IMF counsels FG against $5bn UAE loan, seeks higher taxes

•Says 63% of Nigerians live in poverty

By Emma Ujah, Abuja Bureau Chief

The International Monetary Fund (IMF) has advised the Federal Government against a proposed $5 billion loan from the First Abu Dhabi Bank (FADB) of the United Arab Emirates, citing significant risks associated with the financing arrangement.

During the Nigeria 2026 Article IV briefing, IMF Resident Representative in Nigeria, Christian Ebeke, said: “On the TRS, Nigeria has market access. It carries risks and it is important to consider that. There are options for Nigeria. Nigeria can issue Eurobonds and indeed borrow from multilateral institutions on concessional terms. Nigeria can take advantage of those options for its deficit funding.”

The proposed Total Return Swap (TRS) External Financing Programme would allow Nigeria to borrow $5 billion in cash while pledging naira‑denominated government bonds worth 133.3 percent of the loan amount as collateral.

In its policy recommendations, the IMF Executive Board stated: “A neutral fiscal stance in 2026 would support macroeconomic stability, given renewed inflationary pressures. Domestic revenue mobilisation is appropriately focused on administrative gains in 2026, while tax rate increases will likely be needed over the medium‑term.”

The Fund added that “funding for the cash transfers programme should be secured to support the most vulnerable,” and that efforts to improve fiscal transparency, accountability and budget processes should be accelerated.

Defending the recommendation, IMF Mission Chief for Nigeria, Axel Schimmelpfennig, noted that Nigeria’s tax rates remain among the lowest in the region, with the country’s VAT rate about half those of neighbouring countries. He clarified that the recommendation is for the medium term rather than immediate implementation.

On monetary policy, the IMF said: “Monetary policy must remain tight for longer than previously expected given inflationary pressures from the war in the Middle East and a global risk‑off environment.” It also advised that “the Central Bank of Nigeria (CBN) should reduce its reliance on expensive portfolio inflows that pose a rollover risk.”

The Fund observed that recent reforms have strengthened macroeconomic stability but warned that living conditions remain difficult. The report notes: “Poverty reached 63 per cent (national poverty line) and 27 million Nigerians are estimated to have faced food insecurity in the fall of 2025.”

It added: “Higher global fuel, food and fertilizer prices will improve exports and fiscal revenues, but also give rise to inflationary pressures, potentially aggravating poverty and food insecurity.”

The IMF projected that inflation would continue easing in the second half of the year, estimated the consolidated government deficit at 4.4 per cent of GDP in 2025, and called for reforms in power, infrastructure, agriculture, human capital development and security to support inclusive growth.

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