Fitch Ratings slashed the African Export-Import Bank’s rating, citing risky loans to debt-strapped countries. Though the bank fired back, critics say its high interest rates and private backers tell a different story. The downgrade has sparked a reckoning over how development banks are defined and treated.
Also in today’s edition: What’s what with the World Bank and nuclear energy. Plus, Germany cuts its foreign development budget, and Spain does the opposite.
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Downgrade reignites debt debate
Fitch just cut Afreximbank’s credit rating to BBB-, one notch above junk, with a negative outlook — a blow for the Cairo-based trade lender. The bank fired back, calling it an “erroneous view,” while the African Union called it a “misclassification” of loans to Ghana, South Sudan, and Zambia.
At issue: What kind of bank is Afreximbank, really? It claims “preferred creditor status,” but with private shareholders and higher lending rates, some say it looks more commercial than multilateral, writes my colleague Ayenat Mersie.
That murkiness has real consequences. Ghana and Zambia are deep in debt talks and want to restructure loans from Afreximbank. Ghana’s finance minister says: “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.”
A 2022 Ghana loan carried interest rates up to 9.55% — well above World Bank norms. Zambia calls its $45 million Afreximbank loan “commercial” and says the debt will be restructured. Fitch flagged these exposures as key to its downgrade, pushing the bank’s nonperforming loan ratio to 7.1%. Afreximbank insists it’s “not participating in debt restructuring negotiations.”
But the downgrade raises alarms: It could spook investors and stall Ghana and Zambia’s International Monetary Fund-backed talks. More broadly, it exposes a gap in how newer, global south-led lenders are treated. “The international community hasn't really provided clear guidelines,” says ODI’s Chris Humphrey. “And that poses a challenge.”
The IMF backed away from setting rules in 2022. But as these banks grow, the ambiguity is getting harder to ignore. More restructurings may come. And other multilateral development banks are watching closely. “I think a lot of other MDBs are going to think very carefully about taking on non-sovereign shareholders going forward,” Humphrey says.
Still, these lenders have a role. “The more of these development finance solutions we have, the better,” he adds. “It’s just helpful for them to have a clear sense of how they’re going to be treated if bad situations happen.”
Read: Afreximbank ratings clash puts spotlight on small development banks (Pro)
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Power couple
The World Bank signed on to work in partnership with the International Atomic Energy Agency, or IAEA, yesterday, taking its first big step since reentering the nuclear energy space for the first time in nearly 60 years earlier this month.
The collaboration is meant to tap into IAEA’s expertise in the safe development of nuclear power in developing countries. They will also work together to evaluate the feasibility of nuclear projects in specific areas.
The announcement comes as energy demand in developing countries is set to more than double by 2035.
World Bank President Ajay Banga emphasized yesterday that meeting demand will require annual investment in power infrastructure to rise from $280 billion to approximately $630 billion. The World Bank’s reengagement will focus on three fronts: advisory support on nonproliferation and safety, life extension of existing reactors, and helping countries explore small modular reactor technologies.
The move follows sustained advocacy from IAEA Director General Rafael Mariano Grossi, who described years of difficulty convincing global financiers to consider nuclear power. “For many, many years, a narrative was saying that this was not possible,” Grossi said at the event. “My friends from the private sector, the nuclear industry, the guys really doing this stuff, were hitting a wall that was saying that investing in nuclear energy was not something for international financial institutions … but nothing will happen without the World Bank.”
Grossi credited a pivotal board meeting one year ago — initiated at his request — as the beginning of a partnership that now culminates in a formal agreement. Grossi noted that countries — especially in the global south — have long been constrained by a lack of financing for nuclear projects, and that this new partnership could change that.
“Now they will know they can come to the World Bank. They can talk to the World Bank,” Grossi said.
ICYMI: World Bank backs nuclear revival while gas stays a political fault line
On the retreat
Germany’s government announced an 8% cut to its Ministry for Economic Cooperation and Development, aka BMZ, in a new draft budget this week.
