Nigeria’s recent $1.5 billion funding deal with a United Arab Emirates bank might have offered some short-term respite for foreign exchange pressures but the deal presents potential repayment risks if market conditions deteriorate, MoneyAfrica said in its investment research weekly market report on Monday.
The deal 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 to shore up reserves, provide foreign exchange support, and possibly refinance more expensive obligations.
But the likes of the International Monetary Fund (IMF) and Fitch have cautioned that TRS structures can be difficult to assess as the terms of such deals are often opaque.
Transactions involving such structures are risky because they are often opaque, Christian Ebeke, the IMF’s mission chief for Nigeria, told reporters. Their full impact is therefore harder to evaluate.
“We believe there are risks to transacting in these types of structures. “Usually they are opaque, so the terms are not always very transparent when we review these instruments across countries,” said Ebeke.
MoneyAfrica shared the same sentiment, warning that concerns remain on the structure’s risks, especially considering the value of the bonds pledged and the shifts in the naira exchange rate that could impact Nigeria’s future obligations.
Last week, the naira weakened against the U.S. dollar in both segments of the foreign exchange market. In the official market, the currency fell by 0.76 per cent to settle at N1,380.93/$1, while the parallel market fared worse, depreciating by 1.08 per cent to settle at N1,388/$1.
In spite of the weaker performance of the naira, the country’s external reserves increased 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 added that the increase in reserves provides a buffer, but it doesn’t eliminate the risks tied to the UAE-backed financing deal.
The firm said Nigeria received the dollars it needed but the UAE has Nigerian assets worth more than the loan itself.
The deal, it said, offers short-term relief at the cost of long-term transparency and the consequences of a market turn could be swift.
“The effect is positive for now as reserves received a boost and the government dodged expensive Eurobond rates. But the danger is real. Nigeria could be forced to provide additional collateral or repay the loan immediately if the naira weakens significantly or the value of the pledged bonds falls. It said.
Since taking over in 2023, President Bola Tinubu has been relying on both local and foreign markets to plug budget deficits, with total loan requests now estimated at above $30 billion, in addition to over N1 trillion in local borrowing plans.
Also, debt obligations has soared to N16.26 trillion in 2025 from N7.79 trillion in 2023. Quarterly debt service has been high since Q3 2023 and the current administration’s time in office, peaking at a record N4.86 trillion in Q4 2025, data released by the Debt Management Office (DMO) shows.
Upward trend, on a quarterly basis, peaked at Q4 2025 with debt service climbing to a record N4.86 trillion. This was 37.86 per cent higher than N3.52 trillion in Q3 2025 and 49.93 per cent higher than N3.24 trillion in Q4 2024, showing a steady increase in debt payments.
