IMF flags risks in Nigeria’s planned $5 billion derivative deal with First Abu Dhabi Bank

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The International Monetary Fund (IMF) has flagged potential risks in Nigeria’s move to secure a $5 billion swap deal with the UAE-based First Abu Dhabi Bank, noting the complexity and the lack of transparency that often characterise such contracts.

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“Our view is that the transactions in these types of structures carry risks,” IMF’s resident representative in Nigeria, Christian Ebeke, said at a virtual briefing on the IMF’s 2026 Article IV Consultation Report on Nigeria on Tuesday.

“Usually, they are opaque⁠, so the terms are not always very transparent when we reviewed these instruments across countries,” he went on to say.

The Nigerian Government is looking to tap the derivatives market to borrow $5 billion (1.3 per cent of GDP) through a swap deal with First Abu Dhabi Bank amid soaring costs of raising conventional debt, such as bonds, amid the US-Israel war.

A swap, as a derivative contract, enables two parties to exchange cash flows or the liabilities associated with financial securities, often to manage risks such as interest rate risk.

Cash raised from the total return swap will be invested in infrastructure projects and in refinancing “more expensive” local and foreign debts, Reuters reported in April, citing a document filed at the National Assembly.

The loan is to be backed by naira-denominated instruments, whose value will exceed the loan amount by up to 33.3 per cent, the media outlet added.

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The Senate gave its nod to the deal in April, allowing Nigeria to join other African peers, such as Angola and Senegal, who have taken that path.

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Mr Ebeke stated that Nigeria could rather issue Eurobonds to finance its deficits or explore other alternatives to raise funds, including on concessional terms.

He warned that, much as the country has regained access to international capital markets following a series of investor-friendly and orthodox reforms, the proposed deal should be approached with caution.

“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.

According to the IMF’s 2026 Article IV Consultation Report on Nigeria, the agreement could make the government vulnerable to margin calls if the FX value of naira-denominated securities pledged as collateral falls, potentially leading to political constraints on monetary or exchange rate policy.