Four Countries Get Paris Club Debt Freeze As Poorer Countries See Danger In Waiver

Paris Club has concluded to freeze debt payment for more countries two weeks after it agreed the organisation will suspend the payment of debt by 77 poorest countries this year as underdeveloped and developing countries struggle with the negative impact of COVID-19 on their economy.

The Paris Club had initially approved debt freeze for eight countries, but in a new development, the Paris Club added four more countries, taking the tally to 12 countries. Chad, Ethiopia, Pakistan, and the Republic of Congo are the four countries that recently secured the approval for debt payment freeze.

Why Paris Club Is Offering Debt Freeze

Paris Club consists of officials from major creditor countries. Their role is to assist debtor countries struggling to make debt payment, by finding coordinated and sustainable solutions to their debt problem. The Paris Club had agreed to freeze debt payment worth $1.1 billion.

This resolution came following international financial institutions like the World Bank and International Monetary Fund (IMF) push for debt relief to cushion the financial burden caused by the coronavirus pandemic on poor countries.

With the underdeveloped and developing countries already burdened by debt, World Bank and IMF solicited for debt payment freeze to enable the poorest countries apply for more loans to support their weak economy, but fear is holding many from jumping at debt freeze offer.

Here's Why Some Poor Countries Are Ignoring The Debt Relief

Despite the need for debt relief, some countries are distancing themselves from the offer. Many of the poorest countries are scared that debt relief could affect their credit ratings. The fear had circulated among smaller economies following warnings from credit rating agencies, stating that such debt relief could affect their appearance when soliciting for credit in the future.

Poor countries admitting they can't repay loans as at when due could affect their request for more loans. It was stated that the debt freeze will be viewed as debt default. That's why out of the 77 nations eligible for debt relief, only 30 have applied for the Paris Club offer as many are still skeptical.