The International Monetary Fund (IMF) has advised Nigeria to reconsider a proposed $5 billion financing arrangement with First Abu Dhabi Bank of the United Arab Emirates, warning that the transaction could expose the country to financial and transparency risks.

The caution was issued by the IMF Resident Representative in Nigeria, Christian Ebeke, who described the proposed financing structure as a complex derivatives-based instrument that may be difficult to assess due to limited transparency.

Speaking with journalists on Tuesday, Ebeke said similar transactions reviewed by the IMF in other countries often contained opaque terms, making it challenging to accurately evaluate the risks and long-term implications.

“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,” he said.

The IMF official urged the Federal Government to explore alternative financing options, including Eurobond issuances and concessional loans, rather than relying on derivative-backed funding arrangements.

The warning comes after the National Assembly approved President Bola Ahmed Tinubu’s request to secure $6 billion in external borrowing to support government spending and infrastructure development.

As part of the borrowing plan, the President sought legislative approval for a structured Total Return Swap (TRS) financing programme of up to $5 billion from First Abu Dhabi Bank.

According to Tinubu, the proposed funding is intended to support implementation of the 2026 budget, finance priority infrastructure projects and refinance existing domestic and external debt obligations.

The President also acknowledged that the additional borrowing would increase Nigeria’s public debt profile, which stood at approximately $110.3 billion, or N159.2 trillion, as of December 31, 2025.

The IMF’s intervention highlights growing concerns over the sustainability and transparency of public debt financing, particularly as developing economies seek alternative funding sources amid global economic uncertainties.

Analysts note that while structured financing arrangements can provide quick access to capital, they often require careful scrutiny to ensure they do not create hidden liabilities or expose countries to excessive financial risks.

The Federal Government has yet to officially respond to the IMF’s concerns regarding the proposed transaction.

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The Federal Government is seeking a fresh $1.25bn loan from the World Bank to support economic reforms, job creation, and national competitiveness, even as Nigeria’s public debt continues to climb and the facility reaches a decisive approval stage.

Findings indicate that the proposed facility, titled Nigeria Actions for Investment and Jobs Acceleration, is expected for World Bank Board consideration on June 26, 2026.

If approved, it would become the second-largest World Bank loan secured under President Bola Ahmed Tinubu, after the $1.5bn development policy financing approved in 2024.

At an exchange rate of N1,361.4/$, the facility amounts to about N1.70tn, further increasing Nigeria’s external debt profile.

Loan Now At Final Approval Stage

According to World Bank documentation, the loan has progressed to the decision meeting stage, where management reviews final appraisal details before presenting it to the Board of Executive Directors.

The Federal Ministry of Finance will implement the programme, which is designed to expand access to finance, digital services, electricity supply, and strengthen competitiveness through reforms in taxation, trade, and agriculture.

The document confirms that negotiations and appraisal processes have largely been concluded, placing the project near final approval.

Nigeria’s Rising World Bank Exposure

Between June 2023 and May 2026, Nigeria has secured about $9.35bn in World Bank financing across sectors including power, education, healthcare, agriculture, and social protection.

If the new loan is approved, total World Bank commitments under Tinubu would rise to about $10.6bn.

However, many of these loans are tied to policy conditions and are released in tranches, often slowing disbursement.

Debt Stock Continues To Rise

Nigeria’s external debt stood at $51.86bn as of December 2025. With the new facility, it could rise to about $53.11bn.

Total public debt may also increase from N159.28tn to about N160.98tn.

World Bank loans already account for over 38% of Nigeria’s external debt stock, according to Debt Management Office data.

Government Raises Concern Over Approval Delays

The Accountant-General of the Federation, Shamseldeen Ogunjimi, has warned that Nigeria may reconsider future borrowing if World Bank approval and disbursement timelines remain slow.

He argued that loan processes extending beyond six months could disrupt project planning and national priorities.

Experts Split Over Borrowing Strategy

Economists remain divided over Nigeria’s growing reliance on multilateral loans.

Adewale Abimbola noted that concessional loans can support development if properly deployed into revenue-generating projects.

However, Aliyu Ilias cautioned that rising debt contradicts government claims of improved revenue after subsidy removal.

