Context:  Sri Lanka has reached an “agreement in principle” with India and the Paris Club group of creditors, on a debt treatment plan.

What is the Agreement in Principle for Debt Treatment Plan?

• Objective and Parameters: 

• • 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.

• Formalization Process:

• • 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.

• Emphasis on Creditor Parity and Transparency:

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

What is Paris Club?

• 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.

India’s Assistance to Sri Lanka:

• 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.

News Source: The Hindu