The Central Bank of Nigeria (CBN) will retain its operational independence in setting monetary policy despite a new framework for closer coordination and cooperation with the Federal Government on fiscal and monetary policies.
Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, gave the assurance at the signing of a Memorandum of Understanding (MoU) between the Federal Ministry of Finance and the CBN on fiscal and monetary policy coordination.
Oyedele said the agreement was designed to strengthen cooperation between the two institutions without allowing fiscal policy considerations to interfere with the CBN’s responsibility for price and financial system stability.
‘So this is independence with coordination. The operational independence of the central bank remains sacrosanct. Coordination must never become fiscal dominance,’ he said.
According to him, the CBN would continue to have full independence in pursuing price and financial system stability, while the Federal Ministry of Finance would strengthen fiscal governance, accountability, cash management and other areas under its mandate.
The Minister said the purpose of the agreement was to institutionalise coordination between fiscal and monetary authorities so that it would be based on structures, data and accountability rather than the personalities occupying government offices.
‘Good economic management requires independent institutions, but independence does not mean isolation. Fiscal and monetary authorities have distinct mandates, but we serve the same economy,’ he said.
Oyedele explained that decisions taken by one institution could have direct consequences for the other, making regular communication necessary.
‘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.
He said the MoU would provide for stronger information sharing, common macroeconomic assumptions, more consistent forecasts and clearer mechanisms for resolving differences between the two institutions.
However, he stressed that cooperation would not mean the two institutions would surrender their separate responsibilities.
Oyedele said the government wanted inflation to fall sustainably into single digits but that achieving the target could not be left to monetary policy alone.
‘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 authorities would contribute through disciplined government spending, sound cash and liquidity management and more efficient government financing that would avoid unnecessarily crowding out private-sector businesses.
The Minister said Nigeria’s inflation problem also had structural causes, including food supply constraints, imported costs, energy and logistics, which could not be addressed by monetary policy alone.
He said the government would therefore work on agricultural production, irrigation, climate resilience, roads for transporting farm produce and other measures aimed at reducing the cost of getting food to consumers.
Oyedele also said the Federal Government would work with state governments on issues such as unnecessary road levies and farm-access roads.
On fuel prices, he said the government’s objective was to achieve price stability without returning to discretionary fuel subsidy.
He said tax exemptions on oil and greater foreign exchange stability had already helped moderate prices, while a reversal of current policies could create additional pressure on affordability.
The Minister also called for better economic data to guide policy decisions, saying the country could not manage the economy effectively with incomplete or outdated information.
He said the Ministry of Finance was working with the National Bureau of Statistics to provide additional information, including producer prices, consumer prices, employment and productivity data.
Oyedele said better data would enable policymakers to identify inflationary pressures before they reach consumers.
He added that the quality of economic growth should be judged by its ability to create real jobs and improve living conditions, rather than GDP growth alone.
The CBN Governor, Olayemi Cardoso, said the MoU did not create a new relationship between the two institutions but would give their long-standing cooperation a formal and structured framework.
He said the CBN and Ministry of Finance had worked together for decades on inflation management, debt sustainability, budget financing, exchange-rate stability, economic reforms and responses to domestic and global shocks. ‘What distinguishes today’s event is the formal institutionalisation of that collaboration,’ Cardoso said.
He said the agreement would establish regular consultation, information exchange and policy coordination in areas including government cash management, debt issuance planning, liquidity forecasting, macroeconomic analysis and periodic policy consultations.
Cardoso said the framework would improve decision-making and reduce uncertainty while allowing both institutions to respond more effectively to emerging economic challenges.
He said the arrangement 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.
Cardoso said regular dialogue and information sharing would enable both institutions to better align their actions, minimise policy trade-offs and pursue shared national economic objectives.
CBN Deputy Governor Sani Abdullahi said the cooperation would be particularly useful because fiscal and monetary authorities often have to respond to the same economic shocks, even though their mandates and policy instruments are different.
He cited disruptions to energy and shipping routes in the Middle East as an example of an external shock that could affect Nigeria’s fiscal and monetary positions simultaneously.
According to him, higher oil prices could increase Nigeria’s export earnings, government revenue and foreign exchange inflows, while higher energy, freight and insurance costs could push up domestic prices.
Global inflationary pressures could also affect interest rates, capital flows and financing conditions, he said. ‘This is why coordination matters,’ Abdullahi said.
He, however, made clear that coordination should not amount to the institutions abandoning their separate mandates or compromising the independence required for effective monetary policy.
He said coordination meant that each institution should understand the wider policy environment and the likely effects of its decisions.
The Deputy Governor said the MoU would involve timely information sharing, joint technical analysis, scenario planning and stress testing on matters of common interest.
He said the framework would be particularly useful for government cash management, liquidity forecasting and domestic financing operations.
Abdullahi said Nigeria should prepare for different oil production and price scenarios because it was impossible to know with certainty how long external disruptions would last or where oil prices would be in the coming months.
The Permanent Secretary, Federal Ministry of Finance, Raymond Omachi, said the agreement would establish a transparent framework for closer alignment between fiscal choices and monetary strategies.
He said its core objective was to balance inflation and economic growth so that government spending would not unnecessarily increase inflationary pressure, while monetary tightening would not needlessly weaken growth and employment.
Omachi said the framework would also improve government borrowing plans and money-market liquidity management, with the aim of preventing government borrowing from crowding out private-sector credit.
He said the agreement would cover exchange-rate and revenue stability, foreign exchange management, trade balances and the country’s ability to withstand economic shocks.
Omachi said regular policy dialogue and data-sharing mechanisms would also be formalised between technical officials of the Ministry and the CBN.
For Oyedele, the central principle behind the arrangement is that Nigeria has one economy, even though fiscal and monetary authorities have different responsibilities.
‘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 both institutions would coordinate without compromising independence, share information without weakening accountability and resolve differences through evidence and in the national interest.
The Minister said the long-term success of the arrangement would ultimately be determined by whether coordination could continue regardless of the personalities occupying the offices. ‘The greatest success will be measured when coordination no longer depends on who holds these offices,’ Oyedele said.