Nigeria has accessed the first tranche of its $5 billion derivative-based financing arrangement with First Abu Dhabi Bank (FAB), drawing approximately $1.5 billion under the facility approved earlier this year by the National Assembly.
According to a Bloomberg report published on Friday, the Federal Government received the funds within the past two weeks through a structured Total Return Swap (TRS) transaction arranged with the United Arab Emirates' largest lender, citing sources familiar with the deal.
The disbursement marks the first utilisation of the financing programme designed to provide the government with additional external funding as it seeks to support fiscal operations and economic reforms.
National Assembly approved borrowing plan
The financing arrangement forms part of a broader external borrowing programme approved by the National Assembly on March 31, following a request by President Bola Tinubu to secure up to $6 billion in foreign loans.
The approved borrowing package comprises two major facilities sourced from the United Arab Emirates and the United Kingdom, including the $5 billion Total Return Swap financing programme provided by First Abu Dhabi Bank.
At the time of seeking legislative approval, President Tinubu acknowledged that the proposed borrowing would increase Nigeria's public debt burden.
According to the President, Nigeria's total public debt stood at $110.3 billion, equivalent to about N159.2 trillion, as of December 31, 2025.
Concerns over transparency
Despite the government's decision to proceed with the transaction, international financial institutions have raised concerns about the structure of derivative-based financing arrangements.
Global credit rating agency Fitch Ratings previously warned that while such financing structures can improve liquidity, diversify funding sources and potentially reduce borrowing costs, they often fall outside conventional public debt reporting frameworks.
According to Fitch, this could reduce transparency in government borrowing and limit legislative oversight of public debt obligations.
The agency also cautioned that the arrangement may expose Nigeria to additional foreign exchange risks, particularly if domestic bond yields increase or the naira experiences further depreciation.
IMF raises caution
The International Monetary Fund (IMF) has similarly expressed reservations about derivative-backed financing mechanisms.
The Fund noted that such transactions are frequently complex and lack sufficient transparency, making it more difficult for investors and policymakers to determine the full extent of a country's debt exposure and future repayment obligations.
Analysts say while derivative financing can provide governments with quicker access to international capital, the structure requires careful management to avoid creating hidden liabilities or increasing fiscal vulnerabilities over time.
The latest drawdown provides Nigeria with fresh external liquidity at a time when the government continues to balance rising debt obligations with the need to finance infrastructure, economic reforms and budgetary commitments amid persistent global financial uncertainties.