Afreximbank ratings clash puts spotlight on small development banks

Earlier this month, Fitch Ratings downgraded the credit rating of African Export-Import Bank, or Afreximbank, to BBB-, one notch above junk, with a negative outlook — a major blow for the Cairo-based lender, which has become a key player in Africa’s trade finance scene. The bank was quick to push back, saying Fitch’s decision was based on an “erroneous view.” The African Union’s credit review body argued that it was a “misclassification of Afreximbank's sovereign exposures to the Governments of Ghana, South Sudan and Zambia” as non-performing loans. But behind the dispute lies a deeper issue — one that goes beyond credit ratings and strikes at the heart of how emerging multilateral lenders in emerging economies are defined and treated by the international financial system. Core to the disagreement is a fundamental question: What exactly is Afreximbank? Founded in 1993 to support and promote African trade, the bank, which has $40 billion in assets and contingencies, considers itself a multilateral development bank with “preferred creditor status” — a designation that traditionally protects lenders from taking losses when countries need to restructure their debts. But there’s ambiguity. Afreximbank’s shareholders include not only governments, but also private financial institutions. It also extends loans that, in some cases, come with significantly higher interest rates than those offered by traditional multilaterals such as the World Bank. Its mix of loans has led to uncertainty about whether it should be treated like a commercial lender or a multilateral with special protections. The dispute is drawing attention to the broader uncertainty surrounding smaller multilateral development banks in the global south, especially as they take on a greater role in financing in regions grappling with mounting debt distress. How these institutions are classified and treated by credit ratings agencies could affect everything from the cost of capital they can access to the pace and complexity of sovereign debt restructurings. “The international community hasn't really provided clear guidelines for how these institutions are going to be viewed when it comes to debt restructuring,” said Chris Humphrey, senior research associate at the ODI think tank. “And that poses a challenge for them, especially ones that are working in geographies where sovereigns are facing severe debt problems.” How did we get here? The dispute over Afreximbank’s role in sovereign debt restructurings didn’t start with Fitch — it has been building around Ghana and Zambia, two countries in the middle of high-stakes debt negotiations with various creditors. Ghana’s economy is in a state of distress. It is in the process of restructuring about $13 billion of external debt, which began in 2022. Among Ghana’s creditors is Afreximbank, which is owed roughly $768 million. Ghana has included that debt in its restructuring envelope, arguing that the bank does not hold preferred creditor status. “Ghana’s government doesn’t see Afreximbank as having preferred creditor status — we do not believe that their debt is senior to any other restructurable debt,” Ghana’s Minister of Finance Cassiel Ato Forson told Bloomberg. The terms of Afreximbank’s lending to Ghana have also drawn attention. According to a Reuters report published at the time of the agreement in 2022, one $750 million loan for budgetary support was structured with multiple tranches: €100 million (about $102 million) at a total interest rate of 6.49%, $101 million at 9.55%, and a second 10-year tranche of $350 million at 9.33%, according to a Ghanaian parliamentary committee report. In contrast, Ghana receives significant amounts of concessional financing from the World Bank, typically at interest rates of 1%-3%. A similar dispute is unfolding in Zambia, which began its restructuring process in 2020 and is also working to reorganize about $13 billion in external debt. Zambia owes Afreximbank significantly less than Ghana does — about $45 million — but officials have made clear they consider it part of the restructurable debt. “The debt will be restructured,” Zambia’s Treasury Secretary Felix Nkulukusa told Reuters earlier this month, describing the loan as “commercial.” These disagreements were a key factor behind Fitch’s downgrade of the bank from BBB to BBB-. That could scare off some investors. Other multilaterals, such as the African Development Bank and the International Bank for Reconstruction and Development, are rated AAA. “Fitch considers the exposure to the Ghana sovereign (2.4% of loans) as non-performing,” the agency said, noting that exposures to South Sudan (2.1%) and Zambia (0.2%) pushed the bank’s non-performing loan ratio to 7.1% at the end of 2024 — above the 6% “high risk” threshold. Afreximbank strongly disagreed. In a public statement, it reiterated that it was “not participating in debt restructuring negotiations related to any of its member countries.” The standoff has also created risks for Ghana and Zambia. If the dispute over Afreximbank’s status drags on, it could slow down already complex restructuring processes, experts say — adding further delays at a time when both countries are eager to reach deals that unlock funding from the International Monetary Fund and restore investor confidence. Looking ahead: A system struggling to catch up The fight over Afreximbank’s treatment in sovereign debt restructurings isn’t just a technical disagreement — it points to a bigger issue that the international financial system hasn’t quite figured out: how to deal with new kinds of lenders that don’t fit neatly into existing categories. What exactly counts as a multilateral development bank? And should those institutions always be treated differently when a country runs into debt trouble? The IMF considered tackling this question back in 2022 but backed off, choosing to handle it on a case-by-case basis, Humphrey said. That might have worked in the short term, but it’s becoming harder to ignore the need for clearer rules. “You're never going to come up with exact rules,” said Humphrey. “But some general guidelines would really help.” The implications go beyond just Ghana and Zambia. There’s concern that other countries where Afreximbank has lent money might also end up needing debt relief. That risk likely explains why the bank has taken such a firm stand on its preferred creditor status — it’s not just about this one downgrade, but about protecting its future. This moment could also shift how other, smaller, and emerging multilateral banks operate. Some may think twice about bringing in nongovernment shareholders or about lending under shaky conditions. “I think a lot of other MDBs are going to think very carefully about taking on non-sovereign shareholders going forward,” Humphrey said. Still, that doesn’t mean there’s no place for newer, southern-led banks such as Afreximbank. If anything, the need for alternative sources of finance is growing. “The more of these development finance solutions we have, the better,” said Humphrey. “It’s just helpful for them to have a clear sense of how they’re going to be treated if bad situations happen.” Upcoming meetings such as the Financing for Development summit in Sevilla, Spain, and South Africa’s leadership of the Group of 20 major economies this year offer a chance to start fixing the disconnect. What happens next won’t just affect Afreximbank’s future — it could shape how the whole system treats the growing group of lenders trying to do things differently.