Nigeria’s three-year economic reform programme is entering a crucial stage as the government focuses on ensuring that the gains achieved through major policy changes can be sustained and used to support future economic growth.
The Federal Ministry of Finance and the Central Bank of Nigeria (CBN) are working to strengthen coordination between fiscal and monetary policies, with the aim of ensuring that government borrowing and spending do not undermine the central bank’s efforts to control inflation.
On September 18, the two institutions signed a memorandum of understanding covering shared macroeconomic assumptions, structured data exchange, government financing and cash management, as well as coordinated efforts to address inflation while maintaining the CBN’s operational independence.
The agreement builds on economic reforms introduced since 2023, including the removal of fuel subsidies, foreign-exchange market liberalisation and tighter monetary policy. According to the International Monetary Fund (IMF), these measures have helped improve macroeconomic stability and rebuild Nigeria’s external buffers. The Fund has also stressed the importance of continued reforms and fiscal discipline to preserve these gains.
The new framework seeks to address a longstanding challenge in economic management: ensuring that fiscal and monetary policies support rather than work against each other.
The importance of closer coordination can be seen in the government’s rising financing costs. Interest payments accounted for 53.2 percent of Federal Government revenue in 2025, compared with 40.8 percent in 2024, according to the IMF. The Fund also reported that government securities made up 22 percent of banks’ total assets, highlighting the connection between government borrowing and the amount of funding available to private businesses.
Government borrowing can influence liquidity, interest rates and financing costs, while CBN decisions on interest rates, liquidity and foreign exchange can affect government borrowing expenses, private-sector lending and wider economic activity.
The new arrangement is expected to improve the management of these interactions through better information sharing and coordinated forecasts covering inflation, economic growth, government revenue, liquidity, financing needs and external-sector developments.
“This is important not simply because we are signing a Memorandum of Understanding, but because of what it represents,” Taiwo Oyedele, Minister of Finance and Coordinating Minister of the Economy, said at the signing. “Our mandates are distinct, but our outcomes are interconnected.”
The agreement does not combine fiscal and monetary policy or weaken the CBN’s operational independence. Instead, it provides a structure for both institutions to coordinate their actions while continuing to operate under separate mandates.
The timing is particularly important as the CBN moves towards inflation targeting. Under this framework, the effectiveness and credibility of monetary policy depend not only on interest-rate decisions but also on fiscal policy, public expectations and clear communication.
The IMF has welcomed Nigeria’s progress towards inflation targeting while calling for a process that remains independent of the budget cycle, stronger monetary operations and clearer communication. It has also said that a neutral fiscal position would help monetary policy efforts to contain inflation.
CBN Governor Olayemi Cardoso also highlighted the importance of fiscal support for monetary policy.
“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 closer relationship between fiscal and monetary management could have wider economic implications. Better coordination of government borrowing and cash management with the CBN could reduce pressure on liquidity and private-sector credit. The IMF has warned that increased government borrowing could strengthen the connection between banks and the sovereign while placing additional constraints on lending to businesses.
One possible benefit of the framework is greater predictability in economic policy.
For businesses and investors, a more coordinated approach to fiscal, monetary and exchange-rate policies could make it easier to evaluate financing conditions, investment opportunities and economic risks, particularly as Nigeria continues to reconnect with international capital markets.
The framework also recognises that controlling inflation requires more than interest-rate adjustments. It includes measures aimed at addressing food, energy and logistics costs, alongside the collection of more frequent data on producer prices, employment and productivity.
Supply-side challenges can keep inflation high even when monetary policy remains tight. While interest rates can influence demand and expectations, improvements in food production, transportation, energy supply and productivity can help address some of the underlying causes of price increases.
The wider reform programme has also supported Nigeria’s return to international capital markets. The IMF said reforms introduced since 2023 have improved foreign-exchange market operations, rebuilt external buffers, encouraged portfolio inflows and supported the country’s return to external markets.
FTSE Russell is also set to restore Nigeria to Frontier Market status from September 21 following its classification review, forming part of the country’s broader efforts to re-engage with international investors and capital markets.
These developments are not directly caused by the new memorandum but reflect the wider reform process and the growing importance of maintaining policy credibility.
“Capital follows trust before returns,” Oyedele said. “That is why policy consistency, certainty and clarity remain central to everything both institutions do.”
The approaching 2027 election cycle could test the durability of the new framework as the economic environment changes. The IMF has identified election-related spending pressures and the possibility of slower reform momentum as potential risks to fiscal stability and economic growth.
This makes coordination between fiscal and monetary authorities increasingly important. The effectiveness of the framework will depend on whether cooperation becomes a regular part of economic management as conditions change, financing requirements increase and policy priorities evolve.
Key questions remain over how government borrowing will affect liquidity and private-sector lending, how food and energy supply challenges will be addressed alongside inflation management, and how both institutions will respond to external shocks without weakening confidence in the exchange-rate framework.
The outcome of these efforts will determine whether the memorandum becomes simply an administrative framework for cooperation or develops into a lasting part of Nigeria’s economic management system.
After three years of major changes to the way the Nigerian economy is managed, the next challenge is to make those reforms durable enough to support sustained growth, investment and greater economic stability.
