CBN Warns States Against Short-Term Borrowing

The Central Bank of Nigeria (CBN) has warned state governments against excessive reliance on short-term borrowing and overdrafts, saying such practices could undermine Nigeria’s transition to an inflation-targeting monetary framework.

Deputy Governor for Economic Policy, Dr. Muhammad Sani Abdullahi, told stakeholders at a forum organised with the Nigeria Governors’ Forum (NGF) that inflation targeting requires stronger fiscal coordination between federal and state governments.

He cautioned that “excessive reliance on overdrafts, supplementary budgets and unsustainable debt could weaken monetary policy signals and fuel inflationary pressures.”

Abdullahi stressed that avoiding fiscal dominance, where borrowing pressures force the CBN to finance deficits, is critical.

He urged states to align borrowing with debt sustainability thresholds, improve revenue forecasting, and synchronise fiscal calendars with macroeconomic realities.

The CBN outlined four responsibilities for states under the new framework: maintaining fiscal discipline, adopting responsible borrowing, strengthening debt and cash management, and boosting internally generated revenue.

Director of Monetary Policy, Dr. Victor Oboh, described inflation targeting as a “win-win framework” that reduces uncertainty and improves policy credibility, but noted that state-level spending and debt accumulation directly affect liquidity and inflation.

NGF representative Prof. Olalekan Yunusa commended the CBN for involving sub-national authorities early, saying sustainable stability “can only be achieved through disciplined coordination among all tiers of government.”

The engagement was attended by officials from over 20 states, who pledged support for the reform agenda. It comes as DMO data shows states’ external debt rose by $944m in 2025, underscoring the urgency of responsible borrowing.