Fiscal dominance over as CBN slashes ways and means 90% to N2.8trn

…Rebuilds external reserves to over $50bn, cuts parallel market gap to 2%

…Cardoso flags election spending, food prices, middle east tensions as key risks to economy

Olayemi Cardoso, Governor, Central Bank of Nigeria (CBN) announced on Thursday that the apex bank had slashed ways and means financing to the federal government by nearly 90%, from N26.95 trillion in 2023 to N2.84 trillion in January 2026, effectively ending fiscal dominance and restoring the bank’s independence.

“This action restored compliance with the law, strengthened central bank independence, signalled to markets about the Bank’s commitment to orthodoxy and transparency, and sent a clear message that the era of fiscal dominance had come to an end,” Cardoso said during the first monetary policy forum of 2026 in Abuja.

The sharp reduction in government borrowing has allowed the CBN to regain control over its monetary policy and restore stability to the foreign exchange market.

The governor said tighter monetary conditions, a disciplined policy approach, and strong coordination with fiscal authorities helped bring headline inflation down from 34.8% in December 2024 to 15.06% in February 2026.

“Without these firm and coordinated actions, inflation would have been significantly higher, and expectations would have become significantly de‑anchored,” he warned.

In parallel, external reserves have climbed to $50.12 billion, the highest in 13 years, and the parallel market premium has been narrowed to under 2%, reflecting a broader recovery in the financial markets.

Diaspora remittances have tripled to $600 million per month, while improved FX infrastructure and tighter prudential controls have restored correspondent-banking confidence and enhanced liquidity across the market.

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Cardoso said these reforms followed a period of severe macroeconomic stress, including over $7 billion in FX backlogs and net reserves dropping to $3.99 billion.

Among other measures, the CBN responded with a cumulative 875-basis-point policy rate hike in 2024, peaking at 27.5%, before easing to 26.5 percent in February 2026.

A major anchor of the reforms, Cardoso said, is the planned transition toward an inflation-targeting framework. “These reforms have laid the groundwork for the Bank to implement a carefully sequenced transitional roadmap to inflation targeting, thereby strengthening the primacy and effectiveness of price stability mandate,” he said, emphasising that the framework will help anchor inflation expectations, enhance policy credibility, and improve transparency in monetary policy.

Cardoso also highlighted progress in the banking sector, noting that ahead of the March 31 deadline, 32 banks have already met the revised capital requirements under the ongoing recapitalisation programme, positioning the financial sector to mobilise long-term investment and support the country’s transition towards the proposed $1 trillion economy.

Other reforms include the introduction of risk-based capital requirements, the orderly exit from regulatory forbearance, stricter enforcement of insider-lending rules, and measures to limit credit to large non-performing obligors.

Despite these gains, the CBN governor raised concerns that food price pressures, election-cycle spending, and volatility stemming from ongoing middle east crisis as potential threats to economic stability.

“However, pressures from food supply constraints, infrastructure deficits, and election-cycle spending will require vigilance,” Cardoso said, highlighting the need for continued coordination between fiscal and monetary authorities.

He stressed that achieving lasting macroeconomic stability would require continued coordination with fiscal authorities, disciplined policy execution, and engagement with key stakeholders across the economy.

He reaffirmed the central bank’s commitment to transparency and collaboration, noting that the reforms implemented over the past two years have laid a strong foundation for sustainable growth, a more stable exchange rate, and a financial system capable of supporting Nigeria’s ambition to transition towards a robust economy.

Also speaking at the event, Wale Edun, Minister of Finance and Coordinating Minister of the Economy, noted that the country is “now moving from a phase of stabilisation towards growth and acceleration,” with a near-term GDP growth target of about 7%, roughly double the pace of inflation.

Edun stressed that interest rates remain a key tool for managing price pressures, adding, “When interest rates are high, the cost of financing rises across the board—affecting government on the fiscal side, as well as households and businesses.”

He noted that as reforms take hold and inflation eases, interest rates could decline, supporting broader economic activity.

The minister also highlighted continued FX market reforms, improved transparency, and close coordination between fiscal and monetary authorities as critical for disinflation and macroeconomic stability.

He praised the CBN’s shift towards an inflation-targeting framework as a foundation for policy credibility, planning, and sustainable investment.

In his welcome address, Muhammad Sani Abdullahi, deputy governor, economic policy, CBN said the 2026 forum underscores the shared responsibility of macroeconomic stability, and that effective policy relies on the actions of a broad spectrum of economic actors.

He highlighted progress since the last forum, as lower inflation, improved foreign exchange market conditions, and stronger fiscal‑monetary coordination.

The deputy governor urged continued dialogue, emphasising that “continuous engagement between the Central Bank and stakeholders is essential for improving policy effectiveness and ensuring that our decisions remain responsive to the realities of the economy.”

He added that the CBN seeks to understand how monetary policy adjustments affect specific sectors, noting that beyond macroeconomic data, it is critical to hear directly from stakeholders on how policy changes influence investment decisions, credit conditions, production costs, pricing behaviour, and expectations.