African Lenders Set Up Early-Warning Network on Debt Distress

The Alliance of African Multilateral Financial Institutions, a group of lenders known as the Africa Club, developed an initiative to proactively detect potential debt troubles among sovereign borrowers on the continent and avoid future disputes, its chairman said.

“We have come up with a program for early warning systems or early distress signals that allow us to provide support collectively to countries in distress to create instruments that would ameliorate stressful scenarios,” Samaila Zubairu, who is also chief executive officer of the Africa Finance Corp., said in an interview Thursday.

The AAMFI is seeking to prevent disorderly debt restructurings like those in Ghana and Zambia, which spilled over into public disputes, credit-rating cuts and arbitration. The Cairo-based African Export-Import Bank last week severed ties with Fitch Ratings, which later downgraded the lender to junk status, sending its dollar bonds plunging.

Ghana and Zambia adopted a debt-restructuring template that the Group of 20 developed in the wake of the Covid-19 pandemic to help poor countries deal with loans they couldn’t afford to repay.

Ghana’s debt restructuring has run from its late-2022 default into 2026, with most deals agreed but some creditor treatments still pending, while Zambia’s has stretched from its November 2020 default into 2026, with the bulk of agreements reached by early 2024 but not fully resolved.

Those negotiations precluded the International Monetary Fund, World Bank and African Development Bank from taking losses, as they’re seen to be multilateral lenders providing concessional financing. Ghana and Zambia have, however, said AAMFI members Afreximbank and the Trade and Development Bank Group must provide debt relief comparable to their official bilateral creditors.

In December, Afreximbank agreed to take losses on a $750-million loan to Ghana, according to the IMF, ending a stand-off that threatened to unravel the country’s debt deals with other creditors. Separately, the lender has started arbitration against Zambia, seeking to protect what’s known as preferred-creditor status that Afreximbank said precludes it from providing debt relief.

Zambia is in talks with Afreximbank, even as the dispute is under arbitration, Secretary to the Treasury Felix Nkulukusa said this week.

The IMF has previously said banks can’t unilaterally declare preferred-creditor status for themselves, and official creditors don’t recognize such protections for lenders that have private shareholders, which Afreximbank does.

When Fitch announced it cut Afreximbank’s rating by one notch to BB+, it specifically pointed to evidence that the lender didn’t benefit from its preferred-creditor status in Ghana’s restructuring.

Private Shareholders

TDB has taken a more conciliatory approach than Afreximbank, buying back shares from non-sovereign shareholders to meet the requirement of not having private shareholders. It’s in talks with Zambia to restructure its debt there.

The Africa Club was founded in 2024, after it emerged there may be tensions over Afreximbank and TDB being included in painful debt restructurings of countries they count as shareholders.

“These relationships are long and deep and they’re going to continue over time,” Zubairu said. Talks should focus on finding ways to avoid exacerbating “an already tense situation,” and “to think ahead on how to avert similar occurrences in future,” he said.