IMF warns Nigeria against $5 billion UAE loan as experts split on economic prescriptions

The International Monetary Fund has told Nigeria to walk away from a proposed $5 billion loan from First Abu Dhabi Bank in the UAE, warning that the collateral attached to the deal amounts to a dangerous 133.3% of the loan value.

The warning came in the IMF's 2026 Article IV Mission Concluding Statement, which also urged the Federal Government to raise VAT, keep tightening monetary policy, and boost funding for cash transfer programmes as poverty rises.

Nigeria's Finance Minister, Taiwo Oyedele, immediately welcomed the report, calling it "independent validation" of President Bola Tinubu's economic reforms. He said the reforms are strengthening macroeconomic stability and restoring confidence.

But local economists aren't buying the full package. They agree with the IMF on the UAE loan but disagree on other prescriptions.

Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), backed the Fund's concerns about the Abu Dhabi loan. He said Nigeria's debt-service burden is eating up too much public revenue, leaving little for infrastructure, healthcare, education, and security.

"Fiscal sustainability should not be measured solely by the size of public debt but by the government's capacity to service such obligations without undermining critical development priorities," Yusuf said.

He urged the government to assess the cost, tenor, repayment terms, currency risks, and developmental impact of any new borrowing before going ahead. He also warned that tight monetary policy, while helping exchange-rate stability, is hurting investment and job creation.

Tunde Abidoye, Head of Equity Research at Quest Merchant Bank, called the UAE loan risky because it's structured as a total return swap — a derivative instrument. He said this exposes Nigeria to significant volatility, especially if oil prices drop sharply and trigger margin calls.

Ayodele Akinwunmi, Chief Economist at United Capital Plc, took a different view on external borrowing generally. He said foreign loans could be useful if channelled into productive infrastructure projects, especially now that the naira is expected to stabilise and international interest rates are relatively low.

The IMF also warned the Central Bank of Nigeria against relying too heavily on portfolio investments, which can be volatile. It said inflation should moderate in the second half of 2026 and that the government's 2026 budget deficit should be around 4.4% of 2025 GDP.

The $5 billion loan

The proposed loan from First Abu Dhabi Bank isn't a straightforward borrowing. According to Abidoye, it's a derivative contract called a total return swap. This means Nigeria transfers the economic exposure of an asset to the bank in exchange for cash. If the asset's value falls — say, due to a drop in oil prices — Nigeria could face margin calls, forcing it to put up more collateral or repay early.

The IMF warned that the collateral attached to the loan is 133.3% of the loan amount, meaning Nigeria would have to pledge assets worth $6.67 billion for a $5 billion loan. That's an unusually high ratio, even for a risky derivative structure.

The Federal Government hasn't officially responded to the IMF's warning on the loan. But the Minister of Finance has already cited the report as validation of the government's reform agenda. Whether the government will heed the IMF's advice on the Abu Dhabi loan remains uncertain.

Economists like Muda Yusuf are calling for more caution. He said Nigeria should prioritise affordable, concessional financing and ensure any new borrowing goes into projects that generate economic returns, boost exports, and strengthen future revenue streams.

"Borrowing should support growth, not merely increase future debt-service pressures," Yusuf said.