Is the Downgrading of Afreximbank Politically Motivated?

July 6—A recent credit downgrading of the Afreximbank by Moody’s and Fitch rating agencies appears to be politically motivated, if not just simply unfair. The reason for the downgrading is a claim that the bank holds too many non-performing loans. Nonetheless, experts assert that the decision ignored international standards and treaty-backed loan guarantees. The downgrade will make raising funds for development and trade related loans more expensive at a time when it is well known that African countries are forced to pay high interest rates, even though the continent has a relatively low level of bankruptcies and non-performing loans. As a multilateral government institution, the Afreximbank is a treaty-based bank of its member states and it loans credits to those states.

According to the African Union’s African Peer Review Mechanism (APRM), the bank’s performance data reveals a non-performing loan ratio of just 2.44% as of December 2023—well below the 10% assumption used in the downgrade. Furthermore, APRM revealed that over 80% of the bank’s sovereign exposures are backed by intergovernmental treaties and preferred creditor status, which significantly lowers default risk. The African credit monitor is now calling for dialogue and corrections to protect Africa’s financial standing, Sputnik reports.

According to a statement by the APRM, the downgrading is based on the claim that the loans to Ghana, Zambia, and South Sudan are in default, a finding made on the basis that these countries do not recognize the bank’s preferred creditor status, which would violate treaty obligations.

Zambia and Ghana are engaged in ongoing debt relief talks that are led by the International Monetary Fund. In the case of Ghana, it has first negotiated a framework agreement with debt owed to governments and multilateral institutions. Ghana took the decision that African multilateral institutions like the Afreximbank would not have preferred status, but would instead be treated like commercial banks. This decision is obviously political. Since the Afreximbank is not backed by the power of the U.S. and the European big boys, it can be thrown under the bus, even if that means violating treaty obligations. It should be noted that the Afreximbank, as is with the African Development Bank, funds infrastructure projects, while the IMF does not.

The question is whether Ghana’s decision was made under pressure from the IMF in order to downgrade the African Union’s own development banks because they fund infrastructure and industrialization. Bank official have as yet made no comment of this.