In news– Paris Club creditor nations have proposed a 10-year moratorium on Sri Lankan debt.
- Apart from 10-year moratorium, it has also proposed another 15 years of debt restructuring as a formula to resolve the Sri Lankan debt crisis.
- The Paris club has also called upon the Global north and south to take a similar haircut in restructuring of Sri Lankan debt.
- So far no official proposal has been made by Paris club to China or India.
- 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 to the Island nation to tide over its economic crisis in 2022.
What is Paris Club?
- The Paris club is a group of officials from 22 countries who find sustainable solutions for challenges faced by debtor countries.
- As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment.
- 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).
- It was created gradually from 1956, when the first negotiation between Argentina and its public creditors took place in Paris.
- It 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.
- A similar process occurs for public debt held by private creditors in the London Club, which was organized in 1970 on the model of the Paris Club as an informal group of commercial banks meet to renegotiate the debt they hold on sovereign debtors.
- Creditor countries meet ten times a year in Paris for Tour d’Horizon and negotiating sessions. To facilitate Paris Club operations, the French Treasury provides a small secretariat, and a senior official of the French Treasury is appointed chairman.
- Since 1956, the Paris Club has signed 433 agreements with 90 countries covering over US$583 billion.