Executive Summary
Nigeria continues to grapple with persistent macroeconomic instability, characterised by high inflation, fluctuating exchange rates, rising public debt, and uneven economic growth. Fiscal and monetary policies remain essential tools for achieving macroeconomic stability. However, poor coordination between the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance (FMF) has often led to conflicting policy directions, thereby undermining policy effectiveness. Notably, fiscal indiscipline amidst tight monetary conditions has contributed to stagflation, weak investor confidence, and an uncertain macroeconomic environment.
This policy brief examines the role of fiscal and monetary policy alignment in promoting internal and external macroeconomic balance in Nigeria. The key findings show that:
- Despite the existence of formal coordination platforms—such as the Fiscal Liquidity Assessment Committee (FLAC) and them Monetary and Fiscal Policy Coordinating Committee (MFPCC)—policy misalignment remains prevalent.
- The “Ways and Means” financing mechanism has been misused, raising concerns over fiscal dominance and the erosion of CBN autonomy.
- Empirical analysis shows that Nigeria experienced higher episodes of uncoordinated fiscal and monetary policy stances, reflecting weak policy harmonisation.
- The Integrated Policy Framework (IPF), developed by the International Monetary Fund (IMF), offers a comprehensive model that can guide coordinated use of multiple policy tools to respond to domestic and external shocks in a complex, open economy like Nigeria.
The main policy prescriptions include:
(1) Consolidating existing fiscal–monetary coordination committees into one formalised Policy Coordination Board tasked with joint policy planning, implementation and monitoring;
(2) Broadening the scope of policy coordination to include capital flow management, macroprudential regulation, and foreign exchange interventions alongside traditional fiscal and monetary tools. Nigeria can better enhance macroeconomic stability by appropriately aligning fiscal and monetary policy within an integrated institutional framework.
