FORMER World Bank President David Malpass has said that repeated currency devaluations are deepening poverty in developing countries, as falling exchange rates drive up the cost of food, fuel and medicine while eroding the value of pay and pensions.
He also warned that Nigeria’s growing reliance on collateral-backed borrowing risks complicating future debt restructuring as the country turns increasingly to complex financing deals to meet its fiscal needs.
In a policy paper titled Public Debt and Central Banks, prepared for the World Bank’s Annual Bank Conference on Development Economics (ABCDE) 2026, Malpass said collateralised sovereign transactions by countries including Nigeria, Angola and Senegal are fuelling a ‘race toward seniority’ among creditors. This, he argued, will make debt workouts far more difficult should economic conditions deteriorate.
‘The growing use of sophisticated collateral-backed financing instruments will add further complexity to sovereign debt restructuring, particularly for countries facing financial distress,’ he wrote.
The comments come weeks after Nigeria drew $1.5 billion from a $5 billion facility arranged with First Abu Dhabi Bank. Under the terms, the Federal Government must pledge government securities worth about 133 per cent of the amount drawn as collateral in exchange for dollar liquidity, allowing it to access foreign currency without issuing Eurobonds at current market rates.
Authorities have said the proceeds will finance the 2026 budget, support infrastructure projects and refinance existing obligations.
Malpass cautioned that such structures, often accompanied by confidentiality clauses, reduce transparency and make it harder for investors and creditors to assess a country’s true debt profile. He also criticised existing international debt resolution mechanisms, saying the G20 Common Framework has failed to deliver meaningful relief after years of operation. The Global Sovereign Debt Roundtable, which he proposed in 2022 to improve transparency and broaden creditor participation, has likewise fallen short of expectations, he added.
He called for new approaches that prioritise restoring debt sustainability over protecting creditor interests.
His concerns align with recent alerts from the International Monetary Fund, which noted that derivative-based arrangements such as total return swaps can obscure sovereign liabilities because they are difficult for investors to value and monitor. Fitch Ratings has similarly warned that Nigeria’s deal with First Abu Dhabi Bank could weaken fiscal transparency and create contingent liabilities not fully captured in conventional debt statistics.
On currency policy, Malpass argued that repeated devaluations transfer wealth to those with privileged access to foreign-currency assets.
He cited Nigeria, Egypt and Ethiopia as examples where exchange-rate reforms have contributed to declining living standards.
Nigeria has carried out two major naira devaluations since 2023 as part of efforts to liberalise the foreign-exchange market. The moves have significantly raised inflationary pressures and business operating costs.
Despite the challenges, Malpass expressed optimism about Nigeria’s longer-term prospects. Sustained reforms in exchange-rate management, taxation, agriculture and the oil sector, he said, could unlock stronger growth.
He recalled holding several discussions with the previous Nigerian administration during his World Bank tenure to advance such reforms, though implementation remained limited.
The former World Bank president’s remarks add to the debate over how Nigeria should finance its widening fiscal deficit at a time when elevated global interest rates have made conventional external borrowing more expensive, prompting the authorities to explore alternative sources of foreign-currency funding.