Muda Yusuf of the Centre for the Promotion of Private Enterprise stressed that debt sustainability depends on stronger revenue generation and careful management of exchange rate risks.

Fiscal Risks Remain High

The Nigerian Economic Summit Group warned that despite marginal improvements in debt indicators, Nigeria’s fiscal position remains fragile.

It noted that debt pressures continue to fluctuate within a high-stress range, driven largely by weak revenue performance and sustained borrowing needs.

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The Federal Government is set to raise N700 billion from the domestic debt market in April 2026, sustaining its borrowing strategy amid rising interest rates.

The issuance, to be conducted by the Debt Management Office, will take place through an auction scheduled for April 27, with settlement expected on April 29.

According to details from the April bond offer circular, the planned issuance will consist of reopened Federal Government bonds across three maturities, reflecting a strategy to deepen liquidity in existing instruments rather than introduce new ones.

The offer includes N300 billion in the 17.945% FGN August 2030 bond, N100 billion in the 17.95% FGN June 2032 bond, and another N300 billion in the 22.60% FGN January 2035 bond.

The structure indicates a continued preference for longer-dated securities, allowing the government to secure funding over an extended period while managing refinancing risks.

Analysts note that the relatively lower allocation to the seven-year instrument signals cautious investor demand across the yield curve, as concerns around inflation, exchange rate volatility, and global financial conditions persist.

The bonds will be issued in units of N1,000, with a minimum subscription of N50.001 million, targeting institutional investors such as pension funds, banks, and asset managers.

The DMO also noted that the instruments qualify as liquid assets for banks and enjoy tax exemptions under existing regulations, enhancing their appeal in the current high-yield environment.

A comparison with March figures shows a slight reduction in the government’s borrowing target from N750 billion to N700 billion, representing a marginal adjustment rather than a shift in overall strategy.

Despite the lower total offer, the allocation mix changed, with an increase in the five-year component and a significant cut in the seven-year offering, while the ten-year bond remained unchanged.

The coupon rates attached to the instruments highlight sustained pressure in Nigeria’s fixed-income market, particularly on long-term securities.

While the five-year and seven-year bonds carry rates around 17.9%, the ten-year bond offers a significantly higher yield of 22.60%, underscoring investor demand for greater returns on longer-duration assets.

Market observers attribute the elevated yields to macroeconomic uncertainties, including inflation risks and tight monetary conditions maintained by the Central Bank of Nigeria.

The high-rate environment has continued to increase the cost of borrowing for the government, with implications for debt servicing and fiscal sustainability

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In its 2025 Article IV Consultation Report, the IMF stated that extreme weather events such as flooding, sea-level rise, and droughts are already weakening Nigeria’s economy and could push the country further into debt if not urgently addressed.

Lagos, Nigeria’s commercial and financial hub, is especially vulnerable. Rising sea levels could damage critical infrastructure, disrupt agricultural output, and strain public finances.

“Climate risks are now a major threat to Nigeria’s growth outlook, fiscal health, trade, and financial stability,” the report warned.

Nigeria’s public debt surged to 52.3% of GDP in 2024, up from 41.5% in 2023, driven by increased borrowing and a weakening naira. Debt servicing costs also rose to 4.1% of GDP, compared to 3.7% the previous year, according to the African Development Bank.

The IMF warned that climate-related shocks combined with sluggish growth and declining tax revenue could further widen fiscal and external financing gaps.

Although relatively small, Nigeria’s financial sector is heavily concentrated in Lagos, making it highly vulnerable to flood and climate-related risks. Such exposure could impair asset quality and threaten broader financial stability.

To avoid long-term economic damage, the IMF urged Nigeria to:

• Increase investment in climate adaptation and resilience

• Improve revenue through tax reform

• Diversify the economy beyond oil

• Integrate climate policy into national development planning

While acknowledging recent fiscal reforms, the IMF emphasized that current efforts are insufficient to shield the economy from worsening climate threats.

“Without a comprehensive strategy to address both climate and fiscal challenges, Nigeria risks undermining its long-term economic future,” the report concluded.

The Fund called on the government to take immediate, coordinated action to secure sustainable and resilient economic growth.

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