Published on: February 16, 2023
Why in news? India’s G-20 Sherpa propagated the China to take a haircut on its loans to poor countries and assist their economic recovery.
- While the United States has been a vocal critic of Chinese debt in developing nations.
- This remarks assume significance ahead of Global Sovereign Debt Round-table, organised by the IMF, the World Bank and India.
- Beijing is yet to provide specific financing assurances to the IMF to help Sri Lanka unlock the $2.9 billion “bailout package”.
What is Haircut on loans ?
- Haircut refers to reduction in loan amount banks willingly make . It also means accepting the less than what was due in a particular loan amount
Why would lenders opt for such a route?
- This is done because the lender gets at least some amount back instead of not getting any money at all.
- Besides, the lender’s provisioning liability comes down to the extent of the write-off, thus it ends up freeing capital in the process.