IMF Advises Nigeria Against $5 Billion UAE Loan, Calls for Higher Tax Revenue

Nigeria’s Tax Rates Among Region’s Lowest, IMF Says as It Calls for Reforms

The International Monetary Fund (IMF) has advised the Federal Government against proceeding with a proposed $5 billion financing arrangement involving First Abu Dhabi Bank of the United Arab Emirates, warning that the structure carries significant financial risks. At the same time, the Fund called for stronger domestic revenue mobilisation and indicated that higher tax rates may be necessary over the medium term to support fiscal sustainability.

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The recommendations were presented during discussions surrounding the IMF’s 2026 Article IV consultation on Nigeria, where officials reviewed the country’s economic outlook, fiscal position and reform progress. While acknowledging improvements in macroeconomic stability, the Fund stressed the need for prudent debt management and stronger public revenue generation.

IMF Raises Concerns Over Proposed UAE Financing Deal

According to the IMF, Nigeria should carefully evaluate the risks associated with the proposed financing arrangement, which is structured as a Total Return Swap (TRS). Under the proposal, Nigeria would receive approximately $5 billion in financing while pledging naira-denominated government securities worth more than the value of the loan as collateral.

IMF officials argued that Nigeria currently has access to alternative funding sources that may offer greater transparency and lower risk. These options include issuing Eurobonds or accessing concessional financing from multilateral development institutions.

The Fund noted that complex financing structures can create additional fiscal vulnerabilities and may expose governments to risks that are more difficult to monitor than traditional borrowing arrangements.

Fund Calls for Higher Revenue Mobilisation

Alongside its concerns about the proposed loan, the IMF emphasised the importance of strengthening Nigeria’s domestic revenue base. The institution recommended maintaining a neutral fiscal stance in 2026 to support macroeconomic stability amid ongoing inflationary pressures.

According to the Fund, current efforts to improve tax administration and revenue collection are appropriate in the near term. However, it stated that tax rate increases may eventually be required to generate sufficient revenue for government spending priorities and long-term fiscal sustainability.

IMF officials pointed out that Nigeria’s tax rates remain among the lowest in the region. They noted that the country’s Value Added Tax (VAT) rate is significantly below those of many neighbouring economies, although they clarified that any recommendation for higher taxes applies to the medium term rather than immediate implementation.

Support for Social Protection Measures

The IMF also stressed the need to protect vulnerable households as economic reforms continue. It called on the government to secure funding for cash transfer programmes designed to support low-income Nigerians affected by inflation and rising living costs.

In addition, the Fund recommended accelerating reforms aimed at improving fiscal transparency, accountability and budget management. Stronger public financial management systems, it argued, would help ensure that government resources are used more effectively and sustainably.

Inflation and Monetary Policy Remain Key Concerns

On monetary policy, the IMF advised that interest rates should remain tight for longer than previously anticipated due to persistent inflation risks. The Fund cited global uncertainties, including geopolitical tensions and commodity price volatility, as factors that could continue to place pressure on consumer prices.

The IMF also urged the Central Bank of Nigeria (CBN) to reduce its reliance on short-term portfolio inflows, warning that such investments can create rollover risks if investor sentiment changes. The recommendation aligns with broader concerns that Nigeria needs more long-term productive investment rather than dependence on volatile capital flows.

Poverty and Economic Challenges Persist

Despite recognising progress in macroeconomic reforms, the IMF warned that living conditions remain difficult for many Nigerians. The institution reported that poverty levels remain elevated and that millions of Nigerians continue to face food insecurity.

The Fund noted that higher global prices for fuel, food and fertiliser could support export earnings and government revenue but may also intensify inflationary pressures and worsen affordability challenges for households.

These concerns highlight the balancing act facing policymakers as they seek to stabilise public finances while supporting economic growth and protecting vulnerable populations.

Implications for Infrastructure and Housing

The IMF’s recommendations have broader implications for sectors dependent on public investment, including infrastructure and housing. Access to sustainable financing remains critical for large-scale development projects, but fiscal discipline and debt sustainability are increasingly important considerations for investors and development partners.

For the housing sector, stronger revenue generation and transparent financing structures could improve government capacity to fund urban development, housing programmes and critical infrastructure projects. At the same time, policymakers will need to ensure that fiscal reforms do not place excessive burdens on households already facing affordability challenges.

Outlook

The IMF’s latest assessment underscores the importance of balancing fiscal sustainability with economic development objectives. While the Fund acknowledged progress made through recent reforms, it cautioned against reliance on complex financing structures such as the proposed $5 billion UAE-backed arrangement and called for stronger domestic revenue mobilisation.

As Nigeria continues to pursue infrastructure investment, economic diversification and fiscal reforms, policymakers will face increasing pressure to secure sustainable financing while maintaining investor confidence, controlling inflation and supporting inclusive growth.

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