The Federal Government has accessed the first $1.5 billion tranche of a $5 billion financing facility arranged with the United Arab Emirates’ First Abu Dhabi Bank, despite growing concerns by the International Monetary Fund (IMF) and Fitch Ratings over the risks associated with the deal.
The transaction, approved by the National Assembly on March 31, 2026, is expected to support the 2026 budget, fund critical infrastructure projects and refinance existing debt obligations.
According to a Bloomberg report, the $1.5 billion drawdown was made in the last few weeks under a Total Return Swap (TRS) agreement with First Abu Dhabi Bank. The report quoted sources familiar with the transaction, saying the facility gives Nigeria immediate access to dollar liquidity without issuing new Eurobonds.
Under the arrangement, Nigeria is required to pledge Federal Government securities worth about 133 per cent of every amount drawn. This means the full $5 billion facility would require about $6.65 billion worth of naira-denominated bonds as collateral.
The Federal Government will pay a floating interest rate plus about four percentage points, while the Abu Dhabi lender receives returns generated from the pledged government securities.
Government sources said proceeds from the initial drawdown would be used to implement the 2026 budget, finance infrastructure development and refinance more expensive domestic and external debts.
However, the financing arrangement has sparked concerns among international financial institutions over transparency and potential hidden liabilities.
In its June 2026 assessment of African sovereign debt markets, the IMF warned that derivative financing structures such as Total Return Swaps are often opaque, difficult to monitor and could conceal the true size of a country’s financial obligations.
Similarly, Fitch Ratings, in a report released on June 19, cautioned that Nigeria’s proposed $5 billion transaction could increase sovereign debt risks and weaken transparency in public debt reporting.
The agency said the complex nature of the deal could create hidden liabilities and expose the country to significant financial risks during periods of economic stress.
Fitch also warned that if the value of the naira-denominated bonds used as collateral falls sharply due to currency depreciation or market volatility, Nigeria could face margin calls requiring it to provide additional collateral, thereby increasing pressure on public finances.
Despite the concerns, analysts noted that the arrangement provides the government with much-needed foreign exchange liquidity at a time of rising borrowing costs in the international market and leaves room for an additional $3 billion drawdown under the approved facility.
The latest borrowing comes as Nigeria battles revenue constraints, rising debt-servicing obligations and persistent foreign exchange pressures.
According to official figures, Nigeria’s public debt stood at $110.3 billion (about N159.2 trillion) as of December 31, 2025, with debt servicing consuming a significant portion of government revenue.
Economists, however, warned that while the facility offers short-term financial relief, its long-term success will depend on the Federal Government’s ability to maintain transparency and effectively manage the risks associated with the collateral-backed financing structure.
