The International Monetary Fund has issued a strong warning to the federal government regarding its planned $5 billion Total Return Swap arrangement with First Abu Dhabi Bank.
The body has described the proposed deal as opaque, complex, and potentially exposing Africa’s largest economy to significant financial risks including margin calls and currency depreciation shocks.
The warning, delivered during a virtual briefing on the IMF’s 2026 Article IV Consultation Report on Nigeria, comes just weeks after the Nigerian Senate approved the government’s request to raise up to $5 billion through the swap mechanism.
The arrangement would see Nigeria join a small group of African nations including Senegal and Angola that have recently explored similar financing structures.
Christian Ebeke, the IMF’s Resident Representative in Nigeria, did not mince words about the Fund’s concerns. “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,” Ebeke stated.
He further explained that beyond transparency deficits, swap arrangements expose participating countries to margin calls if the value of underlying collateral assets declines or if the domestic currency experiences significant depreciation. “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 added.
IMF Offers Alternative Financing Path
Rather than pursuing the UAE swap deal, the IMF argued that Nigeria has superior alternatives readily available. Ebeke pointed specifically to Eurobonds, noting that Nigeria has recently regained reliable access to international capital markets thanks to improving macroeconomic fundamentals.
“We think that Nigeria has market access. Nigeria can issue Eurobonds to finance the deficit. We also think that there are other avenues for Nigeria to raise funds, including on concessional terms,” Ebeke said.
The Fund acknowledged that it has not yet received detailed information about the exact structure of the proposed transaction, making a full risk assessment impossible—a fact that itself underscores the transparency concerns.
Broader Economic Assessment: Progress Amid Pain
In its wider assessment of Nigeria’s economy, the IMF acknowledged that reforms undertaken since 2023 have significantly strengthened macroeconomic stability and improved the country’s resilience to external shocks. Ebeke noted that despite volatility in global markets, the naira is now trading in the parallel market at levels relatively close to the official rate—a clear sign of progress.
IMF Mission Chief for Nigeria, Axel Schimmelpfennig, added that recent reforms have helped Nigeria better withstand global economic uncertainties, including the ongoing conflict in the Middle East. He noted that higher crude oil prices resulting from the conflict could boost Nigeria’s export earnings, though simultaneously worsen inflation through higher costs of fuel, food, and fertilisers.
The Fund projects Nigeria’s economy will grow by 4.1 per cent in 2026, accelerating to 4.3 per cent in 2027—though both forecasts have been revised downward due to global economic pressures.
CBN Urged to Maintain Tight Monetary Policy
In a related development from the IMF’s Executive Board assessment, the Fund urged the Central Bank of Nigeria to maintain a tight monetary policy stance, preserve recent economic reforms, and accelerate structural changes to protect the economy from renewed inflationary pressures.
“Directors commended the authorities’ success in bringing down inflation, while noting renewed external inflationary pressures,” the Board stated, warning that monetary easing would be premature. The Board stressed that the CBN should maintain a tight policy stance with a data-dependent approach “until disinflation is entrenched and inflation expectations are anchored.”
IMF officials emphasized that inflation remains critically high in the mid-teens. “Inflation remains high in the mid-teens, and bringing it down remains critically important. The Governor has spoken previously about achieving single-digit inflation, and we continue to believe that this is an important objective because inflation erodes the purchasing power of Nigerians,” Ebeke said.
The Board also welcomed progress toward adopting an inflation-targeting framework and endorsed Nigeria’s commitment to a flexible exchange rate regime, though it advised reducing dependence on foreign portfolio inflows with roll-over risk.
FG Laments Inflation’s Toll on Citizens
Amid the IMF’s technical assessments, the federal government acknowledged the severe impact of inflation on ordinary Nigerians. Secretary to the Government of the Federation, Senator George Akume, speaking at a Democracy Day press conference in Abuja, admitted that “inflation has been painful” even as he insisted the country is on a path to recovery.
“The message from the government today is straightforward. This administration wishes to let us all recognise the fact that Nigeria is a huge, viable project and it is work-in-progress,” Akume said.
He noted that President Bola Tinubu shares in the pains of citizens, pointing to encouraging indicators including real GDP expansion of 4.07 per cent in the fourth quarter of 2025 and 3.89 per cent in the first quarter of 2026. Akume also highlighted that over 3 million vulnerable households have benefited from the Renewed Hope Conditional Cash Transfer Programme, while the Nigerian Education Loan Fund has supported more than 1.058 million students with over N184 billion released for tuition and upkeep allowances.
Domestic Revenue and Social Safety Nets
The IMF reiterated the need for Nigeria to increase domestic revenue mobilisation, noting the country still ranks among those with the lowest revenue-to-GDP ratios globally—a constraint limiting fiscal space for development priorities.
The Fund called for an expansion of social safety nets including cash transfer programmes, while urging continued reforms aimed at improving electricity supply, infrastructure, security, agriculture, education, and healthcare.
The Executive Board welcomed recent tax reforms but noted that “additional tax policy measures may be needed over the medium term, including to fund a scaled-up cash transfer program to provide relief to the most vulnerable.”
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