By Stephen Simon
The International Monetary Fund (IMF) has cautioned Nigeria against potential risks associated with its plan to secure up to $5 billion through a derivatives agreement with First Abu Dhabi Bank, describing such financial arrangements as complex and often lacking transparency.
The warning was issued on Tuesday by the IMF Resident Representative in Nigeria, Christian Ebeke, following the Senate’s approval of the proposed transaction in April. Nigeria joins countries such as Senegal and Angola that have recently turned to similar financing structures.
Speaking to reporters, Ebeke said derivative-based transactions carry significant risks because their terms are not always fully transparent. According to him, the IMF’s review of such instruments across several countries has shown that they can be difficult to assess and monitor.
“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.
Ebeke suggested that Nigeria could explore alternative funding options, including issuing Eurobonds or seeking concessional financing, to bridge its budget deficits and meet development needs.
The administration of President Bola Tinubu plans to use proceeds from the proposed total return swap (TRS) arrangement to refinance expensive debt obligations and fund critical infrastructure projects.
Despite its concerns over the borrowing plan, the IMF commended Nigeria’s economic reforms in its latest Article IV Consultation Report, noting that measures introduced since 2023 have improved macroeconomic stability and strengthened investor confidence.
The reforms, including the removal of fuel subsidies, exchange-rate liberalisation and tighter monetary policies, have helped rebuild fiscal and external buffers while enhancing economic management, the Fund stated.
However, the IMF warned that the benefits of the reforms have yet to reach many Nigerians, pointing to rising poverty levels, widespread food insecurity and increasing social pressures. It noted that about 63 per cent of Nigerians live in poverty, highlighting a disconnect between macroeconomic gains and household realities.
The Fund also observed that improved policy credibility and foreign exchange reforms have enabled Nigeria to regain access to international capital markets, attract portfolio investments and reduce risk premiums. While the Central Bank of Nigeria reports that gross external reserves have risen to $50 billion, their highest level in 17 years, the IMF cautioned against excessive reliance on foreign portfolio inflows, urging the country to attract more stable long-term investments, particularly foreign direct investment.
