Fitch Ratings has warned that Nigeria’s proposed $5bn Total Return Swap (TRS) could introduce significant risks to the country’s debt management, liquidity position and future debt restructuring.
The warning was contained in Fitch’s latest special report, Sovereign Total Return Swaps and Repo Transactions: Q&A 2026, published on 14 September.
The rating agency said while TRS arrangements can give sovereigns access to alternative sources of funding and help diversify their financing base, their complexity could make it harder for investors and policymakers to determine the full extent of a government’s financial obligations.
Nigeria’s proposed transaction with First Abu Dhabi Bank involves using local-currency government bonds as collateral to obtain hard-currency liquidity.
Fitch said the arrangement appears to be driven largely by Nigeria’s desire to diversify its funding sources and manage liquidity rather than by an inability to access conventional international capital markets.
The agency identified transparency, liquidity management and creditor recovery as the three major risks associated with sovereign TRS transactions.
On transparency, Fitch said the limited disclosure of some TRS agreements could make it difficult to assess contingent liabilities and contractual obligations that may arise under stress.
Fitch said the arrangement appears to be driven largely by Nigeria’s desire to diversify its funding sources and manage liquidity rather than by an inability to access conventional international capital markets.
The agency identified transparency, liquidity management and creditor recovery as the three major risks associated with sovereign TRS transactions.
On transparency, Fitch said the limited disclosure of some TRS agreements could make it difficult to assess contingent liabilities and contractual obligations that may arise under stress.
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