Fitch Warns Nigeria on $5bn Total Return Swap Risks

Fitch Ratings has cautioned Nigeria over the risks associated with its proposed $5 billion total return swap financing arrangement. This arrangement is designed to provide the government with hard currency liquidity and diversify funding sources while potentially lowering borrowing costs.

However, Fitch warns that it could expose the country to additional debt management risks and liquidity challenges. The arrangement, which is backed by local currency government bonds, may not be treated as direct debt obligations, thus obscuring the true scale of sovereign liabilities.

Fitch highlights that the structure could lead to increased domestic interest rates and a weakened naira, especially during economic stress periods. The report also notes that similar arrangements have been explored by other African countries like Angola and Senegal, emphasizing the potential dangers associated with such financial structures.

The transaction is estimated to mature in 2032 and is reported to be backed by approximately 6.67 billion naira equivalent in local currency bonds.