African countries are constrained by many factors that amplify risks embedded in their sovereign debt. One of these risks is carried by the Preferred Creditor Status (PCS) arrangements, which create a so-called “PCS Paradox”. This is the notion that although the objective of PCS is to foster economic development by minimising risks for development financing institutions, it exacerbates liquidity challenges and debt distress for countries undergoing debt challenges.
While multilateral financial institutions (MFIs) utilise creditor seniority to secure low-cost capital for development, the rigid application of this seniority may critically undermine a nation’s debt treatment capacity and its credit rating. Rating agencies may perceive an inability of the country to manage its total debt stock effectively. With more of the restructuring burden falling on bilateral and private creditors, PCS may also contribute to stalled debt restructuring negotiations and delayed rating recoveries.
Ultimately, PCS should be a positive thing, particularly if the debtor country has access to additional financing from MFIs that are counter-cyclical lenders – the original rationale for MFI PCS – which should give creditors and rating agencies comfort that new financing will be available. However, if a lender has PCS and is not willing to provide any new money on affordable terms, this becomes problematic.
SAIIA, in partnership with the APRM, AfriCatalyst and Development Reimagined, will host a panel discussion to unpack these challenges and explore how best to align multilateral lending with the developmental realities of African states, keeping in mind how the PCS privileges may ultimately affect sovereign debt and credit ratings.
Speakers
- Prof Daniel Bradlow, Senior Research Fellow at SAIIA
- Misheck Mutize, Lead Expert on Credit Ratings at the Africa Peer Review Mechanism (APRM)
- Hannah Ryder, CEO of Development Reimagined
- Nicole Kearse, Head of Sovereign Finance at African Legal Support Facility at the African Development Bank (AfDB)
- Daouda Sembene, CEO of AfriCatalyst
Moderator
- Joseph Upile Matola, Head of the Economic Resilience and Inclusion Programme at SAIIA
We look forward to your participation.
