Japan Urges Sri Lanka Debt Restructuring

Strategically placed Sri Lanka's economic recovery was essential for stability in the Indo-Pacific region, Japan's foreign minister said, urging Colombo to swiftly restructure its foreign debt.

Yoko Kamikawa said after talks with her Sri Lankan counterpart that Colombo should secure agreements with bilateral lenders and international sovereign bondholders to unlock suspended foreign funding.

The Sri Lankan government which defaulted on its $46 billion external debt in April 2022 had hoped to finalize deals with foreign creditors by April but there have been no final agreements yet.

Kamikawa said she "stressed the importance of reaching a debt restructuring agreement with all the creditors", including China -- the largest bilateral lender to the island.

"I also conveyed Japan's intention to further support Sri Lanka's development by swiftly resuming existing yen loan projects (after a debt restructuring deal)," she said.

She said Tokyo considered Colombo's economic recovery as crucial for the entire region. The island is located halfway along the main east-west international shipping route.

Sri Lanka must secure agreement from all official creditors and a majority of private bondholders to continue with a four-year $2.9 billion bailout loan begun in March last year.

Japan, the second largest bilateral lender to the island, has expressed concern about China's big infrastructure projects in Sri Lanka and elsewhere in the region.

Tokyo maintains that the Chinese-funded projects did not meet international finance standards.

Unable to repay a huge loan taken from China in 2017 to build a deep sea port in southern Hambantota, Sri Lanka handed it over to a Chinese firm for $1.12 billion on a 99-year lease.

Sri Lanka ran out of cash to pay for even the most essential imports in 2022, leading to chronic shortages of food, fuel and medicines.