All about Paris Club: SSB Interview Lecturette Topic

Zaheer Hussain
May 6, 2023
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The Paris Club is an informal group of official creditors whose role is to find coordinated and long-term solutions to debtor countries’ payment problems. Paris Club creditors provide appropriate debt treatment as debtor countries implement reforms to stabilize and restore their macroeconomic and financial situation. 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 is provided to debtor countries by Paris Club creditors (stock treatment).

Why In The News?

The Paris Club Of Creditors Has Given Financing Assurances To Support The International Monetary Fund’s Approval Of An Extended Fund Facility For Sri Lanka, The Sri Lankan President’s Office Said On 7^th Feb 2023.
The Assurances Are Crucial To Unlocking A $2.9 Billion Deal From The IMF, Which Is Still Pending Executive Board Approval. Sri Lanka Secured A Preliminary Deal With The IMF In September, Though No Funds Have Been Disbursed Yet Because The Bailout Has To Be Approved By The Fund’s Board.

What Sri Lanka Has To Do With Paris Club?

An Assurance From The Paris Club, As Well As Other Bilateral Creditors, Is One Of The Conditions That Sri Lanka Has To Fulfil For The IMF To Begin Disbursing A $2.9 Bn Bailout Package To The Beleaguered Nation That All But Collapsed Last Year Under A Severe Economic Crisis.

What Is The “Paris Club”?

The Paris Club Is A Group Of Mostly Western Creditor Countries That Grew From A 1956 Meeting In Which Argentina Agreed To Meet Its Public Creditors In Paris. Their Objective Is To Find Sustainable Debt-relief Solutions For Countries That Are Unable To Repay Their Bilateral Loans.
It Describes Itself As A Forum Where Official Creditors Meet To Solve Payment Difficulties Faced By Debtor Countries. All 22 Are Members Of The Group Called Organisation For Economic Co-operation And Development (OECD).
The Members Are Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, USA.

Paris Club’s Involvement In Debt Agreements

Paris Club Has Reached 478 Agreements With 102 Different Debtor Countries. Since 1956, The Debt Treated In The Framework Of Paris Club Agreements Amounts To $ 614 Billion.
It Operates On The Principles Of Consensus And Solidarity. Any Agreement Reached With The Debtor Country Will Apply Equally To All Its Paris Club Creditors.
A Debtor Country That Signs An Agreement With Its Paris Club Creditors, Should Not Then Accept From Its Non-Paris Club Commercial And Bilateral Creditors Such Terms Of Treatment Of Its Debt That Is Less Favourable To The Debtor Than Those Agreed With The Paris Club.

Role Of The Paris Club Over Time

The Paris Group Countries Dominated Bilateral Lending In The Last Century, But Their Importance Has Receded Over The Last Two Decades Or So With The Emergence Of China As The World’s Biggest Bilateral Lender.
In Sri Lanka’s Case, For Instance, China, Japan, And India Are The Largest Bilateral Creditors. Sri Lanka’s Debt To China Is 52% Of Its Bilateral Debt, 19.5% To Japan, And 12% To India. With Japan A Member Of The Paris Club, Sri Lanka Needed Assurances From China And India As Well.
The Paris Club Had Tried To Get Both Countries On Board A Centralised Effort, But Delhi Launched Its Own Bilateral Negotiations With Colombo.
Last Month, During A Visit To Colombo, External Affairs Minister S Jaishankar Announced That India Had Written To The IMF Providing The Necessary Financial Assurances, Adding That It Hoped Others Would Follow Suit.

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