The Sovereignty of African Finance Under Attack
A growing chorus of Western media outlets, research centers, and financial commentators is questioning whether African multilateral financial institutions, such as the African Export-Import Bank (Afreximbank), should maintain their status as “preferred creditors.” Their criticisms are not only misleading but also threaten to undermine Africa’s burgeoning financial independence and its ability to chart an independent economic course.
The preferred creditor status grants multilateral lenders—including the European Investment Bank, the International Monetary Fund, and the World Bank—priority in debt repayments when a sovereign borrower faces financial pressures, protecting the loans they issue from debt restructuring. By providing a financial safety net for development institutions, this status ensures market confidence, which is vital for the long-term operation of these lenders.
This is not a matter of charity; it is a codified principle. By reducing borrowing costs and thereby facilitating affordable financing for struggling countries, the preferred creditor status is indispensable.
When Africa established its own multilateral development banks—such as the African Export-Import Bank and the African Development Bank—it was careful to ensure these banks had all the necessary rights and immunities to safeguard their operations and independence, including the preferred creditor status. To this end, African governments have worked to embed relevant provisions in national legal systems and international treaties. This was a strong display of agency from a continent consistently let down by the global financial system.
African governments have even found ways to capitalize their own multilateral development banks despite facing financial constraints. Carefully designed mixed governance models have enabled them to attract private sector investors without jeopardizing their developmental mission. However, some critics are now attempting to use Africa’s ingenuity against it, claiming that genuine multilateral development banks—qualified for preferred creditor status—cannot have private sector stakeholders.
Others argue that African institutions should not operate as development banks because they face high interest rates in capital markets. However, this claim reinforces the argument for Africa to possess multilateral development banks. The high capital costs faced by African borrowers—whether banks or sovereigns—do not reflect economic fundamentals but rather deep-rooted biases, exacerbated by the cyclical nature of credit rating agencies’ approaches, which tend to lower ratings when borrowers are in their weakest states.
In contrast, African multilateral banks provide counter-cyclical financing, directing funds toward productive sectors and reinvesting profits into grants and concessional finance. The African Development Bank recently expanded its concessional financing window from one billion dollars to five billion dollars, supported by increased contributions from shareholders.
If these institutions were to lose their preferred creditor status, their capacity to provide critical long-term developmental financing would be severely jeopardized—especially since they would then be forced to engage in sovereign debt restructuring processes. While this may appear as solidarity, it effectively shifts the debt relief burden onto African multilateral development banks, putting one group of African shareholders at risk to support the commitments of others, while global institutions hide behind the preferred creditor status.
International credit rating agencies increase the likelihood of such a scenario. Fitch Ratings recently downgraded the African Export-Import Bank’s long-term default rating to ‘BBB,’ while Moody’s reduced it from ‘Baa1’ to ‘Baa2.’ Governments already grappling with some of the highest interest rates in the world are likely to shoulder the burden of increased borrowing costs.
Although these credit rating moves are categorized as risk-based decisions, the methodologies employed are not without issues. For example, Fitch penalized the African Export-Import Bank for accounting practices that are compliant with International Financial Reporting Standards. It also cited uncertainties around the enforceability of the bank’s preferred creditor status, thus increasing the likelihood of creating a self-fulfilling prophecy.
Supported by the African Peer Review Mechanism, the African Export-Import Bank promptly asserted that its preferred creditor status is non-negotiable. The bank indicated that being compelled to participate in debt restructuring arrangements “would not be consistent with its founding treaty.”
Overall, the erosion of the preferred creditor status of one African institution would send a signal that no African institution can be relied upon; its legitimacy would be constantly subject to reassessment by external powers based on imported criteria. This would undermine Africa’s capacity to build a financial structure capable of supporting its long-term structural transformation agenda.
One might assume that those challenging the preferred creditor status of African multilateral development banks are unaware of the risks involved. However, this may be an excessive presumption. In reality, these actors seem actively intent on destabilizing these institutions and forcing Africa to continue operating within a global system where it perpetually occupies the role of a supplicant rather than a planner. These forces do not wish for African development to be shaped by regional institutions committed to investing in it, but rather through international entities that emerge solely during crises, imposing burdensome conditions that do not cater to the continent’s needs.
Instead of allowing such forces to undermine decades of efforts to build a financial system responsive to African priorities, the continent’s governments must express unequivocal support for these institutions. African multilateral development banks derive their strength from their context. Their survival is a matter of relevance for the continent, and defending them along with their preferred creditor status is a political imperative. A fragmented response will only embolden critics. Silence will be interpreted as surrender. A united, principled defense of Africa’s financial sovereignty is the only way forward.
