Nigeria is seeking to raise up to $5 billion through a total return swap with First Abu Dhabi Bank, marking one of the biggest uses yet of a funding structure that several African sovereign borrowers have turned to as conventional market borrowing becomes more expensive and more volatile. The proposed transaction forms the largest part of a broader $6 billion external borrowing package approved this week by the Senate, with the balance tied to UK export-backed financing for port rehabilitation.
The plan places Africa’s biggest economy by output alongside countries such as Senegal and Angola, which have used similar derivative-linked arrangements over the past year to unlock liquidity while trying to contain interest costs. Governments have been pushed towards such structures by tighter global financial conditions, widening spreads on frontier debt and a more selective investor base, especially after fresh geopolitical shocks unsettled emerging-market financing conditions in late March.
A total return swap, in sovereign financing, typically allows a country to obtain funding from a bank or investor against the performance of a referenced asset, often government bonds, without issuing a standard international bond in the open market. That can make the instrument attractive to borrowers seeking speed, discretion or lower headline costs. It can also create contingent obligations that are less visible to the public than a plain-vanilla bond, particularly if collateral values move sharply and trigger margin calls. Angola’s experience has become the clearest warning sign: its JPMorgan-backed facility, first arranged in 2024 and later extended, was hit by a collateral call after bond prices fell, forcing Luanda to provide additional security before conditions stabilised.
For Abuja, the appeal is obvious. President Bola Tinubu’s government has tried to stabilise public finances through subsidy cuts, exchange-rate reforms and efforts to restore investor confidence, while still facing large financing needs for budget support and infrastructure. IMF staff said after the 2025 Article IV mission that the authorities had implemented major reforms that improved macroeconomic stability, including the removal of costly fuel subsidies and an end to monetary financing of the fiscal deficit. Yet the Fund also stressed the need for fiscal discipline and clearly identified revenue measures to preserve sustainability under tighter financing conditions.
That tension sits at the centre of the new deal. Nigeria’s Debt Management Office shows the country’s total public debt was already on a steep upward path through 2024 and 2025, and domestic critics have argued that another large borrowing package could intensify pressure on debt servicing, particularly if foreign-exchange or interest-rate conditions worsen. Supporters of the government’s approach counter that refinancing expensive local obligations and securing longer-dated external money can ease near-term strain, especially if the funds are channelled into productive assets such as transport infrastructure and trade logistics.
The Senate request itself framed the UAE and UK facilities as part of a strategy to support budget implementation, fund priority projects and refinance costlier domestic and external liabilities. Bloomberg reported that officials were weighing the First Abu Dhabi Bank structure specifically as a way to cut borrowing costs at a time when international markets had grown less hospitable. Reuters, in its account of the deal, said Nigeria planned to borrow up to $5 billion under the derivatives arrangement, making it one of the most significant sovereign transactions of its kind on the continent.
The wider market backdrop helps explain why such instruments are gaining traction. S&P Global Ratings estimated in March that African sovereigns would borrow about $155 billion in long-term commercial debt this year, roughly 10% more than in 2025, as governments refinance maturities and meet growing fiscal demands. But Reuters also reported that the strong start to emerging-market issuance in 2026 had stalled after war involving Iran rattled markets, raising premiums and narrowing access for weaker credits. In that setting, bespoke bank-led structures can look more practical than a public bond sale, even if they come with more complicated risk management.
Senegal’s experience has sharpened that debate. Its government has defended derivative-linked borrowing after scrutiny over previously undisclosed debt and funding practices, while the IMF confirmed that Senegalese authorities had informed staff about a number of total return swap transactions with lenders. Officials there argued the instruments could lower costs, but they also acknowledged that adverse market moves could require additional protection in the form of what they described as an independent amount. That formulation has added to concerns among debt specialists that these deals can shift risk into less transparent corners of sovereign balance sheets.
The plan places Africa’s biggest economy by output alongside countries such as Senegal and Angola, which have used similar derivative-linked arrangements over the past year to unlock liquidity while trying to contain interest costs. Governments have been pushed towards such structures by tighter global financial conditions, widening spreads on frontier debt and a more selective investor base, especially after fresh geopolitical shocks unsettled emerging-market financing conditions in late March.
A total return swap, in sovereign financing, typically allows a country to obtain funding from a bank or investor against the performance of a referenced asset, often government bonds, without issuing a standard international bond in the open market. That can make the instrument attractive to borrowers seeking speed, discretion or lower headline costs. It can also create contingent obligations that are less visible to the public than a plain-vanilla bond, particularly if collateral values move sharply and trigger margin calls. Angola’s experience has become the clearest warning sign: its JPMorgan-backed facility, first arranged in 2024 and later extended, was hit by a collateral call after bond prices fell, forcing Luanda to provide additional security before conditions stabilised.
For Abuja, the appeal is obvious. President Bola Tinubu’s government has tried to stabilise public finances through subsidy cuts, exchange-rate reforms and efforts to restore investor confidence, while still facing large financing needs for budget support and infrastructure. IMF staff said after the 2025 Article IV mission that the authorities had implemented major reforms that improved macroeconomic stability, including the removal of costly fuel subsidies and an end to monetary financing of the fiscal deficit. Yet the Fund also stressed the need for fiscal discipline and clearly identified revenue measures to preserve sustainability under tighter financing conditions.
That tension sits at the centre of the new deal. Nigeria’s Debt Management Office shows the country’s total public debt was already on a steep upward path through 2024 and 2025, and domestic critics have argued that another large borrowing package could intensify pressure on debt servicing, particularly if foreign-exchange or interest-rate conditions worsen. Supporters of the government’s approach counter that refinancing expensive local obligations and securing longer-dated external money can ease near-term strain, especially if the funds are channelled into productive assets such as transport infrastructure and trade logistics.
The Senate request itself framed the UAE and UK facilities as part of a strategy to support budget implementation, fund priority projects and refinance costlier domestic and external liabilities. Bloomberg reported that officials were weighing the First Abu Dhabi Bank structure specifically as a way to cut borrowing costs at a time when international markets had grown less hospitable. Reuters, in its account of the deal, said Nigeria planned to borrow up to $5 billion under the derivatives arrangement, making it one of the most significant sovereign transactions of its kind on the continent.
The wider market backdrop helps explain why such instruments are gaining traction. S&P Global Ratings estimated in March that African sovereigns would borrow about $155 billion in long-term commercial debt this year, roughly 10% more than in 2025, as governments refinance maturities and meet growing fiscal demands. But Reuters also reported that the strong start to emerging-market issuance in 2026 had stalled after war involving Iran rattled markets, raising premiums and narrowing access for weaker credits. In that setting, bespoke bank-led structures can look more practical than a public bond sale, even if they come with more complicated risk management.
Senegal’s experience has sharpened that debate. Its government has defended derivative-linked borrowing after scrutiny over previously undisclosed debt and funding practices, while the IMF confirmed that Senegalese authorities had informed staff about a number of total return swap transactions with lenders. Officials there argued the instruments could lower costs, but they also acknowledged that adverse market moves could require additional protection in the form of what they described as an independent amount. That formulation has added to concerns among debt specialists that these deals can shift risk into less transparent corners of sovereign balance sheets.
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