Stronger Reserves Not Enough To Offset Nigeria’s UAE Loan Challenges – Report

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 in its investment research weekly market report said on Monday.

The deal is structured as a Total Return Swap (TRS), enabling Nigeria to use naira-denominated government bonds as collateral to access dollar liquidity without issuing expensive Eurobonds.

It has also helped 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 warned that TRS arrangements can be hard to evaluate given that their terms are often opaque.

Transactions involving such structures carry risks because they are often opaque, Christian Ebeke, the IMF’s mission chief for Nigeria, said. Their full impact is therefore harder to evaluate.

“Our view is that there are risks associated with transactions in these kinds of structures. “Normally they are opaque, so terms are not always very transparent when we look at these instruments across countries,” Ebeke said.

MoneyAfrica echoed the same sentiment, saying concerns linger on the structure’s risks, especially given the value of the pledged bonds and shifts in the naira exchange rate that could impact Nigeria’s future obligations.

Last week, the naira depreciated against the U.S. dollar on both segments of the foreign exchange market. The currency depreciated by 0.76 per cent to close at N1,380.93/$1 in the official market, while the parallel market was worse off, depreciating by 1.08 per cent to close at N1,388/$1.

Despite the weak 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 rise in reserves offers a cushion, but it does not remove the risks linked to the UAE-backed financing deal.

The firm said Nigeria got the dollars it needed but the UAE holds Nigerian assets worth more than the loan itself.

It said the deal provides short-term relief at the expense of long-term transparency and that if market conditions turn, the consequences could be immediate.

“The effect is positive for now as reserves got a boost and the government avoided expensive Eurobond rates. But the danger is real. If the naira weakens significantly or the value of the pledged bonds falls, Nigeria could be forced to provide additional collateral or repay the loan immediately. It said.

President Bola Tinubu, since taking over in 2023, has consistently relied 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.

Besides, debt obligations has soared to N16.26 trillion in 2025 from N7.79 trillion in 2023. Q3 2023 and the current administration’s time in office, quarterly debt service has been high and peaked at a record N4.86 trillion in Q4 2025, data released by the Debt Management Office (DMO) shows.

The quarterly debt service peaked in Q4 2025 with an upward trend of N4.86 trillion. This was 37.86 per cent higher than N3.52 trillion in Q3 2025 and 49.93 per cent above N3.24 trillion in Q4 2024, indicating a steady rise in debt payments.