LAGOS, June 25 – African governments are increasingly turning to total return swaps (TRS) as an alternative source of sovereign financing, allowing them to access international capital at lower costs while taking on a different set of financial risks than conventional borrowing.
Nigeria became one of the latest countries to adopt the structure after President Bola Ahmed Tinubu sought legislative approval for a $5 billion external financing arrangement with First Abu Dhabi Bank in March 2026. The proposal was approved by the National Assembly within a week.
On 24 March 2026, President Bola Tinubu asked Nigeria’s National Assembly to approve a $5 billion external financing arrangement with First Abu Dhabi Bank. Seven days later, on 31 March, both chambers had approved it. The instrument behind that approval was a total return swap, a derivative structure that most members of the legislature voting on it, and most readers following the news that week, had never previously had reason to understand.
This is not a story about whether Nigeria needed the money. The country’s public debt stood at $110.3 billion at the end of 2025, its 2026 budget had just been expanded by 17%, and the war in Iran had pushed emerging-market borrowing costs sharply higher, effectively freezing Eurobond issuance for frontier sovereigns. Nigeria needed financing and on paper, this financing looked cheap: roughly 395 to 400 basis points above SOFR, landing around 7.6 to 8.1% comparable to, and in some cases below, the 7.97% yield on Nigeria’s existing 2034 dollar bonds.
This was as Fitch warned that Nigeria’s proposed $5 billion financing arrangement with First Abu Dhabi Bank could increase sovereign debt risks, reduce transparency in public debt reporting and complicate any future debt restructuring.
“Is it a total return swap?” — Joseph Cotterill, Financial Times emerging markets correspondent, on the difficulty of even classifying the instrument cleanly.
What a Total Return Swap Actually Is
Strip away the legal architecture and a total return swap works like this: the sovereign borrower pledges collateral, in Nigeria’s case, naira-denominated securities worth 133.3% of the loan value to the lending bank. In exchange, the bank pays the borrower the loan amount upfront. The borrower then owes the bank the ‘total return’ on the underlying reference asset over the life of the swap: interest payments, plus or minus any change in the asset’s market value.
This is fundamentally different from a bond. A bond is a fixed promise: borrow X, repay X plus a coupon, on a schedule. A total return swap ties repayment to the performance of a reference asset. If that asset’s value falls because of a currency move, a commodity price drop, or a credit event — the borrower can be required to post additional collateral immediately, sometimes within days. This is called a margin call, and it is the single most consequential difference between this instrument and conventional sovereign debt.
Angola found this out directly. In December 2024, Angola signed a $1 billion total return swap with JPMorgan, collateralised by $1.9 billion in sovereign Eurobonds, priced at slightly below 9% modestly cheaper than its roughly 10% Eurobond yields at the time. In May 2025, oil prices fell. The value of the pledged collateral declined. JPMorgan issued a $200 million margin call. Angola had to find that money, fast, with no advance warning baked into a fixed repayment schedule the way a bond would have provided.
The Accounting Sleight of Hand
Here is the detail that should concern anyone analysing African sovereign balance sheets right now: when a government borrows through a total return swap, the cash received is recorded as external debt. But the contingent liability, the obligation to post more collateral if asset values move against the sovereign typically is not captured in standard public debt statistics in the same way a bond’s terms would be.
The International Monetary Fund (IMF) has discouraged Nigeria from proceeding with a proposed $5 billion financing arrangement with First Abu Dhabi Bank of the United Arab Emirates, warning that the deal could expose the country to financial and transparency risks.
Senegal’s government has pushed back on the characterisation that its swap borrowing was ‘hidden,’ arguing the transactions were a deliberate strategy to diversify funding sources. But Bank of America’s own estimate put Senegal’s total swap-based borrowing at up to €1 billion, a figure that emerged through external analyst reconstruction, not initial government disclosure.
“The IMF… stressed that these transactions are usually opaque and carry risks, urging Nigeria to pursue more transparent alternatives.” — Daily Trust, on the Fund’s response to the Nigeria-FAB transaction
The Pattern Across the Continent
Nigeria is not an outlier; it is the latest and largest entrant into a pattern that has been building since at least 2024. Angola’s $1 billion JPMorgan swap was followed by a rollover in November 2025 after the May margin call, with renegotiated terms. Senegal has used total return swap-style arrangements across seven separate deals over the past year, drawing roughly €650 million through agreements with the Africa Finance Corporation and First Abu Dhabi Bank — the same counterparty now at the centre of Nigeria’s deal.
The throughline across all three cases is the same: each government framed the swap as a cost-saving manoeuvre relative to its Eurobond alternative, and in narrow pricing terms, each was probably right. Senegal’s finance minister has stated the country saved roughly $64 million through swap pricing relative to the double-digit rates it would have faced on international bonds. These are not irrational decisions by reckless governments. They are rational decisions by governments operating under acute fiscal pressure, choosing the cheapest financing available to them in the moment — while transferring a different category of risk onto the sovereign’s future balance sheet.
Why the Speed of Approval Should Worry Analysts More Than the Instrument Itself
The procedural detail in Nigeria’s case deserves more attention than it has received. Under Sections 21(1) and 27(1) of Nigeria’s Debt Management Office Establishment Act, external borrowing arrangements require National Assembly approval. The request for the $5 billion facility was submitted on 24 March. The National Assembly approved it on 31 March — seven calendar days, encompassing a derivative structure whose collateral mechanics, margin call triggers, and contingent liability profile take specialist derivatives lawyers and structured finance professionals considerably longer than a week to fully model.
This is not a claim that Nigerian lawmakers acted in bad faith. It is an observation about institutional capacity: legislatures built to scrutinise conventional borrowing fixed terms, fixed schedules, transparent comparable are being asked to approve increasingly complex derivative-based financing on compressed timelines, often under genuine fiscal urgency.
Critics in Nigeria have already described this as the legislature ‘rubber stamping’ executive borrowing decisions rather than providing substantive oversight. Whether or not that characterisation is fair in this specific instance, the structural mismatch between approval speed and instrument complexity is real and is replicating across multiple African sovereigns.
Angola and Nigeria are, by every conventional measure, far from default today. Oil prices near $100 a barrel provide a real buffer for both economies. But the swap structures being signed now will still be on the books when conditions eventually turn, as they always do in commodity-linked economies. That is when the accounting will matter most and when what was invisible in the headline borrowing announcement will become expensively, unavoidably visible on the sovereign’s balance sheet.
