Sri Lanka Reaches Agreement With India, Paris Club on Debt Treatment

GS Paper II International Relations

What is the Agreement in Principle for Debt Treatment Plan?

- Aimed at facilitating the disbursement of the next tranche of the International Monetary Fund’s nearly-$3 billion recovery package.
- The Official Creditor Committee (OCC) and Sri Lanka agreed on main parameters aligned with the Extended Fund Facility (EFF) arrangement with the IMF.
  - The Extended Fund Facility (EFF) provides financial assistance to countries facing serious medium-term balance of payments problems because of structural weaknesses that require time to address.

- The OCC looks forward to formalizing the agreement in the coming weeks through a Memorandum of Understanding with Sri Lanka.
- The OCC expects “other bilateral creditors” to share information transparently for evaluating comparability of treatment.

- Japan and India stress the importance of creditor parity and transparency in the restructuring process.

The Paris Club is an informal group of creditor nations.
Objective: To find workable solutions to payment problems faced by debtor nations. Membership: 22 permanent members, including most of the western European and Scandinavian nations, the United States, the United Kingdom, and Japan.
India’s Participation: India participates on an ad-hoc basis.

Official Creditor Committee (OCC):

It was formed in response to Sri Lanka’s request for debt treatment during last year’s economic crisis.
It is co-chaired by India, Japan, and France, as chair of the Paris Club.
China, Sri Lanka’s largest bilateral creditor, chose not to participate in the OCC but attended meetings as an observer

Financial Support: India provided USD 4 billion assistance in alignment with the ‘Neighbourhood First’ policy, utilizing credit lines and currency support.
IMF Financing Assurance: India, as the first bilateral creditor, conveyed financing assurance to the IMF, facilitating a formalized program for Sri Lanka.
Vision Document for Economic Partnership: India released a comprehensive vision document outlining specific areas of cooperation for sustainable economic development and prosperity.
Special Grant Package: During President Ranil Wickremesinghe’s visit to India, a special grant package of SLR 3 billion was announced for multi-faceted projects in the IOT community. Read More about India-Sri Lanka Relations here.