The International Monetary Fund (IMF) has expressed reservations over Nigeria’s proposed plan to secure up to $5 billion through a derivatives-based financing arrangement with First Abu Dhabi Bank, warning that such structures often pose significant transparency and risk concerns.
The caution follows the Nigerian Senate’s approval of the transaction in April 2026, clearing the way for the Federal Government to pursue the deal as part of efforts to refinance existing debt and fund critical infrastructure projects.
Speaking during a media briefing on Tuesday, the IMF Resident Representative in Nigeria, Christian Ebeke, said the Fund remains cautious about derivative-backed financing arrangements because their terms are often difficult to assess and monitor.
“Our view is that the transactions in these types of structures carry risks. Usually, they are opaque, so the terms are not always very transparent when we reviewed these instruments across countries,” Ebeke said.
The proposed funding arrangement is structured as a Total Return Swap (TRS), a financial instrument that enables governments to raise capital by exchanging the returns of specified assets with counterparties.
While acknowledging Nigeria’s financing needs, the IMF advised the government to consider more conventional funding sources, including Eurobond issuances and concessional financing facilities, rather than relying heavily on complex derivative instruments.
The warning formed part of the IMF’s latest Article IV Consultation report on Nigeria, which highlighted both the achievements and challenges of the country’s ongoing economic reform programme.
The Fund noted that policy measures introduced by President Bola Tinubu’s administration since 2023—including fuel subsidy removal, foreign exchange market reforms and tighter monetary policies—have contributed to improved macroeconomic stability, stronger fiscal buffers and renewed investor confidence.
According to the IMF, these reforms have helped Nigeria regain access to international capital markets, attract foreign portfolio inflows and reduce investor concerns about the country’s economic outlook.
The Fund also acknowledged improvements in external reserves, with the Central Bank of Nigeria reporting gross reserves of about $50 billion, the highest level recorded in nearly 20 years.
Despite these gains, the IMF stressed that many Nigerians have yet to feel the benefits of the reforms, warning that poverty and food insecurity remain major concerns.
The Fund estimated that about 63 percent of Nigerians continue to live in poverty, underscoring the widening gap between improving macroeconomic indicators and the day-to-day realities faced by households.
It further warned that Nigeria’s growing reliance on foreign portfolio investment could expose the economy to sudden shocks if global financial conditions change or investor sentiment weakens.
To reduce such vulnerabilities, the IMF urged policymakers to focus on attracting more stable capital inflows, particularly foreign direct investment, while remaining vigilant against external risks, including geopolitical tensions and disruptions in global markets.
The Fund maintained that sustaining economic reforms and ensuring that their benefits reach ordinary citizens will be crucial to preserving stability, strengthening resilience and achieving long-term economic growth.
