The Paris Club

In News: Paris Club creditor nations are proposing a 10-year moratorium on Sri Lankan debt and another 15 years of debt restructuring as a formula to resolve the Sri Lankan debt crisis.

• Earlier this year, Sri Lanka had defaulted on its 51 billion dollar external debt in the midst of spiralling political and economic crisis.
• India has provided emergency aid to the tune of four billion dollars.
• The Paris club has also called upon the Global north and south to take a similar haircut in restructuring of Sri Lankan debt.

The Paris Club:

• It is an informal group of official creditors from 22 wealthy countries who find sustainable solutions for challenges faced by debtor countries.
• It provides a platform for governments facing financial difficulties to reduce and renegotiate their debt repayments.
• Formed in 1956, it has signed more than 400 agreements to date, worth more than half a trillion dollars to about 100 countries.
• The “G20 Common Framework” is an initiative endorsed by the G20 together with the Paris Club.
• Other creditor nations are allowed to participate in negotiation meetings on a case-by-case basis, if they meet certain conditions.
• The members meet in Paris once a month except for February and August.
• Each meeting includes a one-day ‘Tour d’Horizon’, during which creditors talk about the external debt situation of debtor nations, or issues regarding how those countries are managing their debts.

• The Paris Club invites debtor nations to a meeting with its creditors after it has concluded an appropriate program with the IMF (International Monetary Fund) that shows that the country cannot meet its external debt obligations, and therefore requires a new payment arrangement with its foreign creditors.

• Representatives of the World Bank, the IMF and other international institutions, plus the relevant regional development bank, may also attend the meeting as observers.
• The debtor country’s representative is usually its Minister of Finance, who heads a team comprising officials from his or her ministry and the central bank.

Source newsonair

Previous Year Question

Q.1) With reference to the “G20 Common Framework”, consider the following statements: (2022)

1. It is an initiative endorsed by the G20 together with the Paris Club.
2. It is an initiative to support Low Income Countries with unsustainable debt.

Which of the statements given above is/are correct ?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2