Nigeria’s $5 billion financing arrangement with First Abu Dhabi Bank is entering a new phase, putting the government’s search for cheaper dollar funding under renewed scrutiny as concerns grow over the risks attached to the complex structure.
The Federal Government entered into a Total Return Swap (TRS) programme with the UAE-based lender to access hard-currency liquidity while using naira-denominated government securities as collateral.
Nigeria has so far drawn $1.5 billion from the facility, with the broader programme allowing access to up to $5 billion.
The government has said the arrangement provides an alternative source of financing and supports its efforts to manage borrowing costs and meet its funding needs. (Businessday NG)
Unlike conventional foreign borrowing, the swap allows Nigeria to obtain dollars against local-currency government securities.
The structure means the country does not have to rely entirely on issuing traditional Eurobonds or taking on another conventional external loan to raise foreign currency.
The attraction is largely about cost and certainty.
Nigeria has been seeking ways to reduce the pressure created by high borrowing costs while maintaining access to foreign currency.
The first drawdown was priced at SOFR plus 395 basis points, while subsequent tranches are expected to carry a spread of around 400 basis points.
However, the cheaper access to dollars comes with a more complicated financial structure.
The Federal Government paid $22.5 million in charges on the $1.5 billion drawn from the swap during the second quarter of 2026, according to data from the Debt Management Office.
The amount was classified as “other charges”, although the DMO did not specify whether it represented arrangement, commitment, transaction or other fees. (Punch Newspapers)
The payment accounted for more than half of Nigeria’s total external-debt “other charges” during the quarter, highlighting the financial cost associated with the transaction even before principal repayment begins.
The arrangement has also attracted warnings from international financial institutions and rating agencies.
The International Monetary Fund has previously raised concerns about the complexity and transparency of sovereign swap structures, noting that such transactions can expose governments to additional risks if collateral values fall or exchange rates move unfavourably. (Premium Times Nigeria)
Fitch Ratings similarly warned that while total-return swaps can provide access to hard-currency liquidity and diversify a country’s financing sources, their complexity can make it more difficult for investors to assess the full scale of government obligations. (Punch Newspapers)
One of the key concerns is collateral.
Nigeria’s government securities are pledged against the financing, meaning changes in their value, interest rates or the naira-dollar exchange rate could affect the economics of the transaction.
The structure therefore creates a different set of risks from those associated with ordinary external borrowing.
At the same time, the government has defended the swap as a financing tool with safeguards designed to manage foreign-exchange, interest-rate, collateral and refinancing risks.
The DMO has argued that the transaction gives Nigeria another avenue for raising foreign currency at a time when conventional financing remains expensive. (Punch Newspapers)
The latest development could further change the risk profile of the deal.
First Abu Dhabi Bank is considering syndicating part of its exposure to other lenders, potentially spreading the financial risk among several institutions while remaining the counterparty to Nigeria.
For Nigeria, the $5 billion swap therefore represents a trade-off: access to dollar liquidity and potentially lower financing costs on one side, against greater complexity, fees and market-related risks on the other.
As the government continues to manage rising debt-service obligations, the effectiveness of the arrangement will ultimately depend on whether the savings and funding flexibility it provides outweigh the additional risks created by its structure.
