Acting on concerns over Nigeria’s evolving debt strategy, former World Bank President David Malpass has warned that the country’s increasing reliance on collateral-backed borrowing could complicate future debt restructuring efforts and heighten risks around debt transparency.

In a policy paper presented at the World Bank’s 2026 Annual Bank Conference on Development Economics, Malpass said Nigeria, alongside Angola and Senegal, is among countries increasingly turning to structured, collateralised financing arrangements that encourage creditors to seek priority repayment rights.

He argued that the growing use of such instruments creates a “race toward seniority” in the capital structure, making future debt workouts more difficult should countries face financial distress.

The remarks are coming weeks after Nigeria drew down $1.5 billion from a $5 billion financing facility arranged by First Abu Dhabi Bank. The transaction has attracted scrutiny from the International Monetary Fund (IMF) and Fitch Ratings over its derivative-based structure.

Under the arrangement, the Federal Government pledges local securities valued at about 133 per cent of the amount drawn, enabling it to access dollar liquidity without issuing Eurobonds at current elevated borrowing costs. Government officials defended the arrangement, saying the funds would support budget financing, infrastructure projects and debt refinancing.

Malpass expressed concern that many of the financing arrangements, particularly those involving higher-risk sovereign borrowers, are subject to non-disclosure provisions that limit visibility into countries’ actual debt obligations.

His comments mirror concerns raised by the IMF in June, when the Fund warned that derivative-linked financing instruments, including total return swaps, could obscure sovereign debt exposures because they are difficult for creditors to value and monitor. Fitch Ratings has also cautioned that the First Abu Dhabi Bank facility could weaken debt transparency and create contingent liabilities that may not be fully reflected in conventional debt statistics.

Beyond Nigeria, Malpass criticised the global debt-resolution framework, arguing that the G20 Common Framework has delivered limited debt relief despite years of negotiations. He also questioned the effectiveness of the Global Sovereign Debt Roundtable — an initiative introduced during his tenure at the World Bank in 2022 to broaden creditor participation saying both mechanisms should shift their focus towards restoring debt sustainability rather than protecting creditor interests.

He also renewed his criticism of exchange-rate policies across several developing economies, including Nigeria, Egypt and Ethiopia, arguing that repeated currency devaluations have worsened poverty by benefiting those with privileged access to foreign exchange.

Nigeria’s naira lost about 70 per cent of its value following the major exchange-rate liberalisation in 2023, triggering sharp increases in inflation and operating costs for businesses.

Despite the concerns, Malpass said Nigeria retains significant long-term growth potential if it sustains reforms across the foreign exchange market, oil sector, taxation and agriculture. He likened the country’s reform prospects to China’s economic transformation in the early 1990s, noting that he held several discussions with Nigeria’s previous administration on such reforms during his time at the World Bank, although implementation had been slower than expected.

His intervention adds to the debate over Nigeria’s borrowing strategy as higher global interest rates continue to raise the cost of conventional external financing, prompting the government to increasingly explore alternative sources of foreign currency.