Apanel of bankers, legal luminar- ies and development experts stoutly reaffirmed that African multilateral financial institu- tions need the preferred credi- tor status (PCS) not as a privilege, but as a necessity.

The PCS is an agreement between the lending institution and the borrowing cli- ent (usually a sovereign country, but also including parastatals) that it will have first priority when it comes to repayment. This is even if the borrower is distressed and seeking restructuring of its debt.

Moderating the panel Strengthening Institutional Resilience for Africa’s Growth and Prosperity: The importance of preferred creditor status for financing African growth and prosperity, at Afreximbank’s Annual Meetings, Anver Versi, Editor of Afri- can Banker, asked his panellists for their views on the threats faced by AMFIs over their preferred creditor status, especially since rating agency Fitch downgraded Afreximbank’s rating to BBB- from BBB, claiming ‘higher solvency risk’ because of loans owed to it by Ghana, South Sudan and Zambia.

Afreximbank had countered that it could not restructure its loans as that would go against the terms of the trea- ty that set up the Bank, including PCS provisions. According to Afreximbank, “the treatment of its loans and other activities is governed by the treaty and not by classifications created outside its framework.”

Professor Olabisi Akinkugbe, Associ-ate Professor and Purdy Crawford Chair in Business Law at Dalhousie Univer- sity, Canada was the first to respond. “The preferred creditor status is seen as conferred by recognition... the status is essential to the functioning of these organisations and African multilateral institutions cannot do the developmental work they want to do for Africa if the status is not there.”

In his comments, Dr George Elom- bi, who was later declared as the new President of the Bank, replacing Profes- sor Oramah, said the “issue of preferred creditor status has not just arisen; it’s always been there but it wasn’t seen as significant because there were just a few players in the arena.”

He said the discussion had become more pronounced because African mul- tilateral financial institutions are now playing much more significant develop- ment roles on the continent.

“A small number of African multilater- als have emerged and are making a state- ment, taking their place and becoming significant and creating anxiety among the established multilaterals and mem- bers of the Paris Club,” Dr Elombi added.

He argued that the methodology and premise adopted by Fitch was erroneous and did not take into account the treaty setting up African multilateral finance institutions and their Africa-first man- dates.

“Why should Fitch be worried that Af- rican governments want to protect their own institutions?” he asked. “We have become very relevant and important to our governments.”

Dr Misheck Mutize from the Afri-can Peer Review Mechanism said: “It is double standards for Bretton Woods institutions to want to monopolise the preferred creditor status. It is inherent in the establishment of these institutions. They claim that African multilaterals are lending to risky projects but their lending is driven by need in line with the purpose they were established for.”

Dr Muhammed Sani Abdullahi, Dep- uty Governor of Economic Policy at the Central Bank of Nigeria, described the discussion as timely and an existential imperative. “We need to build financial institutions that can withstand shocks and build long-term prosperity. Preserv- ing the preferred creditor status is not a privilege but a necessity, so they can continue to bring about development for Africa.”

Emmanuel Mpawe Tutuba, Governor of the Bank of Tanzania, said African MDFIs had supported his country’s rapid economic growth and that any threat to their PCS undermined the continent’s development trajectory. TK

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