The Federal Government has drawn down $1.5bn from a $5bn financing facility arranged with the United Arab Emirates’ largest lender, First Abu Dhabi Bank, despite growing concerns from global financial institutions over the increasing use of complex derivative financing by African sovereigns.
Bloomberg reported on Friday that the latest drawdown represents the first tranche of a $5bn Total Return Swap facility approved by the National Assembly on March 31, 2026, and is expected to support the 2026 budget, finance infrastructure projects, and refinance existing debt obligations.
The report quoted people familiar with the transaction, who asked not to be identified because they were not authorised to speak to the media. The report read, “Nigeria has accessed the first tranche of a $5bn derivatives deal with the United Arab Emirates’ largest lender, pressing ahead with a transaction that has been scrutinised for being opaque.
“The West African nation drew about $1.5bn in the last couple of weeks from a total return swap transaction with First Abu Dhabi Bank PJSC, according to people familiar with the transaction, who asked not to be identified because they were not authorised to speak to the media.” The transaction comes at a time when Nigeria is facing higher borrowing costs in international capital markets, forcing the government to seek alternative financing arrangements to shore up its fiscal position and improve access to foreign exchange liquidity.
Under the arrangement, Nigeria is required to pledge Federal Government securities worth about 133 per cent of any amount drawn under the facility. This means that for the full $5bn facility, the government would have to post approximately $6.65bn worth of naira-denominated bonds as collateral.
In return, the Abu Dhabi-based lender provides dollar liquidity to the Nigerian government. The Federal Government will pay a floating interest rate benchmark plus about four percentage points, while the lender receives the returns generated by the underlying government securities.
The transaction effectively allows Nigeria to unlock immediate dollar funding without issuing new Eurobonds or taking on traditional external loans at prevailing market rates, which have become increasingly expensive for frontier economies. The government has already indicated that the proceeds from the initial $1.5bn drawdown will be deployed to support budget implementation, fund critical infrastructure projects, and refinance costlier domestic and external debts.
However, the financing arrangement has attracted criticism from international financial institutions and market analysts over concerns about transparency and potential hidden liabilities. In its June 2026 assessment of African sovereign debt markets, the International Monetary Fund warned that derivative financing structures such as total return swaps are often opaque and difficult for investors and creditors to monitor.
The IMF noted that such arrangements are “hard to track, hard to value in real time, and can obscure the true extent of a country’s financial obligations.” Three days ago, Fitch Ratings warned that Nigeria’s planned $5bn financing arrangement with First Abu Dhabi Bank could increase sovereign debt risks and reduce transparency in public debt reporting.
Related News Naira records marginal loss in official forex market Remi Tinubu faces backlash over akara, roasted corn remarks Nigeria needs more taxpayers, not higher taxes – Oyedele In a report titled ‘Emerging Market Sovereigns’ Use of Total Return Swaps Raises Risks,’ published on June 19, Fitch said the growing use of TRS structures by emerging economies could create hidden liabilities and expose countries to significant financial risks during periods of economic stress.