LAGOS, June 10 – The International Monetary Fund (IMF) has warned that Nigeria’s plan to raise up to $5 billion through a derivatives-based financing agreement could expose the country to transparency and debt management risks.
Speaking to journalists, IMF Resident Representative for Nigeria Christian Ebeke said transactions structured through total return swaps and similar instruments are often complex and lack the transparency associated with conventional sovereign borrowing.
“Our view is that transactions in 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,” Ebeke said.
The financing arrangement, approved by Nigeria’s Senate in April, involves a proposed agreement with First Abu Dhabi Bank and could raise as much as $5 billion for the government.
Nigeria intends to use proceeds from the transaction to refinance costly existing debt obligations and support infrastructure development projects.
The deal would place Nigeria among a growing number of African countries, including Senegal and Angola, that have recently explored alternative financing structures to access international capital.
However, the IMF suggested that Nigeria may have more transparent funding alternatives available, including issuing Eurobonds or accessing concessional financing where possible.
The warning comes as the Fund released its latest Article IV assessment of Nigeria’s economy, which broadly praised the government’s reform efforts since 2023.
According to the IMF, policy measures implemented under President Bola Ahmed Tinubu, including fuel subsidy removal, exchange-rate liberalization and tighter monetary policy, have strengthened macroeconomic stability and improved investor confidence.
The Fund noted that the reforms have helped rebuild economic buffers, improve policy credibility and restore access to international capital markets.
Nigeria’s foreign exchange reforms have also contributed to stronger reserve accumulation, with the country’s gross reserves reaching approximately $50 billion, their highest level in 17 years according to the Central Bank of Nigeria.
Despite these improvements, the IMF cautioned that the benefits of the reforms have not yet translated into meaningful improvements in living standards for many Nigerians.
The institution highlighted rising social pressures, noting that poverty remains elevated while millions continue to face food insecurity.
According to the IMF, these challenges underscore a widening gap between improving macroeconomic indicators and household welfare outcomes.
The Fund also warned against excessive reliance on portfolio investment inflows, which can be highly sensitive to shifts in global financial conditions.
Instead, it encouraged Nigeria to focus on attracting more stable long-term capital, particularly foreign direct investment, to support sustainable economic growth and reduce external financing vulnerabilities.
As authorities continue to pursue fiscal and economic reforms, the debate over the proposed $5 billion financing arrangement highlights the broader challenge facing many African economies: balancing immediate funding needs with long-term debt sustainability and transparency.
