A new report has accused the International Monetary Fund (IMF) of continuing to promote policies that undermine public services in low-income countries while favouring wealthy nations.

The report was conducted by ActionAid International, Education International and the Tax and Education Alliance.

This was as Fitch warned that Nigeria’s proposed $5 billion financing arrangement with First Abu Dhabi Bank could increase sovereign debt risks, reduce transparency in public debt reporting and complicate any future debt restructuring.

The ActionAid report, entitled ‘Still Cooking with a Failed Recipe: A Review of IMF Country Advice on Social Spending, Public Services, Debt, Tax and Gender Equality’, which was released yesterday, examined IMF’s policy advice issued between February 2022 and February 2025 across 11 countries, including Nigeria, Ghana, Kenya, Malawi, Senegal, Uganda, Zambia, Zimbabwe, Brazil, Nepal and the United Kingdom (UK).

According to the report, African countries spend an average of 7.6 per cent of their national budgets on public service wage bills, below the global average of nine per cent, yet many are still advised by the IMF to freeze or reduce spending on essential public services.

The report alleged that while wealthy countries such as the UK were encouraged to increase public spending and invest in public services, lower-income nations were often urged to cut expenditure on education, healthcare and public sector wages to meet debt repayment obligations.

It noted that the UK spends about 15.9 per cent of its Gross Domestic Product (GDP) on its public workforce and receives recommendations to expand public investment, whereas countries such as Nigeria and Nepal, which spend 1.9 per cent and 2.5 per cent respectively, are advised to restrain public spending.

ActionAid Secretary-General, Arthur Larok, said: “The IMF’s recipe book is completely outdated. By forcing lower-income nations to squeeze public workers, cut social spending and prioritise foreign creditors over education and healthcare, the IMF is functioning as a global debt enforcer rather than a global development partner.”

Reviewing IMF documents relating to Ghana, Kenya, Malawi, Senegal, Nigeria, Uganda, Zambia and Zimbabwe, the report found that fiscal measures often resulted in reduced spending on services intended to support vulnerable populations.

It also criticised what it described as a rigid approach to public sector wage policies, arguing that recommendations to freeze or limit wage bills fail to consider the already low levels of spending in many developing countries.

ActionAid International’s Global Lead on Economic Justice, Roos Saalbrink, said frontline workers such as teachers, nurses and doctors should be viewed as priority investments rather than expenditure burdens.

FITCH’S warning adds to concerns earlier raised by the IMF, which cautioned that the derivatives-based financing structure could expose the country to significant fiscal, liquidity and refinancing risks despite offering access to hard-currency funding at potentially lower costs.

In a report entitled ‘Emerging Market Sovereigns’ Use of Total Return Swaps Raises Risks: Balancing Transparency and Recovery Risks Against Financing Flexibility’, Fitch said Nigeria’s planned transaction, structured as a Total Return Swap (TRS), carries risks that may not be immediately visible under conventional debt-reporting frameworks.

The facility, approved by the National Assembly as part of President Bola Tinubu’s external borrowing programme, would allow Nigeria to obtain hard-currency financing by pledging about $6.67 billion worth of naira-denominated bonds as collateral.

The transaction is expected to mature in 2032 and forms part of government efforts to refinance expensive debt and support infrastructure development.

While acknowledging the potential benefits of the arrangement, Fitch warned that such structures often involve contractual terms that are only partly disclosed, making it difficult to fully assess the scale and conditions of sovereign borrowing.

The agency said, “A TRS can provide hard-currency liquidity even in difficult market conditions, broaden funding options and reduce borrowing costs relative to conventional market issuance. These advantages can be meaningful for sovereigns with constrained market access or heightened liquidity needs.

“However, 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.”

According to Fitch, Nigeria’s proposed structure appears to be driven mainly by funding diversification and liquidity management objectives rather than an inability to access international capital markets.