Sri Lanka has reached “agreement in Principle” with India and the Paris Club group of creditors including Japan on a debt treatment plan that will help the crisis hit island nation tap the next tranche of the international monetary fund’s nearly $3 billion recovery package.

The Paris Club is an informal group of creditor nations formed in 1956. Its primary purpose is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. This club operates as a forum where major creditor countries meet to negotiate and restructure sovereign debt owed to them by countries facing financial challenges.

Key features and functions of the Paris Club include:

1. Debt Restructuring: The Paris Club organizes negotiations between debtor countries and creditor nations to restructure debts. This typically involves rescheduling or reducing the debt burden through various mechanisms, such as extending repayment periods, reducing interest rates, or forgiving portions of the debt.
2. Case-by-Case Approach: Each debt negotiation is approached on a case-by-case basis, taking into account the specific economic and financial situation of the debtor country. Terms of debt relief or restructuring are tailored to the country's circumstances.
3. Inclusivity: While it began as a group of Western creditor nations, the Paris Club has expanded to include a broader range of creditor countries over time. It now includes members from different regions, providing a more diverse representation in debt negotiations.
4. Coordination and Collaboration: The Paris Club facilitates collaboration among creditors to ensure a coordinated approach in dealing with debtor countries. This prevents individual creditor countries from pursuing conflicting strategies that could further destabilize a debtor nation's economy.
5. Transparency and Creditor-Debtor Relationship: Debt negotiations within the Paris Club are conducted in a transparent manner. The club works to maintain a constructive relationship between creditors and debtors, aiming for sustainable solutions that allow the debtor country to recover without compromising its economic stability.
6. Policy Conditionality: Debt relief or restructuring often comes with conditions that debtor countries must meet. These conditions typically involve economic reforms or policies aimed at improving fiscal management, governance, and economic stability within the debtor nation.

The Paris Club plays a significant role in managing sovereign debt crises, providing a platform for negotiations that aim to alleviate the financial burdens of debtor nations while ensuring the continued flow of payments to creditor nations.