COLOMBO – Japan has pledged to resume funding for all suspended projects in Sri Lanka, announced Tokyo’s envoy on Wednesday. This marks the first such commitment since Sri Lanka finalized a $10 billion restructuring agreement with its official creditors.
Ajith Abeysekera, a finance ministry official, revealed that 11 projects would recommence, bringing in $1.1 billion in funds over the next five years. “We are pleased to restart these vital projects that will significantly contribute to Sri Lanka’s recovery,” he stated.
The announcement follows negotiations earlier this year between Sri Lanka and Japan to restart the projects, which were paused due to the severe foreign exchange crisis that led to a foreign debt default in early 2022. The default prompted a need for comprehensive economic restructuring.
Last month, bilateral creditors including Japan, China, and India agreed to a $10 billion debt restructuring deal, allowing Sri Lanka to defer repayments for four years and save $5 billion in repayments. This agreement has been crucial in providing the island nation with much-needed financial relief.
Japan’s ambassador to Colombo, Mizukoshi Hideaki, detailed the projects to be resumed, which include the expansion of Sri Lanka’s main international airport and several infrastructure projects in water sanitation and healthcare. “These initiatives are critical for the sustainable development of Sri Lanka and reflect the strong partnership between our two nations,” Hideaki emphasized during a ceremony with finance ministry officials.
Sri Lanka is also working towards finalizing an agreement with bondholders to restructure $12.5 billion of debt. This is a key step before the International Monetary Fund (IMF) conducts its third review later this year. The IMF previously granted Sri Lanka $2.9 billion in lending to support its economic recovery efforts.
After a severe economic contraction of 7.3% in 2022 and 2.3% in 2023, Sri Lanka’s economy is projected to grow by 3% in 2024. This optimistic outlook comes on the back of the restructuring agreements and ongoing support from international financial institutions.
In a related move to spur economic recovery, Sri Lanka’s central bank cut interest rates by 25 basis points on Wednesday. The surprise decision is aimed at stimulating economic activity following the financial crisis. The resumption of Japanese funding represents a significant step forward in Sri Lanka’s path to economic stability and growth, demonstrating the effectiveness of international cooperation in times of financial distress.