Fitch Ratings has raised concerns about Nigeria’s use of Total Return Swaps and repo transactions as alternative financing instruments, warning that the structures could expose governments to transparency, liquidity and creditor-recovery risks, even as they provide additional funding options.

The concerns were contained in a special report published on September 14, 2026, titled “Sovereign Total Return Swaps and Repo Transactions: Q&A 2026.”

The report, authored by Fitch analysts Gabriel Comolet and Todd Martinez, examines the growing use of these instruments by emerging-market sovereigns, including Nigeria, Angola, Senegal, Colombia and Argentina.

Fitch said that while TRS transactions can provide governments with access to liquidity and alternative sources of funding, they can also create complexities that make it difficult to assess the full extent of sovereign liabilities.

The rating agency noted that such arrangements could also complicate debt management, particularly during periods of financial stress.

Fitch noted that the reasons for using TRS transactions vary from country to country and have changed over time.

The agency said Angola initially relied on the instrument due to its limited access to traditional capital markets. However, more recent TRS transactions by Angola and Nigeria appear to be aimed at diversifying funding sources and managing liquidity, rather than addressing a lack of access to conventional borrowing.

Fitch also observed that the headline borrowing costs for many sovereign TRS transactions are broadly in line with prevailing Eurobond yields. However, it cautioned that the actual cost of the arrangements could be higher than initially indicated.

Fitch also highlighted growing concerns among international financial institutions over the use of such financing structures.

The agency said the International Monetary Fund has raised specific concerns about the opacity and potential risks surrounding Nigeria’s proposed TRS arrangement, prompting it to take a more conservative approach to accounting for the collateral involved.

The report also cited remarks by former World Bank President David Malpass, who previously described such arrangements as creating “a new race toward seniority” in sovereign debt markets. The comments reflect concerns that swap-backed financing could affect the ranking and recovery prospects of different classes of sovereign creditors.