The International Monetary Fund (IMF) has cautioned the Nigerian government over its proposed financing arrangement worth up to $5 billion with the United Arab Emirates’ First Abu Dhabi Bank (FAB), warning that the structure could expose the country to hidden financial risks and future fiscal pressures.
The deal, approved by the Senate in April 2026, is structured as a Total Return Swap (TRS), a complex financial instrument that allows Nigeria to obtain upfront US dollar funding by pledging the returns on selected naira-denominated securities.
While the Federal Government views the arrangement as a way to ease budget pressures and secure relatively cheaper financing, the IMF says such transactions often come with significant transparency and sustainability concerns.
According to the Fund’s Resident Representative in Nigeria, Christian Ebeke, derivative-based financing arrangements are frequently opaque, making it difficult to fully assess their long-term implications.
“Our view is that transactions in these types of structures carry risks. Usually they are opaque, so the terms are not always very transparent,” Ebeke said during a briefing on Nigeria’s 2026 Article IV Consultation.
Under the proposed arrangement, Nigeria would receive dollar funding in tranches while securities denominated in naira would serve as collateral. Reports indicate that the collateral could amount to as much as 133 per cent of the borrowed amount, representing an over-collateralisation level of about 33.3 per cent.
The six-year facility reportedly includes a three-year break clause and is expected to support infrastructure projects while helping the government refinance more expensive domestic and external obligations.
However, the IMF warned that a sharp depreciation of the naira or a decline in the value of the pledged securities could trigger additional margin calls, forcing Nigeria to provide more collateral and placing unexpected pressure on public finances.
The Fund also noted that arrangements of this nature can obscure the true cost of borrowing and create debt-like obligations that may not be immediately obvious in traditional debt statistics.
Rather than relying heavily on derivative structures, the IMF advised Nigeria to leverage its improved standing in international markets by exploring more transparent funding options such as Eurobond issuances or concessional financing from multilateral institutions.
Despite its concerns over the swap deal, the IMF acknowledged the economic reforms implemented by President Bola Ahmed Tinubu since 2023.
The Fund highlighted the removal of fuel subsidies, tighter monetary policies and exchange rate reforms as measures that have contributed to improved investor confidence and greater macroeconomic stability.
According to the IMF, Nigeria’s gross external reserves have climbed to around $50 billion, their highest level in about 17 years, while sovereign risk premiums have eased and access to international capital markets has improved.
The Fund, however, stressed that major challenges remain.
It noted that millions of Nigerians continue to face food insecurity, poverty levels remain elevated, and public debt has risen to approximately $104 billion. It also warned against excessive dependence on volatile portfolio inflows, urging policymakers to attract more stable foreign direct investment instead.
The proposed UAE financing arrangement has generated debate among economists and market analysts.
Supporters argue that the structure provides flexibility and access to foreign currency at a time when global borrowing costs remain high. Critics, on the other hand, believe the lack of transparency and potential exposure to unforeseen liabilities could complicate Nigeria’s debt management strategy in the future.
As discussions continue, attention is expected to shift to official responses from the Debt Management Office and the Federal Government on how the identified risks will be managed.
For Nigeria, the challenge may ultimately lie in balancing the urgent need for affordable financing with the principles of transparency, sustainability and fiscal discipline.
