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Nigeria’s recent $1.5 billion funding arrangement with a United Arab Emirates bank may have provided immediate relief for foreign exchange pressures, but the deal carries potential repayment risks if market conditions deteriorate, MoneyAfrica in its investment research weekly market report said on Monday.
The transaction is structured as a Total Return Swap (TRS), allowing Nigeria to use naira-denominated government bonds as collateral to access dollar liquidity without issuing costly Eurobonds.
It has also helped strengthen reserves, provide foreign exchange support and potentially refinance more expensive obligations.
However, the likes of the International Monetary Fund (IMF) and Fitch had warned that TRS arrangements can be difficult to assess because their terms are often opaque.
Christian Ebeke, the IMF’s mission chief for Nigeria, said transactions involving such structures carry risks because they are often opaque, making their full impact harder to evaluate.
“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 said.
Echoing the same sentiment, MoneyAfrica said concerns remain over the structure’s risks, particularly because the value of the pledged bonds and movements in the naira exchange rate which could affect Nigeria’s future obligations.
Last week, the naira weakened against the U.S. dollar across both foreign exchange market segments. In the official market, the currency depreciated by 0.76 per cent to close at N1,380.93/$1, while the parallel market recorded a steeper decline of 1.08 per cent, with the exchange rate settling at N1,388/$1.
Despite the weaker performance of the naira, the country’s external reserves rose by 0.37 per cent week-on-week (w/w) to $51.25 billion, providing some support to the country’s external liquidity position.
MoneyAfrica noted that while the increase in reserves provides a buffer, it does not eliminate the risks associated with the UAE-backed financing arrangement.
According to the firm, Nigeria got the dollars it needed, but the UAE holds Nigerian assets worth more than the loan itself.
It added that the deal buys short-term relief at the cost of long-term transparency and if market conditions turn, the consequences could be immediate.
“For now, the impact is positive as reserves received a boost and the government avoided costly Eurobond rates. But the risk is real. If the naira weakens significantly or the value of the pledged bonds falls, Nigeria could be forced to provide additional collateral or repay the loan immediately”, It said.
Since assuming office in 2023, President Bola Tinubu has repeatedly turned to both domestic and external markets to bridge budget deficits, with cumulative loan requests now estimated at over $30 billion, alongside more than N1 trillion in domestic borrowing plans.
Furthermore, debt obligations has surged to N16.26 trillion in 2025 from N7.79 trillion in 2023. Since Q3 2023, when the current administration took office, quarterly debt service has remained elevated, peaking at a record N4.86 trillion in Q4 2025, based on data released by the Debt Management Office (DMO).
On a quarterly basis, the upward trend peaked in Q4 2025, with debt service hitting a record N4.86 trillion. This was 37.86 per cent higher than N3.52 trillion in Q3 2025 and 49.93 per cent above N3.24 trillion in Q4 2024, showing a steady rise in debt payments.
