The Central Bank of Nigeria has warned state governments against excessive dependence on overdrafts and short-term borrowing, saying poor fiscal discipline could threaten Nigeria’s economic reforms and inflation control efforts.
The warning was issued during an engagement between the apex bank and sub-national stakeholders held through the Nigerian Governors’ Forum Secretariat in Abuja.
According to the CBN, reckless borrowing and unpredictable spending patterns by state governments may weaken the country’s planned transition to an inflation-targeting monetary policy framework.
Deputy Governor of the Economic Policy Directorate, Dr Muhammad Abdullahi, said state governments must embrace stronger fiscal discipline to support price stability and long-term economic growth.
He advised states to reduce reliance on overdrafts, improve revenue forecasting, and ensure that borrowing aligns with sustainable debt limits.
CBN warns against reckless borrowing
Abdullahi explained that inflation targeting is a more transparent and forward-looking monetary system that depends heavily on coordination between federal and state authorities.
He noted that state governments play a major role in influencing inflation through spending patterns, debt accumulation, salary payments, and cash management practices.
According to him, uncontrolled spending and excessive borrowing at the state level could reduce the effectiveness of monetary policy decisions.
He also warned against persistent supplementary budgets and unplanned expenditures, saying such actions could increase inflationary pressure across the economy.
“In an inflation-targeting regime, unpredictable fiscal behaviour by states can undermine price stability,” Abdullahi stated during the meeting.
States urged to improve fiscal discipline
The CBN outlined several responsibilities expected from state governments under the new framework, including:
- Reducing short-term borrowing
- Improving internally generated revenue
- Maintaining predictable spending patterns
- Strengthening debt management systems
- Aligning budgets with economic realities
The Director of Monetary Policy at the CBN, Dr Victor Oboh, described inflation targeting as a system that could benefit businesses, households, and governments through better policy stability.
He added that price control cannot be achieved by the CBN alone because state spending decisions also affect inflation and liquidity conditions nationwide.
Rising debt concerns among states
The development comes amid rising concerns over Nigeria’s growing subnational debt profile.
Recent figures from the Debt Management Office showed that the combined external debt of the 36 states and the Federal Capital Territory increased from $4.80bn in 2024 to $5.68bn in 2025.
Analysts say many states continue to rely heavily on loans despite increased allocations from the Federation Account Allocation Committee.
Officials from more than 20 states attended the Abuja engagement, including commissioners of finance, accountants-general, and economic planners.
The participants reportedly expressed support for the CBN’s reform agenda and pledged cooperation toward achieving economic stability.
The CBN’s latest warning highlights growing concerns about fiscal discipline among Nigerian states as the country battles inflation and rising debt levels. Analysts believe stronger coordination between monetary and fiscal authorities will be necessary to maintain economic stability and restore investor confidence in Nigeria’s economy.
