IMF and Rating Agencies Warn of Hidden Debts in Senegal, Nigeria, Angola

Several African nations, including Senegal, Nigeria, and Angola, are increasingly using total return swaps—a type of derivative—to secure financing at lower costs. This strategy has raised concerns from the International Monetary Fund (IMF) and major credit rating agencies Moody's and Fitch, who view it as risky and potentially creating 'hidden debts' that obscure the true fiscal position of these countries. The practice allows governments to borrow without it appearing on their balance sheets, complicating debt transparency and sustainability assessments. The IMF has warned that such off-balance-sheet financing could lead to fiscal instability and undermine investor confidence. The agencies are calling for greater disclosure and stricter regulation to mitigate the risks associated with these financial instruments.

Global Impact

The use of total return swaps by African sovereigns introduces systemic risk to emerging market debt markets, as hidden liabilities could trigger sudden rating downgrades and loss of market access. Economically, this undermines debt transparency and fiscal discipline, potentially leading to higher borrowing costs for the entire region.