The Central Bank of Nigeria (CBN) has issued a stern warning to state governments: Clean up your balance sheets or risk tanking the national economy.

In a high-level engagement with the Nigeria Governors’ Forum (NGF) in Abuja, CBN Deputy Governor Dr. Muhammad Abdullahi revealed that the country's transition to a "rule-based" inflation-targeting framework is being undermined by "expansionary fiscal behavior" at the state level.

“In an inflation-targeting regime, persistent, unpredictable or expansionary fiscal behaviour at the sub-national level can significantly undermine price stability.” — Dr. Muhammad Abdullahi, CBN Deputy Governor.

THE BREAKDOWN: WHY THE CBN IS WORRIED

The CBN is shifting its strategy to focus solely on hitting specific inflation targets. However, this move is being hampered by three major state-level habits:

  1. Overdraft Dependency: States are using short-term bank credit to fund daily operations instead of sustainable revenue.

  2. Fiscal Dominance: Governments are pressuring the central bank to "monetize deficits" (print money to cover debts), which devalues the Naira.

  3. The "FAAC Effect": Large, uncoordinated spending spikes following Federation Account disbursements are creating "liquidity shocks" that drive up prices.

BY THE NUMBERS: THE DEBT SURGE

Data from the Debt Management Office (DMO) justifies the CBN’s alarm. Despite receiving higher federal allocations, state debt is ballooning:

  • Total Sub-national External Debt (2025): $5.68 Billion

  • Year-on-Year Increase: 18.43% (up from $4.80B in 2024).

  • The Offenders: 33 out of 36 states recorded an increase in external debt last year.

THE 4-POINT "MANDATE" FOR GOVERNORS

To support the national economy, the CBN has outlined four non-negotiable responsibilities for states:

  • Strict Discipline: Stop unplanned "emergency" spending and excessive supplementary budgets.

  • Responsible Borrowing: Ensure loans stay within "sustainability thresholds."

  • Cash Coordination: Synchronize spending with the CBN's monetary calendar.

  • Revenue Growth: Focus on Internally Generated Revenue (IGR) rather than bailouts.

EXPERT TAKE

Dr. Victor Oboh (Director, Monetary Policy Dept): "Price stability cannot be achieved by the CBN alone. It’s a win-win framework, but only if state spending, wage bills, and contractor financing are better managed to reduce macroeconomic uncertainty."

Infinite Pulse News | 2026 Economic Brief Source: Central Bank of Nigeria / Debt Management Office