The Paris Club is an informal group of 22 creditor nations belonging to the Organization for Economic Co-operation and Development (OECD) that serves as a platform for official creditors to address payment issues faced by debtor countries. The club recently agreed to offer financial support to the International Monetary Fund (IMF) for Sri Lanka’s debt, which is a requirement for the IMF to release a $2.9 billion bailout package.
What is the Paris Club?
The Paris Club is a group of mostly western creditor nations that originated from a meeting in Paris in 1956 when Argentina agreed to meet with its public creditors. The club’s objective is to find sustainable debt-relief solutions for countries unable to repay their bilateral loans. All 22 members are part of the OECD.
The Paris Club includes the following countries: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, and the United States of America.
Involvement in Debt Agreements:
Since its creation, the Paris Club has reached 478 agreements with 102 debtor countries and treated debt amounting to $614 billion. The club operates on the principles of consensus and solidarity, and any agreement reached with a debtor country applies equally to all its Paris Club creditors. A debtor country that signs an agreement with the Paris Club should not then accept less favorable terms from non-Paris Club commercial and bilateral creditors.
In the past, Paris Club countries dominated bilateral lending, but their importance has declined in recent decades with the rise of China as the world’s largest bilateral lender. In Sri Lanka’s case, China, Japan, and India are the largest bilateral creditors, with 52%, 19.5%, and 12% of Sri Lanka’s debt respectively. While Japan is a member of the Paris Club, Sri Lanka required assurances from China and India as well. India recently provided the necessary financial assurances and the Paris Club has now agreed to provide support, but China’s offer of a two-year moratorium on its loans has been deemed insufficient.
The Paris Club plays a crucial role in resolving payment issues faced by debtor countries, but its importance has declined with the rise of other large bilateral creditors such as China. Nevertheless, the club’s recent agreement to support Sri Lanka’s debt and the IMF’s bailout package highlights its continued significance in finding debt-relief solutions for struggling countries.