David Malpass, former World Bank President, has warned that Nigeria’s increasing reliance on collateral-backed and complex borrowing arrangements could make any future debt restructuring more difficult and discourage investors if the country’s debt position becomes unsustainable.
Malpass, who was 13th president of the World Bank Group, from April 9, 2019 - June 1, 2023, raised the concern in a World Bank Policy Research Working Paper titled Public Debt and Central Banks, which was based on the Stanley Fischer Memorial Lecture delivered at the World Bank Group’s Annual Bank Conference on Development Economics.
He said increasingly sophisticated collateralised transactions in developing economies, including Nigeria, Angola and Senegal, were creating what he described as “a new race toward seniority in the capital structure.”
In sovereign lending, collateralised creditors may gain priority over other lenders by tying repayment to specific assets, revenues or financial instruments. Malpass warned that the expansion of such arrangements could leave fewer resources available for unsecured creditors and make negotiations more contentious during a debt crisis.
He also questioned the growing use of guarantee products provided by multilateral development banks, arguing that their effectiveness had not been adequately tested during sovereign debt restructurings.
According to him, private lending to distressed or high-risk governments has become less transparent, with some commercial agreements containing non-disclosure clauses that prevent citizens, investors and other creditors from understanding their full implications.
Malpass said debt reconciliation efforts were already being hindered by limited access to sovereign loan contracts, particularly agreements linked to Chinese lending programmes.
The former World Bank chief also criticised the international debt restructuring system, arguing that existing mechanisms had failed to provide timely and meaningful relief to heavily indebted countries.
Beyond debt transparency, Malpass identified exchange rate stability as an important requirement for Nigeria’s economic growth.
He grouped Nigeria with Ethiopia and Egypt among countries where multiple exchange rates and poorly managed currency systems had transferred wealth from low-income earners to politically or economically privileged groups.
He estimated Nigeria’s per capita income at about $1,500, or roughly $4 a day, while noting that median income was likely to be considerably lower because wealth remained concentrated among a small proportion of the population.
Malpass argued that the benefits of credible currency reform could be substantial, pointing to the significantly higher earnings of Nigerians working abroad as evidence of the country’s unrealised productive potential.
He disclosed that, while serving as World Bank president, he held several meetings with Nigeria’s previous administration, cabinet officials and the bank’s Nigeria team to identify reforms capable of accelerating economic growth.
Those discussions highlighted currency stabilisation, exchange rate unification, oil sector reforms, tax changes and agricultural liberalisation, particularly in rice production, as priorities.
Malpass said the reforms could transform Nigeria’s economy in a manner comparable to the policy changes that helped launch China’s sustained period of rapid growth in the 1990s.
Malpass’ warning comes amid continuing scrutiny of Nigeria’s use of unconventional financing to refinance expensive obligations and cover budget deficits.
The International Monetary Fund and Fitch Ratings had earlier raised concerns about the Federal Government’s proposed $5 billion Total Return Swap with First Abu Dhabi Bank, warning that derivatives-based sovereign borrowing could obscure the country’s true debt exposure and complicate future restructuring.
Despite those concerns, Nigeria reportedly accessed an initial tranche of about $1.5 billion from the arrangement.
The controversy follows years of debate over the transparency of Nigeria’s borrowing, including loans linked to crude oil revenues, infrastructure assets and bilateral agreements whose full terms were not always publicly disclosed. With debt-service costs consuming a substantial share of government revenue, the latest warning reinforces concerns that short-term financing relief could create more difficult obligations for future administrations.
