The Paris Club is a group of creditor countries that joined forces in order to find coordinated solutions to financial difficulties experienced by debtor countries. Only bilateral government receivables from debtor countries are considered.

Since it was established in 1956, the Paris Club has found solutions to numerous countries’ debt problems and set these out in multilateral agreements (Agreed Minutes). The group of creditor countries essentially includes the advanced economies that are part of the OECD. Germany is represented in the Paris Club by the Federal Ministry for Economic Affairs and Climate Action, which has lead responsibility, and by the Federal Ministry of Finance, the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development.

A prerequisite for Paris Club rescheduling agreements is the successful implementation of IMF adjustment programmes. These programmes involve close IMF oversight and contain binding agreements on macroeconomic and fiscal policy frameworks as well as institutional changes designed to place the country’s economy on a sound footing.

The DSSI is a debt moratorium for the 77 poorest countries that was agreed in April 2020 by the G20, together with the Paris Club. By deferring interest payments and principal payments, the DSSI gave debtor countries greater financial flexibility for a limited period to enable them to invest in public health, for example. Forty-eight developing countries were participating in the DSSI. According to the IMF, most of these countries were at high risk of overindebtedness or had already run into payment difficulties. Nine countries that had applied for the DSSI owe debt to Germany. For these countries, Germany has deferred receivables (interest payments and principal payments totalling approximately €301 million) that fall due during the DSSI period, which runs from May 2020 to December 2021.

The Common Framework for Debt Treatments beyond the DSSI, which was endorsed by the G20, allows for case-by-case debt restructuring for countries that qualify for the DSSI and can also include debt cancellation if necessary.

The principles of the Common Framework largely correspond to those of the Paris Club, especially the equal treatment of creditors (including private creditors), cooperation with the IMF/World Bank, and debt transparency. Creditor coordination – especially with China, but also with other G20 countries that are not part of the Paris Club – represents a particularly significant achievement.

Debt restructuring under the Common Framework is handled on a case-by-case basis. To be eligible for debt treatment, countries need to conclude an IMF programme. For each applicant, a creditor committee is set up to establish a joint debt treatment based on a debt sustainability analysis by the IMF and World Bank.

HIPC stands for Heavily Indebted Poor Countries. In 1996, the World Bank and the IMF, prompted by the G7, launched an initiative to provide debt relief to heavily indebted poor countries. The HIPC initiative made it possible to coordinate debt relief for the first time.

On the initiative of the German government, the HIPC initiative was expanded and improved significantly at the world economic summit in Cologne in 1999. From then onwards, it included nearly complete debt cancellation for participating countries. Since then, the G7 countries have cancelled 100% of all debt treated under the HIPC initiative.

The implementation of the initiative is nearly complete. In total, 49 countries have qualified for participation in the HIPC initiative. Thirty-six of them have already received comprehensive debt relief. The most recent countries to reach the initiative’s “decision point” were Somalia (March 2020) and Sudan (July 2021). As a result, these countries were able to take a first step towards debt relief. Five countries were subsequently found to have sustainable debt positions, and five other countries chose not to avail themselves of HIPC debt relief. In total, Germany has cancelled debts of about €6 billion to date.

The “Evian approach” was agreed at the G7 summit in Evian in 2003. It allows for more flexible debt restructuring conditions for non-HIPC than was the case under previous Paris Club rules. The aim is to enable arrangements that are tailored to each debtor country’s specific situation on the basis of debt sustainability analyses. In this context, countries fall into one of two categories.

Countries that have sustainable debt but are experiencing temporary liquidity problems generally receive help only under existing, “classic” Paris Club conditions. In other words, they are granted a deferral of interest payments for a few years or, if their problems are particularly serious, concessional conditions (e.g. partial cancellation).

In contrast, countries whose debt situation is considered by the IMF and the Paris Club to be unsustainable are granted comprehensive debt restructuring arrangements. To qualify, countries must agree to an IMF programme in which they commit to policies designed to avoid the need for the Paris Club’s future involvement. In addition, they must agree to give equal treatment (i.e. no preferential treatment) to other private and state creditors. The restructuring measures are granted in a step-by-step process that is closely tied to economic success and debt management requirements on the basis of IMF programmes.

Bilateral restructuring agreements are concluded to make multilaterally negotiated agreements legally binding. In Germany, the Finance Ministry has lead responsibility for concluding these bilateral agreements.

The legal authorisations for bilateral debt restructuring agreements can be found in the annual budget acts, specifically in departmental budget 23 (Federal Ministry for Economic Cooperation and Development) for receivables from financial cooperation and in departmental budget 32 (Federal Debt) for receivables from government-guaranteed trade credits for which compensation has been provided as well as from untied loans. In the case of receivables from GDR trade credits in “Western currency” and the GDR transfer rouble clearing transactions, the authorisation arises from Article 24 of the Unification Treaty.

The debt relief granted by the German government helps countries overcome their debt problems. In this way, they can implement structural reforms to help prevent the debt situation from worsening and to combat poverty among their populations. Click the link below for an overview of Germany’s debt cancellations.