CBN warns states over rising debt, short-term borrowing habit

The Central Bank of Nigeria (CBN) has warned state governments in Nigeria to stop relying too much on short-term loans and overdrafts. It said this habit could weaken efforts to control inflation in the country.

The warning was given after a meeting between the CBN and state officials, organised through the Nigeria Governors’ Forum (NGF).

The CBN Deputy Governor for Economic Policy, Dr Muhammad Sani Abdullahi, said Nigeria’s plan to control inflation will only work if both federal and state governments manage their spending properly and work together.

He explained that when states borrow too much or depend on overdrafts, it can increase inflation and make the economy unstable.

He also said that poor budgeting, unpaid salaries, and uncontrolled spending by states can affect national prices.

The CBN asked states to:

Reduce short-term borrowing

Borrow responsibly within safe debt limits

Improve how they plan their budgets and forecast revenue

Spend money more carefully

Increase their internally generated revenue

The bank stressed that inflation control is not only the job of the CBN, but also depends on how state governments spend and borrow.

Another CBN official said inflation control will work better if both monetary policy (CBN actions) and government spending are properly coordinated.

The Debt Management Office (DMO) data shows that Nigeria’s states and the Federal Capital Territory increased their external debt in 2025, rising from about $4.8 billion in 2024 to $5.68 billion in 2025.

The CBN said better cooperation between all levels of government is needed to achieve economic stability, control inflation, and support growth and jobs in Nigeria.