The Central Bank of Nigeria (CBN) has called on state governors to exercise fiscal prudence and avoid wasteful spending ahead of the upcoming election period, warning that excessive liquidity injections could undermine recent economic reforms and destabilise macroeconomic gains.
CBN Governor, Olayemi Cardoso, gave the warning during the National Economic Council (NEC) Conference in Abuja, where he outlined the bank’s reform progress and the risks posed by expansionary fiscal behaviour at the sub-national level.
Cardoso stated that the CBN’s reforms have laid a solid groundwork for stability, reflected in sharply lower inflation and external reserves now standing at $49 billion. He added that the foreign exchange market has remained steady, with the apex bank actively building up reserves from the market to support long-term sustainability.
He noted that state governments significantly influence macroeconomic stability, as they control approximately 50 per cent of Federation Account Allocation Committee (FAAC) revenues. According to him, this level of control directly affects macroeconomic outcomes, price and exchange rate stability, liquidity management and poverty levels.
“States collectively influence expenditure patterns, wage bills, infrastructure decisions, and liquidity conditions across the economy. Revenue capacity has expanded post-reforms, and sub-nationals now drive inflation and supply-side outcomes.
“As we know, in a typical election cycle, a lot of money gets pumped into the system. This has to be watched to ensure it does not destabilise these very bold reforms, which have brought about stability in the economy.
“I will say here that monetary policy is a necessary but insufficient tool. It can take us to where we have gotten to now, but it is no substitute for economic fundamentals. No central bank can sustainably deliver low and stable inflation alone where structural drivers — such as food supply shocks, high energy costs, and infrastructural deficits — are large contributors to price pressures,” Cardoso said.
He further stated: “States shape spending trends, payrolls, infrastructure choices, and overall liquidity. Reforms have boosted revenue potential, and now sub-national entities are key to controlling inflation and supply dynamics.
“We all know election seasons often flood the system with cash. We must monitor this closely to protect these transformative reforms that have delivered economic steadiness.
“Monetary policy is essential but not enough on its own. It has gotten us this far, but it cannot replace strong fundamentals. No central bank can achieve lasting low inflation in isolation when structural issues — like food shortages, soaring energy prices, and infrastructure gaps — fuel inflation,” Cardoso stated.
He urged state governments to align with national stability objectives by prioritising public spending on infrastructure and measures that address the structural drivers of inflation.
The CBN governor also emphasised the importance of responsible management of sub-national debt and stronger collaboration with the financial sector to expand financial inclusion and support economic growth.
“Our priority for 2026 to 2030 is strengthening monetary policy effectiveness through an orthodox approach. In other words, we will continue the discipline we have established: safeguarding financial stability, deepening domestic financial markets, and enhancing international competitiveness.
“Despite our progress, I would caution that we are not out of the woods yet. We must remain focused to ensure all potential headwinds and risks are identified in advance and managed appropriately. By 2030, we expect success to look like single-digit inflation and growing foreign exchange reserves powered by non-oil exports and FDI,” he added.
