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Source- This post is based on the article “Sri Lanka reaches agreement with India, Paris Club on debt treatment” published in “The Hindu ” on 29th November 2023.
Why in the News?
Recently, Sri Lanka has reached a preliminary debt restructuring deal with India and the Paris Club group of creditors, paving the way for it to revive a stalled International Monetary Fund (IMF) loan programme.
What is the Sri Lanka debt scenario?
1) Sri Lanka in May 2022 became the first country in the Asia-Pacific to default on its debts in two decades , the result of domestic economic mismanagement and a surge in global inflation following the coronavirus pandemic.
2) Sri Lanka has foreign debts of about $40bn. China, Japan and India are amongst the largest creditors.
3) The IMF has cleared a $3-billion-Extended Fund Facility (EFF) in March 2023 for Sri Lanka but this loan facility has been stalled due to some disagreement between the creditors.
4) Major lenders, excluding China, formed the Official Creditor Committee (OCC) in May 2023 in response to Colombo’s request for debt treatment. It is co-chaired by India, Japan, and France (as chair of the Paris Club)
What is the Paris Club?
| What is it? | 1) An informal group of creditor countries whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. 2) It was created gradually from 1956, when the first negotiation between Argentina and its public creditors took place in Paris. |
| Member Countries | 1) Currently has 22 permanent members: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Japan, Netherlands, Norway, Russia, South Korea, Spain, Sweden, Switzerland, the United Kingdom and the United States. 2) All are members of the Organisation for Economic Co-operation and Development (OECD). 3) India is not a member of this club. |
| Key features | 1) 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. 2) The outcome of the negotiation is not a legally binding agreement but forms basis for legally binding bilateral arrangements between the debtor country and its Paris Club creditor countries. |
UPSC Syllabus- International Relations
