IMF warns Nigeria’s $5bn swap deal with Abu Dhabi bank carries hidden risks

The International Monetary Fund has raised red flags over Nigeria’s plan to borrow $5 billion through a derivative swap deal with First Abu Dhabi Bank, citing opacity and potential financial exposure.

At a virtual briefing on the IMF’s 2026 Article IV Consultation Report on Nigeria on Tuesday, the Fund’s resident representative in Nigeria, Christian Ebeke, said such transactions often lack transparency. “Usually, they are opaque, so the terms are not always very transparent when we reviewed these instruments across countries,” he stated.

The Nigerian government is turning to the derivatives market as the cost of raising conventional debt, like bonds, soars amid the US-Israel war. The $5 billion swap, equivalent to 1.3 per cent of GDP, will be backed by naira-denominated instruments valued at up to 33.3 per cent more than the loan amount, according to a document filed at the National Assembly in April.

Cash raised from the total return swap will fund infrastructure projects and refinance “more expensive” local and foreign debts, Reuters reported. The Senate approved the deal in April, putting Nigeria alongside Angola and Senegal, which have also used similar instruments.

But Ebeke warned that Nigeria could instead issue Eurobonds or seek concessional funding. He said the swap deal carries risks, including margin calls if the value of the naira-denominated collateral drops or the currency depreciates. “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.

The IMF’s 2026 report noted that the agreement could leave the government vulnerable to political constraints on monetary or exchange rate policy if the FX value of the pledged securities falls. Nigeria has regained access to international capital markets after a series of investor-friendly reforms, but the Fund urged caution on the deal.