Fitch Raises Concern Over Nigeria’s $5bn Total Return Swap
LAGOS — Fitch Ratings has raised concerns about Nigeria’s proposed $5 billion Total Return Swap (TRS)arrangement, warning that the financing structure could create additional pressure on the country’s debt management, liquidity position and any potential future debt restructuring.
The warning was contained in Fitch’s latest report on sovereign Total Return Swaps and repo transactions, published on September 14, 2026.
The transaction, arranged with First Abu Dhabi Bank (FAB), allows Nigeria to obtain foreign-currency liquidity using naira-denominated Federal Government securities as collateral.
According to Fitch, such arrangements can provide governments with alternative funding sources and help diversify their financing options. However, the rating agency said their complex structures can make it difficult for investors and policymakers to establish the full extent of a government’s financial obligations.
Fitch identifies three major risks
Fitch highlighted transparency, liquidity management and creditor recovery as key areas of concern surrounding sovereign TRS transactions.
On transparency, the agency noted that some of the contractual details of these transactions may not be fully disclosed. This could make it harder to assess contingent liabilities and other obligations that could emerge if market conditions deteriorate.
The agency also pointed to provisions involving margin calls and early termination as potential sources of additional financial pressure on sovereign borrowers.
Liquidity pressure could increase
Fitch said the value of the government bonds pledged as collateral could fall during periods of market stress.
A significant decline in the value of the securities could trigger margin calls or lead to early termination of the transaction. Such an outcome could place additional pressure on foreign-exchange liquidity at a time when access to hard currency may already be constrained.
The International Monetary Fund has similarly noted that Nigeria’s $5 billion TRS carries collateralisation of 133 per cent and could expose the government to margin calls if the naira value of the pledged securities falls because of currency depreciation or higher interest rates.
Possible implications for creditors
Another issue raised by Fitch is how a TRS could affect creditors if Nigeria were to undertake a debt restructuring in the future.
Because the transaction is backed by government securities, the lender could potentially recover a significant portion of its exposure by liquidating the collateral.
Fitch said this could alter how losses are distributed among different groups of creditors, potentially leaving unsecured bondholders with a larger share of losses in a restructuring scenario.
Nigeria’s financing strategy
Nigeria has pursued the TRS as part of efforts to diversify its financing sources and strengthen access to foreign-currency liquidity.
The Federal Government has previously maintained that the arrangement is not secured by strategic national assets such as crude oil revenues, airports or seaports. The Debt Management Office said the collateral consists of naira-denominated Federal Government bonds.
The government has also begun accessing the facility in tranches, with reports indicating that about $1.5 billion was drawn from the arrangement in June 2026.
What Fitch’s warning means
Fitch’s assessment does not mean that the financing arrangement cannot provide Nigeria with useful liquidity. Rather, it highlights the risks associated with using a relatively complex financial structure, particularly during periods of currency, interest-rate or market volatility.
The central issue for investors and policymakers will therefore be how the transaction is managed, how its obligations are disclosed and how Nigeria responds if market conditions trigger additional collateral requirements.
As Nigeria continues to rely on a combination of domestic and external financing to meet its fiscal needs, the terms and risks attached to instruments such as the $5 billion TRS are likely to remain under close scrutiny.
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