Public debt is at the center of an accountability crisis. Borrowing, meant to drive development, is squeezing out spending on health and education as debt burdens rise globally. Even worse, across many countries, progress in public disclosure of debt obligations is not keeping pace with the size of obligations. The latest round of the Open Budget Survey shows that 50% of the 82 countries assessed fail to provide basic information on the composition of public debt in budget proposals.
At the same time, the instruments governments use to borrow grow more complex and harder to notice. The recent series of total return swap arrangements in Angola, Senegal and Nigeria are the newest data points in a broader trend of risky and opaque borrowing efforts by governments under fiscal strain. This piece, drawn from the first session of the International Budget Partnership’s Frontiers of Debt series, explores how these complex and opaque debt operations are testing the accountability systems put in place to translate finance into sustainable development.
What, in actual fact, is a Total Return Swap?
Put simply, a total return swap is a loan from a foreign bank that enables a country to borrow cash using their domestic bonds as collateral. In technical terms, it is a type of financial contract between a state and a bank – the value of which fluctuates based on the price of an underlying asset.
In these arrangements, on one side sits a government, and on the other an international bank. The underlying asset is a government bond. The government transfers the total returns that the bond generates to the bank, such as the interest, the coupon payments, and any rise in its value. In exchange, the government receives cash, paid out over time and at a fee.
Notably, if the government bonds underperform—for example, deliver lower financial returns than expected—TRSs are structured for the issuing government to cover any shortfall faced by the bank. In addition, if the foreign exchange value of the bond falls, the government again has to cover any difference. In other words, governments hold a significant amount of the risk in total return swaps in exchange for often quick cash that they generate.
Click on the country cards below for more insight into the recent total return swaps in Angola, Senegal, and Nigeria.
Across all three countries the pattern is similar: the bank collects the returns from government bonds, government receives cash up front and is left with the risk and the future payment obligations. Framed in this way, total return swaps are a loan dressed in complex financial terms that obscure its fiscal weight. By standard definition, a TRS is a loan in everything but name, and because it is not named as one, it tends not to be recorded in the financial books as one.
Why are governments are turning to them?
Looking at Senegal, Angola and Nigeria, total return swaps are an “attractive” arrangement for countries struggling with growing spending demands and shrinking revenue streams.
Most developing countries today are facing the difficult balance between strained revenue sources and rising spending demands. On the revenue side, shrinking aid, costly external borrowing, and the political limits of taxation make it difficult to adequately fund public coffers in time.
Record-high debt servicing burdens and rising service delivery demands, amidst more frequent economic and climate shocks, also compete over the scare revenues – with debt obligations often winning that battle. This drives a need for cash, liquidity, in order for a state not to default on its social and/or financial obligations. While countries could explore restructuring their debt, free-ing up some of the debt servicing pressure, recent evidence shows that global conditions are currently not the most favorable, leading more countries to borrow more and refinance instead.
Against that backdrop, total return swaps appear an innovative alternative, and their appeal is real for a finance ministry under pressure. The difficulty is that the very features that make these deals attractive, their speed and their privacy, are the same features that make them a problem for domestic accountability.
A Test for Accountability
The sharpest concern of accountability is democratic oversight. Nigeria’s parliament reportedly approved its US$5 billion swap the same day the request was submitted, arguably little time for legislators to understand and scrutinize an instrument this complex. In Angola’s case, the transaction was completed without any parliamentary debate at all. Governments are moving faster in securing TRS agreements than parliaments are in understanding them and ensuring adequate oversight of these contracts. In both cases, citizens learnt what their government had committed to only after the fact.
Total return swaps trade transparency for flexibility.
Because TRSs are recorded as financial derivative contracts rather than strict loans, they do not automatically register in fiscal reports meant to inform citizens and creditors what a country actually owes. IBP research shows that Senegal’s legal debt management framework, indeed, does not define financial derivatives like total return swaps as a public debt instrument.
In their commentary, global financial institutions and credit rating agencies have been blunt about the risks. Moody’s warns that while TRSs do provide much-needed liquidity, their opacity and structure can obscure a country’s true debt profile as key details surrounding total return swaps are often not publicly disclosed. In its assessment of Nigeria’s total return swap, the IMF noted the fiscal risks attendant to the swaps including margin calls if the foreign exchange value of the bonds drops, and the political constraints on monetary policy.
The risks raised by the IMF are not hypothetical. After securing a US$1 billion TRS from JPMorgan in December 2024, Angola faced a US$200 million margin call in April 2025 – meaning it had to pledge an extra US$200 million – when falling oil prices eroded the value of the bonds pledged as collateral. And the uncertainty around these contracts runs deeper than even high potential costs. There is no established precedent for how these swaps would be treated in a sovereign debt restructuring, including whether they would rank ahead of bondholders.
What Should Civil Society Do?
The starting point for civic actors is disclosure. Civil society needs to keep pressing governments to publish these arrangements and to record them as the debt they functionally are, and to press equally for reporting frameworks built to capture instruments that fall outside the traditional definition of a loan.
There are models to build on. Kenya, for instance, already provides for financial derivatives within its legal definition of public borrowing, creating space for it to be potentially captured in official debt statistics.
But disclosure alone is not enough if it always arrives after the fact. The deeper task is moving public scrutiny of such arrangements upstream, during budget planning and execution, where the decisions are actually made. Parliaments need the knowledge and the time to interrogate these deals before they are signed, and to ensure their fidelity to legal frameworks, fiscal responsibility principles and development priorities.
Note: This article captures reflections from our Frontiers of Debt webinars series- a set of conversations working through the instruments that are quietly reshaping how public debt gets made. There is more to come, and we hope you will follow along.
