Context: Debt ridden Sri Lanka has reached an ‘agreement-in-principle’ with India and other Paris Club creditors on a debt treatment plan. Facing economic distress due to the economic upheaval due to COVID-19 Pandemic and Ukraine-Russia war induced economic uncertainty, Sri Lanka had appealed to its sovereign, multilateral and private creditors for a debt restructuring. In response, an Official Creditor Committee was formed which was co-chaired by India, Japan and France (as Chair of the Paris Club).
OCC and Sri Lanka have agreed to debt treatment on the lines of Extended Fund Facility (EFF) between Sri Lanka and IMF. This agreement is expected to soon be formalised between Sri Lanka and the OCC.
What is the Paris Club?
Paris Club is an informal 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 is a forum where official creditors meet to solve payment difficulties faced by debtor countries.
- There are currently 22 permanent members of Paris Club.
- However, other creditor countries can participate in negotiation meetings on a case-by-case basis, provided certain conditions are met.
- Representatives of international financial institutions or countries can be invited to attend the meetings of Paris Club as observers.
What does the Paris club do?
The Paris club fund has two important functions – to offer loans to countries in extreme debt situations and to provide solutions to the debt issues they face.
MEMBERS
Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, United Kingdom, United States of America.
Apart from members there are observers—often international NGOs—who attend but cannot participate in the meetings.
PRINCIPLES OF PARIS CLUB
Solidarity: All members of Paris Club agree to act as a group in their dealings with a given debtor country.
Consensus: All decisions of Paris Club are taken with consensus.
Information sharing: Paris Club members share views and information with each other about debtor countries. These discussions are productive and deliberations are kept confidential.
Case-by-case: Paris Club makes decisions on a case-by-case basis in line with individual country’s situation. This was consolidated by Evian approach.
Conditionality: Paris Club members only negotiate with countries that meet certain conditions such as the countries that need debt relief, have implemented and are committed to reforms etc.
Comparability of treatment: A debtor country that signs an agreement with its Paris Club creditors should not accept from its non-Paris club commercial and bilateral creditor terms of treatment.
PERFORMANCESince 1956, the debt treated in the framework of Paris Club agreements amounts to $614 billion.
Does the Paris Club have statutes?
As the Paris Club is an informal group, it does not have any statutes.This situation gives Paris Club creditors the flexibility to address the specific situation of each debtor country facing debt payment difficulties.
AGREED MINUTES AND BILATERAL AGREEMENT
- The outcome of the negotiation is not a legally binding agreement between the debtor and each of its creditors but instead a document called Agreed Minutes.
- These Agreed Minutes are signed by the Chair of the Paris Club, the minister representing the debtor country and the representative of each creditor and constitute a recommendation to the governments of Paris Club creditors and of the debtor country to conclude bilateral agreements implementing the provisions of these Agreed Minutes.
- These bilateral agreements give a legal effect to the agreement reached during the negotiating meeting.
- The bilateral agreements also set the applicable interest rates
Secretariat of Paris Club
The Secretariat was established to prepare more effective negotiating sessions. The Secretariat is composed of a dozen people from the Treasury of the French Ministry of Finance and Public Accounts.
Chair of Paris Club
Since 1956, the Presidency of the Paris Club is ensured by the French Treasury.
PARIS CLUB VS CHINA
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.
PARIS CLUB VS LONDON CLUB
- The London club is another informal group that was founded in 1976.
- It is similar to the Paris club, except for banks lending to countries instead of other countries. London club meeting procedures are similar to the Paris club but are mostly prolonged due to the higher membership.
- Another difference between the two clubs is that major clients of the London club belong to Latin America and Asia. In contrast, the Club de Paris gets its clients from Sub-Saharan Africa.








