Fitch warns Nigeria against $5bn Abu Dhabi loan, says financing method poses risks

Nigeria’s proposed $5 billion financing arrangement with First Abu Dhabi Bank has come under fresh scrutiny after global rating agency Fitch warned that the deal could create significant debt risks and weaken transparency in the country’s public borrowing records. The caution comes as the Federal Government seeks alternative funding sources to support economic and development priorities amid growing fiscal pressures.

The financing package forms part of President Bola Tinubu’s broader $6 billion external borrowing plan approved by the National Assembly in March. Under the proposed arrangement, Nigeria would pledge approximately $6.67 billion worth of naira-denominated government bonds as collateral in exchange for hard-currency financing. While the structure is designed to provide liquidity and diversify funding options, Fitch believes it carries risks that may not be immediately visible in conventional debt reporting systems.

According to the rating agency, the transaction is structured as a Total Return Swap (TRS), a financing mechanism increasingly being used by emerging economies. Fitch noted that although such arrangements can help governments access foreign currency at potentially lower costs, they often operate outside traditional debt disclosure frameworks. This could make it difficult for investors, lawmakers, and citizens to accurately assess the true scale of a country’s financial obligations.

A major concern highlighted by Fitch is Nigeria’s exposure to foreign exchange risks. If domestic bond yields rise or the naira weakens further, the country could face costly dollar-denominated margin calls despite using naira-based assets as collateral. In periods of economic stress, this could place additional pressure on Nigeria’s already fragile external reserves and force the government to commit more resources when liquidity is most needed.

Despite the warning, Fitch acknowledged that Nigeria still maintains access to international capital markets and that the proposed deal appears motivated by funding diversification rather than financial distress. However, the agency stressed that limited transparency surrounding the arrangement could affect future credit assessments and debt sustainability evaluations. The warning echoes concerns raised earlier by the International Monetary Fund (IMF), adding to growing calls for greater disclosure and oversight as Nigeria pursues innovative financing strategies to support its economic agenda.

source: The cable