Legislative Oversight on Public Sector Borrowing, Fiscal Discipline, and Macroeconomic Stability Under Nigeria’s Inflation-Targeting Transition

Abstract

The Central Bank of Nigeria has called on state governments to reduce their dependence on overdrafts and short-term borrowing as Nigeria transitions toward an inflation-targeting monetary policy framework. According to the CBN, excessive and unpredictable fiscal behaviour at the subnational level could undermine efforts to stabilise inflation, strengthen monetary policy credibility, and maintain macroeconomic stability. During engagements with state officials through the Nigerian Governors’ Forum Secretariat, the CBN highlighted the importance of strong coordination between fiscal and monetary authorities in a federal system. The Bank noted that borrowing patterns, supplementary budgets, rising debt accumulation, expenditure expansion, and weak cash management practices at the state level contribute directly to inflationary pressures and liquidity expansion. However, the concerns extend beyond subnational governments. Nigeria’s broader public finance environment continues to face significant fiscal sustainability challenges, particularly at the federal level, where borrowing through domestic debt issuance, external loans, deficit financing, and recurrent fiscal deficits remains substantial. Rising debt servicing obligations and increasing reliance on borrowing to finance public expenditure continue to generate concerns regarding inflation, exchange rate stability, and long-term economic resilience. The situation highlights deeper structural weaknesses in Nigeria’s fiscal governance framework, including weak fiscal discipline, growing public debt exposure, excessive dependence on short term financing mechanisms, poor coordination between fiscal and monetary authorities, and insufficient prioritisation of productive, growth-enhancing investments. The transition toward inflation targeting therefore presents an important opportunity for proactive legislative oversight aimed at strengthening fiscal discipline, improving debt sustainability, and enhancing macroeconomic governance across all tiers of government. Accordingly, the National Assembly, through its Committees on Finance and National Planning and Economic Development, may consider: ● Inviting the CBN, Debt Management Office, Federal Ministry of Finance, Budget Office, and Fiscal Responsibility Commission to provide detailed briefings on the implications of public sector borrowing for inflation, debt sustainability, and macroeconomic stability. ● Undertaking a comprehensive review of borrowing patterns across federal and state governments, including deficit financing, overdrafts, external debt exposure, and debt servicing obligations. ● Assessing the relationship between fiscal deficits, liquidity expansion, inflationary pressures, exchange rate instability, and the effectiveness of Nigeria’s inflation-targeting framework. ● Encouraging stronger institutional coordination between the Federal Government, state governments, and the CBN to improve policy alignment and macroeconomic management. ● Strengthening oversight of supplementary budgets, recurrent expenditure growth, and unplanned spending to improve fiscal discipline and budget credibility. ● Promoting public borrowing for productive sectors such as infrastructure, industrial development, and long-term economic growth rather than recurrent expenditure financing. ● Supporting periodic public disclosure of debt profiles, contingent liabilities, borrowing plans, and fiscal risks across all levels of government. The concerns raised by the CBN underscore broader structural challenges within Nigeria’s public finance management system. While subnational borrowing remains an important issue, sustainable inflation control and macroeconomic stability require disciplined fiscal conduct across all tiers of government, including the Federal Government itself. Proactive legislative engagement by the National Assembly will be critical in strengthening fiscal accountability, improving debt sustainability, reinforcing investor confidence, and supporting a more stable and resilient Nigerian economy.