FITCH WARNS NIGERIA’S $5BN SWAP DEAL COULD DEEPEN DEBT AND LIQUIDITY RISKS

Fitch Ratings has raised concerns over Nigeria’s proposed $5bn Total Return Swap, warning that the arrangement could create risks for the country’s debt management, liquidity position and future debt restructuring. The rating agency disclosed this in its latest special report on sovereign Total Return Swaps and repo transactions, published on September 14, 2026. 

The proposed transaction with First Abu Dhabi Bank would involve using local-currency government bonds as collateral to obtain hard-currency liquidity. Fitch said the arrangement appears aimed mainly at diversifying Nigeria’s funding sources and managing liquidity rather than addressing an inability to access international capital markets.

The agency identified transparency, liquidity management and creditor recovery as key areas of concern. It said limited disclosure surrounding some TRS agreements could make it difficult for investors and policymakers to determine the full extent of a government’s financial obligations, particularly where contracts contain provisions for margin calls or early termination.

Fitch also warned that the value of government bonds used as collateral could fall during periods of financial market stress. Such a decline could trigger margin calls or early termination, potentially placing additional pressure on Nigeria’s foreign exchange and liquidity position at a time when both are already constrained.

The rating agency further noted that the arrangement could affect how losses are distributed among creditors if Nigeria were to restructure its debt in the future. According to Fitch, lenders holding pledged collateral could potentially recover more of their exposure by liquidating the assets, while unsecured creditors could bear a larger share of losses.