It’s not a huge surprise — the previous government proposed the same cut in its draft budget last year. But if passed, Germany’s development budget will be 26% below its peak in 2022.
“We stand by our responsibility in the world — despite painful requirements for budget cuts in the development area from the coalition agreement,” Development Minister Reem Alabali Radovan said in a published statement on Tuesday.
The budget is expected to be passed by September. Until then, members of Parliament may still make amendments. The center-left Social Democratic Party tried to prevent cuts to official development assistance, or ODA, during the coalition negotiations earlier this year.
The budget for the foreign ministry, which pays for humanitarian aid — as opposed to the general bilateral and multilateral aid handled by BMZ — received an even more drastic 12% cut.
A potential bright spot could be the additional €10 billion allocated annually for the preexisting Climate and Transformation Fund, or KTF, which was announced earlier this year. KTF explicitly allows for spending on “international climate protection,” though its major payouts have been for domestic climate programs. The finance minister announced new spending priorities this week — all of which are for domestic projects.
Despite these cuts, Germany will likely still stand out in a year of dismal commitments and could still become the biggest provider of ODA.
Background: Germany's coalition contract includes new cuts to aid budget (Pro)
See also: Is Germany the next leader in ODA, and how will it spend its money? (Pro)
Further reading: Germany steps into the void USAID left behind
+ Listen: For the latest episode of our podcast series, Devex’s David Ainsworth, Sara Jerving, and Colum Lynch discuss the United States’ withdrawal of support from Gavi and its disengagement from other development initiatives.
‘Bucking the trend’
As donor countries slash their aid budgets, Spain is going against the grain. With global development leaders heading to Sevilla for the Fourth International Conference on Financing for Development, or FfD4, Spain’s rising profile is turning heads.
While not traditionally seen as a major donor, Spain has doubled its annual grant budget to €708 million and added nearly €400 million in lending power through its development agency, AECID. “We are growing, we are bucking the trend in a way,” says AECID chief Antón Leis García.
That makes Spain one of the few countries — alongside South Korea and Italy — putting more money into development rather than pulling back. It’s a notable shift amid a severe aid freeze from the U.S. and sweeping cuts across Europe, writes Sophie Edwards for Devex.
But Spain isn’t just boosting the budget — it’s rethinking what a donor looks like. AECID is now acting more like a connector than a contractor, channeling half its funds through the private sector and focusing on partnerships over direct implementation.
“The world when all of this aid business was invented 60 years ago was divided into two worlds ... But now we are seeing much more diversity,” García says. “This is not just about aid, it’s about partnerships.”
Civil society groups have applauded the shift but warn there’s still a long way to go. Spain has committed to spending 0.7% of its GNI on aid by 2030 — but is currently at just 0.24%. “Progress is both possible and imperative,” says Rosaria Arbore of La Coordinadora.
Spain’s multilateral focus is also winning praise, even while much of Spain’s aid still stays close to home, covering refugee costs and supporting Latin America — leaving less for the world’s lowest-income countries.
Still, in a moment of global retrenchment, Spain’s message at FfD4 may resonate: Cutting isn’t the only option.
Read: Spain's aid budget is rising — but has a long way to go
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In other news
Yesterday, Israel closed the direct aid route to Gaza, while the U.S. announced a $30 million boost in financing for the Gaza Humanitarian Foundation. [The Guardian and New York Times]
At least 16 people died on Wednesday after a protest to mark the first anniversary of anti-tax demonstrations turned violent in Kenya. [France 24]
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About the author
Helen Murphy
Helen is an award-winning journalist and Senior Editor at Devex, where she edits coverage on global development in the Americas. Based in Colombia, she previously covered war, politics, financial markets, and general news for Reuters, where she headed the bureau, and for Bloomberg in Colombia and Argentina, where she witnessed the financial meltdown. She started her career in London as a reporter for Euromoney Publications before moving to Hong Kong to work for a daily newspaper.
