$5bn Abu Dhabi deal may expose Nigeria to hidden financial risks, IMF warns

The International Monetary Fund (IMF) has cautioned Nigeria against potential risks associated with its planned $5 billion financing arrangement with First Abu Dhabi Bank, warning that derivative-based borrowing structures are often complex, opaque and capable of creating hidden liabilities for governments.

The warning was issued on Tuesday by the IMF’s Nigeria Mission Chief, Christian Ebeke, during a briefing on the Fund’s latest Article IV consultation report on Nigeria, which otherwise commended the Federal Government’s economic reforms for restoring macroeconomic stability and boosting investor confidence.

Nigeria’s Senate approved the proposed transaction in April, allowing the government to proceed with a Total Return Swap (TRS) arrangement with First Abu Dhabi Bank.

The financing structure has been adopted by several African countries, including Senegal and Angola, as an alternative means of raising funds outside conventional debt markets.

However, the IMF expressed reservations about the growing reliance on such instruments.

“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 told journalists.

He advised Nigeria to consider more transparent funding options such as Eurobond issuances, concessional financing, or other traditional borrowing mechanisms that offer greater clarity to investors and policymakers.

The Federal Government plans to deploy proceeds from the proposed $5 billion transaction to refinance expensive existing debt obligations and fund critical infrastructure projects.

Despite its concerns over the financing arrangement, the IMF gave a largely positive assessment of Nigeria’s economic reforms under President Bola Tinubu, describing them as significant steps toward restoring policy credibility and improving macroeconomic management.

According to the Fund, reforms implemented since 2023—including the removal of fuel subsidies, exchange rate liberalisation, and tighter monetary policy measures—have strengthened economic buffers, restored investor confidence and improved Nigeria’s standing in international financial markets.

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The IMF noted that the reforms have enabled Nigeria to regain access to global capital markets while attracting substantial portfolio investment inflows.

It also highlighted the improvement in the country’s external reserves, which the Central Bank of Nigeria says have climbed to approximately $50 billion, the highest level recorded in 17 years.

The Fund stated that foreign exchange market reforms had reduced market distortions and helped lower risk premiums demanded by investors, thereby improving Nigeria’s attractiveness to international capital

However, the IMF warned that a significant portion of the recent inflows into Nigeria consists of short-term foreign portfolio investments, often referred to by analysts as “hot money.”

Such investments are typically attracted by high yields on government securities such as Treasury Bills and can leave the country as quickly as they enter, exposing the economy to rollover risks and sudden financing pressures.

The Fund urged Nigerian authorities to focus on attracting more stable and long-term investments, particularly foreign direct investment (FDI), which contributes more sustainably to economic growth and job creation.

Economic analysts have also expressed concerns about the quality of reserve accumulation, arguing that reserves driven largely by short-term capital flows may prove vulnerable during periods of market uncertainty or global financial turbulence.

While acknowledging improvements in macroeconomic indicators, the IMF stressed that the benefits of the reforms have yet to reach millions of ordinary Nigerians.

According to the Fund, poverty remains widespread, with an estimated 63 percent of Nigerians living below the national poverty line. It also revealed that more than 27 million Nigerians experienced food insecurity during the latter part of 2025.

“Strong reforms over the past three years have yielded improved macroeconomic outcomes and built resilience. Still, conditions for many Nigerians remain difficult. Poverty reached 63 percent and 27 million Nigerians are estimated to have faced food insecurity in the fall of 2025,” the IMF said in its post-review statement.

The IMF also warned that external shocks, particularly the ongoing conflict in the Middle East, could undermine Nigeria’s reform gains by fuelling inflation, increasing fiscal pressures and creating uncertainty in global commodity markets.

Although higher oil prices resulting from geopolitical tensions could increase government revenues, the Fund noted that rising costs of fuel, food and fertiliser would place additional burdens on households already struggling with high living costs.

According to the IMF, such developments could worsen poverty levels and deepen food insecurity despite improvements in government revenues.

Nigeria’s inflation rate rose to 15.7 percent in April, marking a five-month high. Analysts attributed the increase partly to rising fuel and transportation costs linked to instability in global energy markets following the Middle East conflict.

Despite the challenges, the IMF projected that Nigeria’s economy would continue expanding, forecasting economic growth of 4.1 percent in 2026, up from an estimated 4 percent growth recorded in 2025.