IMF cautions Tinubu government over $5bn loan plan — here’s why

• The IMF warned Nigeria to tread carefully over its proposed $5 billion financing deal with First Abu Dhabi Bank. 

• The Fund said the Total Return Swap arrangement is complex and often lacks transparency. 

• IMF warned the deal could expose Nigeria to additional financial risks if the naira weakens or interest rates rise. 

• The Fund suggested alternatives such as Eurobonds and concessional financing while still praising Nigeria's recent economic reforms. 

The International Monetary Fund (IMF) has warned the Nigerian government to proceed with caution over plans to raise up to $5 billion through a financing arrangement with First Abu Dhabi Bank, citing concerns about transparency and financial risks.

The warning was contained in the IMF's latest assessment of Nigeria's economy, where the Fund expressed reservations about the proposed deal despite commending some of the country's recent economic reforms.

The proposed transaction, approved by the Senate in April, is structured as a Total Return Swap (TRS) arrangement with the UAE-based lender. The Tinubu administration has said proceeds from the deal would be used to refinance expensive debt and fund critical infrastructure projects.

However, the IMF said arrangements of this nature are often difficult to scrutinise because their terms are not always fully transparent.

According to the Fund, transactions involving derivative structures such as Total Return Swaps can be complex and opaque, making it harder to assess the full risks and obligations attached to them.

The IMF also warned that the deal could expose Nigeria to additional financial pressures if economic conditions change.

All the cool kids subscribe to The Juice. We cover the business of culture: music, film, money, and the creative economy. Don’t miss out, click here to subscribe

One of the concerns highlighted is that the arrangement may require substantial collateral in domestic securities, potentially exposing the government to margin calls if the naira weakens or interest rates rise significantly. Such a scenario could create fresh fiscal pressures at a time when the country is still grappling with high debt-servicing costs.

Rather than relying on the proposed structure, the IMF suggested that Nigeria could explore alternative sources of financing, including Eurobonds or concessional loans, which may offer more transparency and potentially lower risks.

Despite its concerns over the Abu Dhabi deal, the IMF praised several reforms implemented by the Tinubu administration, noting that they have helped improve macroeconomic stability, strengthen investor confidence and rebuild external buffers.

RELATED: IMF prepares possible $50bn support for Nigeria, other vulnerable economies as Middle East crisis deepens

However, the Fund cautioned that many Nigerians are yet to feel the benefits of those reforms, pointing to persistent poverty and food insecurity across the country. It warned that gains achieved so far could be undermined by external shocks and continued economic pressures.

The proposed $5 billion deal has now become one of the most closely watched financing plans of the Tinubu administration, with attention focused on whether the government will proceed with the arrangement or consider alternative funding options recommended by the IMF.