FG, CBN Strengthen Fiscal, Monetary Policy Coordination
By Patience Ikpeme
The Federal Government and the Central Bank of Nigeria (CBN) have agreed to strengthen coordination between fiscal and monetary policies to control inflation, improve government borrowing and liquidity management, and ensure that businesses continue to have access to credit.
The agreement is contained in a Memorandum of Understanding (MoU) signed by the Federal Ministry of Finance and the CBN.
Under the agreement, both institutions will hold regular consultations, share information and jointly assess economic policies and developments.
Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, said the arrangement would make cooperation between the fiscal and monetary authorities more permanent and less dependent on the individuals occupying public offices.
“Today matters not because we are signing a document, but because of what it represents. Our determination to institutionalise coordination between fiscal and monetary policy,” Oyedele said.
He said although the Ministry of Finance and the CBN have different responsibilities, both operate within the same economy, making cooperation important for effective economic management.
“Government borrowing affects liquidity and interest rates. Monetary policy affects the government’s financing cost. Tariffs and exchange rates affect prices and revenue. Spending affects demand,” he said.
According to Oyedele, the new framework will improve information sharing, promote the use of common economic assumptions and forecasts, and provide clearer ways of resolving differences between fiscal and monetary authorities.
He, however, said the arrangement would not affect the independence of the CBN.
“So this is independence with coordination. The operational independence of the central bank remains sacrosanct. Coordination must never become fiscal dominance,” he said.
Oyedele said the CBN would retain its independence in pursuing price and financial system stability, while the government would continue to improve fiscal discipline, accountability and cash management.
He said the government’s goal was to bring inflation sustainably into single digits and keep it there, adding that monetary policy alone could not achieve the target.
“Inflation is, as a process, a whole-of-government agenda. 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.
He said fiscal policy would support the fight against inflation through disciplined government spending, better management of government cash and liquidity, and more efficient borrowing that would not prevent private businesses from obtaining credit.
The Minister said some of Nigeria’s inflation problems were also linked to structural issues such as food supply, import costs, energy and transportation. These, he said, could not be addressed through interest rates alone.
He said the government would therefore focus on measures such as maintaining food reserves, providing better seeds, improving farm yields and irrigation, strengthening climate resilience and improving roads used to transport farm produce to markets.
Oyedele also called for greater cooperation with state governments, particularly to remove unnecessary road levies and improve access roads to farms.
On fuel prices, the Minister said the government wanted greater price stability without returning to discretionary fuel subsidies.
He said tax exemptions in the oil sector and improved foreign exchange stability had helped to moderate fuel prices, warning that reversing existing policies could put more pressure on prices and make fuel less affordable.
Oyedele also called for better economic data to guide government decisions, saying poor or outdated information could weaken economic management.
He said the Ministry of Finance was working with the National Bureau of Statistics to provide more economic data, including the Producer Price Index, in addition to information on consumer prices, employment and productivity.
According to him, the additional data would help policymakers detect inflationary pressures before they reach consumers.
He also said economic growth should not be measured by Gross Domestic Product (GDP) alone, but also by the number of real jobs created.
Under the new framework, the fiscal and monetary authorities will share information on government cash positions, financing plans, credit growth and foreign exchange flows.
“Better coordination starts with a common evidence base,” Oyedele said.
CBN Governor Olayemi Cardoso said the MoU would turn the long-standing relationship between the two institutions into a more formal and structured arrangement.
He said the CBN and the Ministry of Finance had worked together for decades on issues including inflation, debt sustainability, budget financing, exchange-rate stability, economic reforms and responses to domestic and global economic shocks.
“What distinguishes today’s event is the formal institutionalisation of that collaboration,” Cardoso said.
He said the agreement would cover government cash management, debt issuance planning, liquidity forecasting, economic analysis and regular policy consultations.
According to him, regular engagement between the two institutions would improve decision-making, reduce uncertainty and strengthen Nigeria’s ability to respond to emerging economic challenges.
Cardoso said the agreement was particularly important as the CBN moves towards an inflation-targeting framework.
“The success of inflation targeting is known to rest not only on the effectiveness of monetary policy but also on the existence of a supportive fiscal environment,” he said.
The governor said the framework would allow both institutions to better align their actions, reduce policy conflicts and work towards common economic objectives.
He said the ultimate goal was to build a more stable, resilient and productive economy capable of creating broad-based prosperity.
CBN Deputy Governor Sani Abdullahi said closer coordination had become more important because the same economic shocks could affect both fiscal and monetary policies at the same time.
He cited disruptions to energy and shipping routes in the Middle East as an example.
According to him, such disruptions could push up global oil prices, increasing Nigeria’s export earnings, government revenue and foreign exchange inflows. At the same time, higher energy, freight and insurance costs could increase prices within the country.
He said global inflationary pressures could also affect interest rates, capital flows and financing conditions.
“This is why coordination matters,” Abdullahi said.
He said the MoU would require timely and reliable information sharing, joint technical analysis, scenario planning and stress testing on issues affecting both institutions.
Abdullahi said the framework would be particularly useful for government cash management, liquidity forecasting, domestic financing operations and the assessment of economic conditions.
He said Nigeria must prepare for different oil-price and production scenarios because it was impossible to know how long external disruptions would last or where oil prices would be in the coming months.
The Deputy Governor said the two institutions should assess in advance how different oil-price and production outcomes could affect government revenue and foreign exchange inflows.
He said the success of the MoU would depend on how well it was implemented rather than on the signing ceremony.
“The value of this agreement will be determined by its implementation. Its success will not be measured by judicial ceremony alone, but by what happens after today,” he said.
Permanent Secretary, Federal Ministry of Finance, Raymond Omachi, said the agreement would create a transparent framework for closer alignment between government fiscal decisions and monetary strategies.
He said one of its main goals was to balance inflation control with economic growth, ensuring that government spending did not unnecessarily increase inflation while monetary tightening did not needlessly weaken growth and employment.
Omachi said the framework would also improve coordination of government borrowing and money-market liquidity management, reducing the risk of government borrowing limiting the amount of credit available to businesses.
He said the agreement would cover exchange-rate and revenue stability, including foreign exchange management, trade balances and Nigeria’s ability to withstand economic shocks.
The Permanent Secretary said it would also formalise regular policy discussions and data sharing between technical officials of the Ministry and the CBN.
According to him, the framework would help create a more predictable environment for investors, strengthen public confidence and build a stronger economic foundation.
For Oyedele, the broader objective is to ensure that fiscal and monetary policies do not work against each other.
“Nigeria has one economy. Fiscal policy cannot succeed without price stability. Monetary policy cannot deliver price stability if fiscal policy pulls in the opposite direction,” he said.
He said the two institutions would coordinate without compromising their independence, share information while maintaining accountability and settle differences through evidence and in the national interest.
