The federal government and the Central Bank of Nigeria (CBN) on Friday, September 18, signed an agreement to coordinate policies on inflation, public debt, government borrowing, liquidity and foreign exchange management as the country moves towards a new inflation-targeting framework.
The Memorandum of Understanding (MoU) on fiscal-monetary policy coordination, signed in Abuja, establishes a formal framework for the federal ministry of finance and the CBN to align key economic decisions without compromising the apex bank’s independence.
The CBN governor, Olayemi Cardoso, said the agreement would deepen cooperation in government cash management, debt issuance, liquidity forecasting, macroeconomic analysis, and policy consultations.
“This memorandum provides a structured framework for regular consultation, information exchange and policy coordination,” Cardoso said.
“It will strengthen collaboration in critical areas such as government cash management, debt issuance planning, liquidity forecasting, macroeconomic analysis and periodic policy consultations, thereby enhancing policy coherence and the effectiveness of economic management.”
The CBN governor said fiscal and monetary policies were complementary, as government expenditure, taxation and borrowing decisions affect economic activity, while monetary policy influences liquidity, interest rates and price stability.
According to him, the agreement is particularly significant as the CBN advances its transition towards an inflation-targeting framework.
“The timing of this agreement is particularly noteworthy as the Central Bank of Nigeria advances its transition towards an inflation-targeting framework,” he said.
Cardoso noted that successful inflation targeting required not only effective monetary policy but also a supportive fiscal environment.
He explained that the ministry and the apex bank had collaborated for decades on inflation management, debt sustainability, budget financing, exchange rate stability and responses to economic shocks, but the new agreement would formally institutionalise the relationship.
The minister of finance and coordinating minister of the economy, Taiwo Oyedele, said the government intended to use the framework to prevent fiscal and monetary policies from pulling in different directions.
He stressed, however, that closer coordination would not undermine the CBN’s autonomy.
“The operational independence of the Central Bank remains sacrosanct. Coordination must never become fiscal dominance. The CBN will retain full independence in pursuing price and financial-system stability,” Oyedele said.
The minister also disclosed that the government was targeting a sustainable reduction in inflation to single digits, arguing that monetary policy alone could not address Nigeria’s inflation problem.
“Our objective is to bring inflation sustainably into single digits and keep it there, and that cannot be monetary policy’s job alone,” he said.
“Fiscal policy must play its part: disciplined, disinflationary spending; sound cash and liquidity management; efficient financing that does not crowd out the private sector.”
Oyedele identified food, imported costs, energy and logistics as structural drivers of inflation, saying the government would pursue stronger grain reserves, improved agricultural yields, irrigation and farm-access roads.
He also ruled out a return to fuel subsidy, warning that reversing the policy could destabilise public finances and the naira.
“A return to subsidy would create a fiscal collapse, pressure the naira, and ultimately undermine the price affordability it seeks to provide,” he said.
Oyedele added that the ministry and CBN would share data on cash positions, financing plans, credit growth and foreign exchange flows more efficiently.
The CBN deputy governor, corporate services directorate, Dr Muhammad Abdullahi, said the agreement had become more important amid global economic uncertainty and geopolitical tensions.
He cited developments in the Middle East, noting that disruptions to energy and shipping routes could simultaneously affect oil prices, government revenue, inflation, capital flows and financing conditions.
“This is why coordination matters. Coordination does not mean blurring respective mandates or compromising the independence required for effective monetary policy,” Abdullahi said.
He said the agreement would support regular consultations, information sharing, joint technical analysis, scenario planning and stress testing.
According to him, both institutions should be able to assess how changes in oil prices and production could affect fiscal revenue, foreign exchange inflows, external reserves, inflation, liquidity and financing conditions.
“Uncertainty is not an argument for waiting; it is an argument for preparedness,” he added.
Also speaking, the permanent secretary of the federal ministry of finance, Raymond Omachi, said the agreement was designed to strike a balance between controlling inflation and supporting economic growth.
He said government spending decisions should not inadvertently fuel inflation, while monetary tightening should not unnecessarily constrain growth and employment.
“The core objective of the framework is inflation and growth balance,” Omachi said.
He added that the pact would align government borrowing plans with money-market liquidity management to prevent public borrowing from crowding out credit to businesses and to improve interest-rate outcomes.
The permanent secretary said the framework would also cover exchange rate and revenue stability, foreign exchange management, resilience to external shocks, and regular data sharing between the two institutions.
Comments