The Federal Ministry of Finance and the Central Bank of Nigeria have taken an important step by formalising fiscal-monetary policy coordination. But the significance of the September 18 agreement extends beyond the document itself: Nigeria needs stronger institutions if the gains of the past three years of economic reform are to become durable.
For too long, the credibility of economic policy has depended too heavily on whether different arms of government were moving in the same direction. A monetary authority can tighten policy to contain inflation, for instance, only for fiscal expansion or heavy government borrowing to create additional pressures on liquidity, interest rates and prices. That disconnect carries a cost.
‘The objective should be coordination without subordination. Fiscal and monetary authorities should be able to pursue their separate responsibilities while recognising that their decisions ultimately meet in the same economy. That is the promise of the new framework.’
Businesses find it harder to plan when major economic policies change direction or appear to work against one another. Investors demand a higher premium when they cannot be confident that today’s policy framework will remain broadly consistent tomorrow. And the central bank can be forced to work harder when fiscal policy is adding to the pressures monetary policy is trying to contain. The new framework offers an opportunity to change that.
The Finance Ministry and the CBN have different mandates, and that distinction should remain. The government must manage public finances and finance development, while the central bank is responsible for monetary and financial stability. Coordination should not mean that one institution dictates to the other. It should mean that both understand the consequences of their decisions for the other.
A government deciding how much to borrow should take account of the implications for liquidity, interest rates and private-sector credit. A central bank setting monetary policy should have a clear view of the government’s financing requirements, cash position and fiscal trajectory. That is not a theoretical concern.
The IMF estimates that interest payments absorbed 53.2 percent of Federal Government revenue in 2025, compared with 40.8 percent in 2024. It also estimates that banks’ holdings of government securities were equivalent to about 22 percent of their total assets. The figures show how closely government financing conditions are connected to the financial system and, ultimately, the availability of credit to businesses.
Better coordination will not eliminate those pressures. But it can help prevent fiscal and monetary decisions from unnecessarily amplifying them. This is particularly important as the CBN moves towards inflation targeting.
Inflation targeting requires more than setting an interest rate. It depends on credible communication, reliable data, sound monetary operations and a fiscal environment that does not systematically work against the inflation objective. The IMF has made the same point in assessing Nigeria’s transition towards the framework.
The September 18 agreement therefore represents a potentially important shift in how economic policy is organised. Nigeria’s problem has not always been a lack of economic policies. It has often been the inconsistency between policies or uncertainty about how one policy decision will interact with another. That is why institutionalisation matters.
Strong institutions create rules and processes that make policy less dependent on personalities and more dependent on established frameworks. They make it easier for businesses and investors to understand how government decisions are likely to interact. This is where credibility and trust become economic variables.
An investor deciding whether to commit capital to Nigeria is not looking only at today’s exchange rate or inflation rate. The investor is also asking whether the policy environment is sufficiently predictable to justify a long-term commitment. The same applies to a manufacturer deciding whether to expand capacity, a bank deciding how to allocate credit or a company deciding whether to invest in a new project.
Predictability reduces uncertainty. Lower uncertainty can improve the conditions for investment. Nigeria has made meaningful progress since 2023. The reform programme has included the removal of the fuel subsidy, exchange-rate reforms and tighter monetary policy. The IMF says these measures have strengthened macroeconomic stability, rebuilt external buffers and improved foreign-exchange market functioning.
Nigeria is also re-establishing links with international capital markets, with FTSE Russell’s restoration of the country to Frontier Market status and J.P. Morgan’s inclusion of Nigerian government securities in its new frontier local-currency bond index. These developments are not the result of the new fiscal-monetary coordination framework. They are evidence of why policy credibility now matters even more.
As Nigeria becomes more integrated with international capital markets, inconsistency becomes more costly. International investors can move capital quickly when they perceive a deterioration in policy credibility. Domestic businesses also adjust investment decisions when uncertainty rises. The answer is not to eliminate disagreement between economic institutions. Independent institutions should disagree when their mandates require it.
The objective should be coordination without subordination. Fiscal and monetary authorities should be able to pursue their separate responsibilities while recognising that their decisions ultimately meet in the same economy. That is the promise of the new framework.
But signing an MoU is only the beginning. Its credibility will depend on whether coordination becomes routine rather than exceptional: whether fiscal and monetary forecasts are genuinely shared, whether government financing decisions account for liquidity conditions, whether fiscal policy supports disinflation when necessary and whether both institutions communicate a coherent economic direction. The test will come when the interests of short-term policy collide with the demands of long-term stability.
Nigeria’s approaching election cycle, changing financing needs and exposure to external shocks will provide such moments. The strength of the framework will be measured not when economic conditions are favourable, but when difficult choices have to be made. That is when institutions matter most.
Nigeria has spent three years undertaking some of its most consequential economic reforms in decades. The next stage should be about building the institutional architecture that makes those reforms credible, predictable and durable. Strong institutions are not simply a governance objective. They are an economic asset.
If fiscal and monetary policy increasingly move in compatible directions, Nigeria can begin to replace policy uncertainty with greater predictability, and dependence on individual decisions with confidence in institutions. The September 18 agreement is a step in that direction. What matters now is whether Nigeria follows through.