undermine national monetary objectives.
To counter this, states are being urged to adopt more disciplined financial practices, including realistic budgeting, improved revenue forecasting, and adherence to debt sustainability thresholds.
A New Role for Sub-national Governments
Under the inflation targeting framework, state governments are expected to play a more structured and deliberate role.
Their responsibilities extend beyond governance into macroeconomic stewardship—maintaining fiscal discipline, managing debt responsibly, strengthening cash flow coordination, and boosting internally generated revenue.
These are not merely administrative tasks; they are essential pillars of economic stability.
According to Victor Oboh, the framework represents a “win-win” for all stakeholders.
By anchoring inflation expectations and reducing uncertainty, it creates a more predictable environment for households, businesses, and investors alike.
Collaboration as a Necessity, Not an Option
The engagement itself signals a broader shift in economic governance—one that prioritises collaboration over centralisation.
By working closely with the Nigeria Governors’ Forum and state officials, the CBN is fostering a shared understanding of the challenges and expectations tied to inflation targeting.
For Olalekan Yunusa, this early engagement is both strategic and necessary. Sustainable macroeconomic stability, he noted, cannot be achieved in isolation.
It requires coordinated action across all levels of government.
The Bigger Picture
At its core, inflation targeting is about more than controlling prices. It is about building credibility, restoring confidence, and laying the groundwork for long-term economic growth.
But as Nigeria embarks on this transition, one thing is becoming increasingly clear: success will depend not just on policies crafted in Abuja, but on decisions made in state capitals across the country.
In a federal system, economic stability is a shared responsibility.
And in the fight against inflation, every budget, every borrowing decision, and every fiscal choice counts.
