Former World Bank President David Malpass has cautioned that Nigeria’s growing reliance on asset-backed borrowing could expose the country to greater financial risks, warning that the strategy may complicate future debt restructuring efforts if the economy deteriorates.
In a 2026 World Bank paper, Malpass argued that loans secured against national assets are creating a more complex debt landscape for developing economies, particularly in countries such as Nigeria, Angola and Senegal.
While such financing arrangements provide governments with faster access to foreign capital, they also introduce competing claims among creditors, making it significantly harder to negotiate debt relief during times of financial distress.
His comments come shortly after Nigeria secured an initial US$1.5 billion tranche under a US$5 billion financing arrangement with First Abu Dhabi Bank. To obtain the funding, the government reportedly pledged collateral valued at around 133% of the amount borrowed.
Officials say the funds will support infrastructure projects, finance the national budget and help meet debt obligations, while avoiding the higher borrowing costs associated with conventional international bond markets.
However, Malpass warned that the increasing use of sophisticated collateralised lending is creating what he described as “a new race toward seniority in the capital structure,” with lenders competing to secure priority repayment rights.
Such competition, he argued, could create deadlocks if a country is forced to restructure its debts during an economic crisis.
He also raised concerns over the lack of transparency surrounding these financing arrangements, noting that confidential loan terms can obscure a country’s true debt exposure. This, he said, makes it more difficult for investors, policymakers and international financial institutions to accurately assess sovereign debt sustainability.
The concerns echo warnings from the International Monetary Fund (IMF), which has previously cautioned that complex financing structures can conceal public debt liabilities. Fitch Ratings has similarly argued that collateralised loans reduce transparency and introduce hidden fiscal risks.
Malpass further criticised existing international debt-relief mechanisms, including the G20 Common Framework, saying there remains little consensus on their objectives or effectiveness. He called for new approaches to sovereign debt resolution that provide greater clarity and improve financial stability for developing economies.
Despite the challenges, Malpass expressed optimism about Nigeria’s long-term economic prospects. He acknowledged the severe impact of the naira’s sharp depreciation on businesses and household incomes but maintained that sustained reforms in taxation, agriculture, the oil sector and exchange-rate management could strengthen economic growth.
He stressed that transparent debt management and prudent borrowing will remain critical if Nigeria is to close its financing gaps while preserving long-term fiscal sustainability.
Source: Business Insider