Japan awaits Sri Lanka's debt restructuring to resume stalled projects

The visiting Japanese Finance Minister Suzuki Shunichi on Friday expressed hope that the ongoing debt restructuring in cash-strapped Sri Lanka could be finalised soon for Japan to resume its stalled projects in the island nation.

Shunichi, who is on a two-day visit, met President Ranil Wickremesinghe and emphasised the value of transparent and comparable debt restructuring. The bilateral relationship was under stress for a period with Sri Lanka's unilateral cancellation of a Japanese-funded project in 2020.

He (Shunichi) has assured that the recent suspension of Yen loans due to Sri Lanka's debt crisis could be reversed pending the conclusion of an MoU at the Official Creditor Committee (OCC) and continued debt sustainability monitored by the IMF, a statement from the President's office said.

The President expressed profound appreciation for Japan's lead role in addressing Sri Lanka's debt issues. The talks encompassed future collaborations, emphasising areas such as information technology cooperation, maritime security collaboration, resumption of stalled projects, long-term bilateral cooperation, finalisation of debt restructuring agreements and pipeline projects, the release said.

In 2020, Wickremesinghe's predecessor Gotabaya Rajapaksa had cancelled a USD 1.5 billion Japanese Light Rail (LRT) project for the city of Colombo to be funded through a soft loan from the Japan International Cooperation Agency (JICA).

Wickremesinghe publicly apologised to the Japanese upon succeeding Rajapaksa in 2023.

Japanese engineering group Taisei also suspended the contract it won in 2020 to expand the Colombo International Airport.

Sri Lanka's debt restructuring with external creditors has meandered along even after the International Monetary Fund's (IMF) December 2023 approval of the release of the second tranche worth USD 337 million to Sri Lanka after it had concluded its first review of the USD 2.9 billion bailout.

Sri Lankan officials say the debt restructuring could be completed during the first quarter of this year.

After it was hit by its worst economic crisis in history in 2022 when its foreign exchange reserves fell to a critical low, Sri Lanka went in for what the World Bank described as foundational reforms to restore macroeconomic stability and mitigate the impacts on the poor and vulnerable aided by private sector-led recovery.