The International Monetary Fund (IMF) has raised concerns over Nigeria’s plan to secure up to $5 billion through a derivatives-based financing arrangement with First Abu Dhabi Bank, warning that such transactions often carry significant risks and limited transparency.
Nigeria’s Senate approved the proposed agreement in April, placing the country among a growing number of African borrowers, including Senegal and Angola, that have turned to similar financing structures over the past year.
Speaking to reporters on Tuesday, IMF Resident Representative in Nigeria, Christian Ebeke, cautioned against the use of such instruments.
“Our view is that the transaction in these types of structures carry risks. Usually they are opaque so the terms are not always very transparent when we reviewed these instruments across countries,” Ebeke said.
He suggested that Nigeria could explore alternative funding options, including issuing Eurobonds or accessing concessional financing to support its funding needs.
Ebeke said Nigeria intends to use proceeds from the Total Return Swap (TRS) arrangement to refinance costly debt obligations and fund infrastructure projects.
The IMF’s concerns came as it released its latest Article IV assessment of Nigeria’s economy. The Fund commended reforms introduced since 2023 under President Bola Tinubu, including the removal of fuel subsidies, exchange-rate liberalisation and tighter monetary policy.
According to the IMF, the measures have strengthened macroeconomic stability, improved policy credibility and helped restore investor confidence.
The Fund said the reforms had also supported Nigeria’s return to international capital markets, attracted portfolio inflows and reduced risk premiums. Nigeria’s central bank has reported gross foreign reserves of $50 billion, the highest level in 17 years.
However, the IMF warned that the gains have yet to translate into improved living conditions for many Nigerians.
The Fund said poverty remains high at 63%, while millions continue to face food insecurity, highlighting a gap between macroeconomic improvements and household welfare.
It also warned that Nigeria’s reliance on foreign portfolio investment exposes the economy to rollover risks because such capital can exit quickly during periods of uncertainty.
The IMF urged authorities to focus on attracting more stable long-term investment, particularly foreign direct investment, while continuing reforms aimed at strengthening economic resilience against external shocks, including the conflict in the Middle East.
Faridah Abdulkadiri
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