How African governments are raising dollars without issuing Eurobonds

As borrowing costs remain elevated and investor appetite for frontier-market debt remains uneven, a growing number of African governments are turning to an alternative financing tool to raise hard currency without issuing Eurobonds.

According to a new Fitch Ratings report, Angola, Nigeria and Senegal have collectively used or announced plans to use more than $9 billion worth of Total Return Swap (TRS) transactions, a little-known financing structure that is emerging as an alternative source of dollar funding.

The trend reflects a broader challenge facing African sovereigns. While many governments continue to face large financing needs and external debt obligations, issuing Eurobonds has become increasingly expensive amid high global interest rates and tighter financial conditions.

TRS transactions offer another route.

Legally structured as derivatives, TRS arrangements can function much like collateralised loans. Governments pledge assets—typically sovereign bonds—in exchange for hard-currency financing from banks or other counterparties.

According to Fitch, the appeal is straightforward: the structures can provide dollar liquidity, diversify funding sources and lower borrowing costs compared with conventional debt issuance.

“These advantages can be meaningful for sovereigns with constrained market access or heightened liquidity needs,” the agency said in its report, Emerging Market Sovereigns’ Use of Total Return Swaps Raises Risks.

It identified at least seven reported or planned transactions across Angola, Nigeria and Senegal.

Angola has been the largest user, securing about $3.5 billion through three facilities backed by Eurobonds, US Treasury bills and local-currency debt. Nigeria has approved a planned $5 billion transaction with First Abu Dhabi Bank backed by an estimated $6.67 billion equivalent of naira-denominated government bonds, while Senegal has reportedly arranged multiple facilities worth up to €1.1 billion backed by local-currency bonds.

But while the structures can unlock hard-currency funding, Fitch warned they also create new risks.

“Angola, Senegal and Nigeria have used or announced plans to use TRS, sharing common features of limited transparency, collateral outside headline debt statistics and potential risks for existing creditors,” the firm said.

Angola’s early test case

Among African sovereigns, Angola provides the clearest example of why governments are turning to TRS—and the risks involved.

The oil-rich country’s first transactions were arranged when access to international capital markets was severely constrained, making TRS one of the few available sources of dollar financing.

However, the risks became apparent when a global market sell-off triggered a margin call, forcing the government to use foreign-exchange reserves.

“The shock was contained and the collateral returned shortly after, but the episode illustrated how the structure can accelerate liquidity pressure when sovereign buffers are already strained,” Fitch said.

Since returning to the Eurobond market, Angola’s motivation has changed. Fitch believes recent transactions have been driven less by necessity and more by efforts to manage refinancing risks while diversifying funding sources.

The agency also noted that transparency improved over time, with recent facilities publicly disclosed and existing transactions detailed in Eurobond prospectuses.

Nigeria’s $5 billion alternative

Nigeria’s planned transaction is among the largest identified by Fitch. The report noted that authorities approved a proposed $5 billion facility with First Abu Dhabi Bank in April 2026, backed by an estimated $6.67 billion equivalent of naira-denominated government bonds.

Unlike Angola’s early transactions, the firm does not believe Africa’s most populous nation is pursuing the structure because it lacks access to international capital markets.

Instead, the agency said the deal appears to be motivated by funding diversification and liquidity management.

However, Fitch warned that the structure could create future foreign-exchange pressures. “Margin calls payable in US dollars against naira-denominated collateral could generate hard-currency pressure either if domestic yields rise or the naira weakens.”

That means a sharp rise in local bond yields or a significant depreciation of the naira could reduce the value of pledged collateral and trigger additional dollar obligations.

Senegal seeks lower-cost funding

Senegal’s use of TRS reflects a different motivation.

Unlike Angola when it first adopted the structure, Senegal retained access to regional capital markets and had theoretical access to hard currency through the Central Bank of West African States.

However, drawing on that mechanism at scale would require central bank cooperation, place pressure on regional reserves and attract significant scrutiny.

The TRS structure offered a more discreet alternative.

Cost was also a major factor. Senegal cited borrowing costs of around seven percent through TRS transactions, compared with 11 to 12 percent in the Eurobond market.

With subscription rates falling and yields rising across regional debt auctions during the first half of 2025, the structures also helped the government avoid placing additional pressure on an already stretched regional market.

The trade-off

Fitch cautioned that while TRS transactions can provide cheaper funding and valuable access to hard currency, they often come with limited transparency.

Many agreements are governed by contracts whose full terms are not publicly disclosed, making it difficult for investors and lawmakers to assess the true scale of sovereign obligations.

“TRS may be structured under contractual agreements whose terms and conditions are only partly disclosed, reducing transparency of the true scale and terms of sovereign borrowing,” it said.

The agency also highlighted concerns about creditor treatment, pointing to Ecuador’s experience with collateralised financing arrangements during the Covid-19 pandemic. Falling bond prices triggered margin calls that intensified liquidity pressures, while collateralised creditors ultimately received preferential treatment during the country’s debt restructuring.

As Eurobond issuance becomes more expensive, African governments are increasingly exploring alternative ways to raise dollars. Fitch’s report reveals TRS could become a more prominent feature of sovereign financing strategies, but the growth of the market is also likely to intensify scrutiny over transparency, contingent liabilities and financial risks.