Paris Club

Subject: Economy

Context:

The Paris Club has formally approached India and China to seek the cooperation of the two governments in restructuring Sri Lanka’s foreign debt.

Details:

Japan, China and India are Sri Lanka’s biggest creditors, accounting for around $10 billion of Colombo’s nearly $51 billion in foreign borrowings.
- So far, none of the governments has agreed to restructure their debt to help Colombo meet the terms of the IMF deal.
Sri Lanka wasn’t included in the G-20 ‘Common Framework’ adopted in 2020.
- The framework allows low-income countries to restructure the loans owed to the G-20 governments, which include the Paris Club economies as well as India and China.

What is ‘Paris Club’ in Economics?

It is an informal group of officials from major creditor countries whose role is to find co-ordinated and sustainable solutions to the payment difficulties experienced by debtor countries.
Paris Club creditors provide debt treatments to debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).
The Paris Club was created gradually from 1956, when the first negotiation between Argentina and its public creditors took place in Paris.
The Paris Club treats public claims (that is to say, those due by governments of debtor countries and by the private sector), guaranteed by the public sector to Paris Club members.
It is similar to the London club, which is a group of commercial bankers formed in 1976 to deal with the financial problems of Zaire, and is focussed on providing various forms of debt relief to countries that face financial distress due to their heavy debt load.
There are currently 22 Permanent Members of the Paris Club–
- Unlike China and India, Japan is a member of the Paris Club.