David Malpass, former World Bank President has cautioned that Nigeria’s growing reliance on collateral-backed financing could make future debt restructuring more difficult, adding to concerns already raised by international financial institutions over the country’s complex borrowing strategy.
In a policy paper released as part of the World Bank’s Annual Bank Conference on Development Economics (ABCDE) 2026, Malpass said collateralised sovereign transactions in countries including Nigeria, Angola and Senegal were creating a “race toward seniority” among creditors that could complicate debt workouts if financial conditions deteriorate.
“Sophisticated new collateralised transactions… are creating a new race toward seniority in the capital structure,” Malpass wrote in the paper, Public Debt and Central Banks. “This will add further complexity to restructurings.”
His comments come weeks after Nigeria drew $1.5 billion from a $5 billion financing facility arranged with First Abu Dhabi Bank, a transaction that has attracted scrutiny from investors, the International Monetary Fund and Fitch Ratings because of its derivative-based structure.
Under the facility, Nigeria is required to pledge Federal Government securities worth about 133 percent of any amount drawn as collateral in exchange for dollar liquidity, allowing the government to secure foreign currency funding without issuing Eurobonds at current market yields.
The administration has said proceeds from the initial drawdown will support budget implementation, infrastructure spending and debt refinancing.
Malpass argued that such structures, alongside non-disclosure clauses increasingly embedded in sovereign financing agreements, reduce transparency and make it harder to assess countries’ true debt burdens.
“Private sector transactions to distressed or high-risk sovereigns have become less transparent, sometimes to the point of including non-disclosure clauses,” he said.
The former World Bank president also criticised existing international debt-resolution mechanisms, saying the G20 Common Framework has failed to deliver meaningful debt reduction despite years of negotiations.
He said the Global Sovereign Debt Roundtable, which he proposed in 2022 to broaden creditor participation and improve transparency, had also fallen short of expectations.
“There is no clarity or consensus on the purpose,” Malpass wrote, adding that both initiatives should be replaced with new approaches focused on restoring debt sustainability rather than protecting creditor interests.
The comments reinforce growing concerns among global institutions over Nigeria’s use of structured financing.
The IMF warned in June that derivative financing arrangements, including total return swaps, can obscure sovereign liabilities because they are difficult for investors and creditors to value or monitor.
Fitch Ratings also said Nigeria’s planned financing arrangement with First Abu Dhabi Bank could weaken transparency and create contingent liabilities that may not be fully reflected in conventional debt metrics.
Beyond debt, Malpass renewed criticism of exchange-rate policies in developing economies, arguing that repeated currency devaluations have worsened poverty by transferring wealth to those with privileged access to foreign currency assets.
He cited Nigeria alongside Egypt and Ethiopia as countries where floating exchange-rate regimes and multiple exchange-rate systems have contributed to declining living standards.
Africa’s most populous economy embarked on a two-time devaluation of its naira which saw the currency plummet by about 70 percent at the first instance in 2023, part of the policies that worsened living conditions and left businesses reeling.
Despite those challenges, Malpass said Nigeria retains significant long-term growth potential if structural reforms are sustained.
He said reforms in exchange-rate management, the oil sector, taxation and agriculture could transform Africa’s biggest oil producer, drawing parallels with China’s market reforms in the early 1990s.
Malpass disclosed that during his tenure at the World Bank he held several meetings with Nigeria’s previous administration to advance those reforms, although implementation remained limited.
The warning adds to a widening debate over how Nigeria should finance its fiscal deficit as higher global interest rates continue to make conventional external borrowing more expensive while authorities seek alternative sources of foreign-currency funding.
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