The International Monetary Fund (IMF) has warned of risks surrounding Nigeria’s plan to borrow up to $5 billion through a derivatives agreement with First Abu Dhabi Bank.
In its latest Article IV review following the conclusion of its latest mission in Nigeria, the global lender said such transactions are often opaque and complex.
The Senate in April gave its approval to the agreement put forward by President Bola Tinubu, who said his administration intends to use proceeds from the total return swap to refinance expensive debt and pay for infrastructure.
“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,” according to the IMF’s mission chief in Nigeria, Mr Christian Ebeke.
Mr Ebeke said Nigeria could instead issue eurobonds to finance its deficits or other means to raise funding, including on concessional terms.
The Fund also praised Nigeria’s sweeping reforms, saying they had strengthened economic stability and investor confidence, but warned that the benefits had yet to reach millions of citizens and could be undermined by global shocks, including the Middle East conflict.
“Strong reforms over the past three years have yielded improved macroeconomic outcomes and built resilience. Still, conditions for many Nigerians remain difficult,” the IMF stated.
However, it cautioned that the reforms were also contributing to social strain, with poverty levels at 63 per cent and millions facing food insecurity, underscoring a widening gap between macro gains and household realities.
“Conditions remain difficult for many Nigerians, with poverty and food insecurity likely to worsen in the current external environment,” the IMF Executive Board stated.
The IMF said improved policy credibility and forex reforms had helped Nigeria regain access to international capital markets and attract portfolio inflows, while reducing risk premiums.
It, however, warned that reliance on volatile foreign portfolio investment poses rollover risks and urged a shift towards more stable, long-term capital such as foreign direct investment.
The lender also warned that non-performing loans had risen to eight per cent in the third quarter of 2025, above prudential limits.
The IMF then urged Nigerian authorities to accelerate structural reforms in electricity, infrastructure, agriculture and human capital development to drive inclusive growth and economic diversification.