Nigeria has gone ahead to collect a $5 billion loan arrangement from the United Arab Emirates (UAE) which it says it aims to use to fund its 2026 budget of N68.32 trillion, despite strict warnings from the International Monetary Fund (IMF), according multiple reports monitored by Businessa.m.
The Bola Tinubu administration had earlier drawn $1.5 billion from the loan facility, arranged with First Abu Dhabi Bank. The government said it needs the loan to support the 2026 budget, finance important infrastructure, and restructure the country’s debt.
The credit agreement, established with the United Arab Emirates’ premier financial institution, First Abu Dhabi Bank, constitutes the initial installment of a $5 billion total return swap (TRS) facility which was approved by the National Assembly on March 31 this year.
Earlier this June, the IMF raised informed concerns over the loan, warning that such financial structures are often opaque, complex, and difficult to assess fully in terms of risk exposure.
Christian Ebeke, the IMF’s mission chief for Nigeria, said instruments such as TRS often lack transparency, making it harder for stakeholders to evaluate their terms and long-term fiscal implications.
“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 told reporters following the IMF’s latest Article IV consultation.
According to the IMF, parts of the deal “could give rise to political constraints on monetary or exchange rate policy”.
As a result, the World Bank subsidiary warned against the loan’s inherent potential long-term risks for the country, amid rising debts.
Nigeria under Tinubu has been warned for worrisome indulgence in external borrowing. The country’s public external debt according to the Debt Management Office (DMO) stands at $51.9 billion (approximately N74.43 trillion) as of December 31, 2025, accounting for nearly 47 percent of the nation’s total public debt of N159.28 trillion. The majority of the external borrowing is owed to multilateral organizations, with the World Bank alone accounting for over $18.2 billion of the total.
According to recent reports, Nigeria has already drawn $1.5 billion from the $5bn financing facility discussed earlier in the year with the UAE.
To wit, international financial analysts and advisor organizations have echoed apprehensions over Nigeria’s escalating unwieldy debt servicing cost of around 4.1 to 5 percent of its Gross Domestic Product (GDP), while the broader debt-to-GDP ratio sits at approximately 32.3 percent. A more critical financial strain lies in the debt-service-to-revenue ratio, which consumes over 68 percent of federally retained revenues. This means that for every N100 the government earns, over N68 goes directly to paying off past debts, severely limiting the fiscal space available for infrastructure, education, and healthcare.
The Tinubu administration insists that the proceeds from the new loan transaction are intended to bolster the government’s controversial 2026 fiscal budget, fund critical infrastructure projects, and restructure existing debt liabilities.
Bloomberg said the Nigerian legislature while approving the loan in April, described the terms as “competitive”.
Financial experts conversant with the facility informed that the initial tranche of the indebtedness is scheduled to be priced at 395 basis points above the secured overnight financing rate (SOFR), with subsequent tranches priced at SOFR 400 plus basis points.
The SOFR is the primary benchmark interest rate for U.S. dollar-denominated derivatives and loans. It measures the cost of borrowing cash overnight, collateralised by U.S. treasury securities. Administered by the New York Federal Reserve Bank (Fed), SOFR replaced the London interbank offered rate (LIBOR) to provide a secured, risk-free rate based on actual transaction data.
LIBOR was initially a globally accepted benchmark interest rate at which major global banks could borrow unsecured short-term funds from one another. It was phased out and replaced by more secure rates like SOFR.
International financial experts say, by any rate, the new loan arrangement further exposes Nigeria to the lender (UAE), which had already disbursed loans totaling about $1.2 billion to assist with the construction of a portion of a new expressway.
Under the terms of the facility, Nigeria will provide 133.3 percent of the loan’s collateral in assets denominated in its local currency.
