Nigeria’s Monetary Policy Undermined by Excessive Government Spending, Says MPC Member
Excessive government spending is severely undermining Nigeria’s monetary policy efforts, making it difficult to control inflation and stabilise the naira, a key member of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) has warned.
Murtala Sagagi, a member of the MPC, cautioned that weak fiscal discipline, structural inefficiencies, and persistent cash usage were limiting the effectiveness of the CBN’s policy interventions. In his personal statement following the committee’s 298th meeting, Sagagi stressed that without greater fiscal-monetary coordination, Nigeria’s economic ambitions—including its goal of becoming a $1 trillion economy—would remain elusive.
“The excess spending by the government is one of the biggest monetary policy challenges in the country,” he said. “The efficacy of these policies largely depends on effective coordination between fiscal and monetary authorities.”
Despite the central bank’s sustained efforts to stabilise prices and foreign exchange markets, Sagagi argued that fiscal recklessness was eroding the impact of these measures. He warned that inflation and exchange rate volatility would persist unless government spending was brought under control.
State Governments Worsening Inflation, Says CBN Deputy Governor
Philip Ikeazor, the CBN’s Deputy Governor for Financial System Stability and a fellow MPC member, echoed Sagagi’s concerns. He pointed specifically to fiscal injections by state governments as a key driver of Nigeria’s stubbornly high inflation rate.
“In the last MPC, I provided forward guidance on the intention to support a hike in rates if the fiscal actions of the subnational governments continued to weaken the effective transmission of monetary policy,” Ikeazor said.
At the committee’s November 2024 meeting, he voted for a 50-basis-point hike in the monetary policy rate, advocating for a stronger response to inflationary pressures. However, the majority of MPC members opted for a more moderate 25-basis-point increase.
According to Ikeazor, inflationary pressures in Nigeria stem from long-standing fiscal imbalances, excessive government spending, and external shocks. He warned that if state and federal authorities failed to rein in spending, monetary policy alone would be insufficient to stabilise the economy.
Calls for Fiscal Reform and Policy Alignment
Both Sagagi and Ikeazor urged the government to exercise greater fiscal prudence, reduce recurrent expenditures, and prioritise capital investment to enhance economic resilience. Sagagi emphasised that stronger alignment between monetary and fiscal policies was essential to prevent inflationary spirals.
Ikeazor, on the other hand, called for more decisive monetary policy actions, arguing that while monetary tightening had slowed economic growth, it remained necessary to restore macroeconomic stability and investor confidence.
The CBN’s next MPC meeting is scheduled for 17–18 February 2025, where policymakers will once again debate Nigeria’s fiscal and monetary challenges. With inflation still running high and the naira under pressure, the question remains whether the government will heed the central bank’s warnings—or if monetary policy will continue to fight an uphill battle against unchecked public spending.
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