The International Monetary Fund has warned Nigeria to tread carefully in pursuing a proposed $5bn Total Return Swap financing arrangement with First Abu Dhabi Bank, describing such structures as opaque and potentially risky, despite the country’s improved access to international capital markets.
The IMF Resident Representative for Nigeria, Christian Ebeke, disclosed this on Tuesday during a virtual press briefing on the Fund’s 2026 Article IV Consultation Report on Nigeria. Speaking on the proposed transaction, Ebeke said, “We say in the report, and our view is that the transaction and these types of structures carry risks.
Usually, they are opaque. So, the terms are not always very transparent when we review these instruments across countries.” His comments come weeks after the Senate approved the Federal Government’s request to raise up to $5bn through a Total Return Swap arrangement with a Middle Eastern bank, widely reported to be First Abu Dhabi Bank.
Ebeke noted that beyond concerns over transparency, such financing arrangements could expose countries to additional financial risks if underlying assets lose value or exchange rates move adversely. “They also carry risk, as we flag in the report, the margin calls in the case that the value of the asset drops or the currency depreciates,” he said.
According to him, Nigeria currently has alternative funding options that may be less complicated and more transparent. “We think that Nigeria has market access. Nigeria can issue Eurobonds to finance the deficit. And we also think that there are other avenues for Nigeria to raise funds, including on concessional terms,” Ebeke added.
While noting that the Fund did not yet have detailed information on the proposed swap structure, he urged authorities to closely monitor the transaction’s potential risks. “At this point, we don’t have any further information on the TRS. But our view is that it carries risk, and it’s important to monitor those risks very, very carefully,” he said.
The IMF’s caution formed part of a broader assessment in which the Fund acknowledged that economic reforms undertaken by the Nigerian government over the past three years had strengthened macroeconomic stability and improved the country’s ability to withstand external shocks.
“One of the key messages from the report is that strong reforms over the past three years have improved macroeconomic outcomes and improved resilience,” he said. According to Schimmelpfennig, higher global oil prices resulting from the conflict could improve Nigeria’s export earnings and government revenues but would also create inflationary pressures through increased fuel, food, and fertiliser costs.
He said the IMF recommended a broadly neutral fiscal stance for 2026, with the budget deficit remaining largely unchanged relative to 2025, to support macroeconomic stability and complement the Central Bank of Nigeria’s efforts to curb inflation. “We continue to think that the flexible exchange rate regime is serving Nigeria well, and we’ve even seen an appreciation against the US dollar since the start of the year,” he said.
The IMF also projected that Nigeria’s economy would grow by 4.1 per cent in 2026 and 4.3 per cent in 2027, although these forecasts were lower than previous projections due to the economic consequences of the conflict in the Middle East. “For 2026, we project real GDP growth to be 4.1 per cent.