• Wednesday, May 29, 2024

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Japan urges swift debt restructuring for Sri Lanka’s economic recovery

Japan’s foreign minister Yoko Kamikawa (L) with her Sri Lankan counterpart Ali Sabry (R) in Colombo last Saturday (4) (Photo credit: @alisabrypc)

By: Vibhuti Pathak

Japan’s foreign minister emphasised the critical importance of Sri Lanka’s economic revival for stability in the Indo-Pacific region during discussions with Sri Lankan officials last Saturday (4). Yoko Kamikawa urged Colombo to promptly restructure its foreign debt, stressing the need for agreements with bilateral lenders and international sovereign bondholders to unlock suspended foreign funding for the cash-strapped nation.

After meetings with Sri Lankan counterpart Ali Sabry and President Ranil Wickremesinghe, discussions centred on the island’s reforms to overcome its severe economic crisis. The emphasis was on signing a Memorandum of Understanding (MoU) related to debt restructuring in Sri Lanka, as stated by Wickremesinghe’s office.

Despite hopes of finalising deals with foreign creditors by April, Sri Lanka, which defaulted on its $46 billion external debt in April 2022, has yet to reach final agreements. Kamikawa highlighted the necessity of reaching a debt restructuring agreement with all creditors, including China, the largest bilateral lender to the island.

Japan expressed readiness to support Sri Lanka’s development by swiftly resuming existing yen loan projects post-debt restructuring, considering Colombo’s economic recovery pivotal for the region. Mariko Kaneko, the Japanese foreign ministry spokeswoman, underscored the need for Sri Lanka to proceed with IMF-backed governance reforms, particularly addressing corruption.

Concerns have been raised about China’s significant infrastructure projects in Sri Lanka and the wider region, with Tokyo asserting that these projects fail to meet international finance standards. Sri Lanka’s previous inability to repay a massive loan taken from China led to the handing over of a deep-sea port in Hambantota to a Chinese firm on a 99-year lease.

Facing acute shortages of food, fuel, and medicines in 2022 due to cash constraints, Sri Lanka has embarked on painful economic reforms aligned with the IMF bailout program. However, challenges persist, underscoring the urgency of swift and comprehensive debt restructuring to facilitate the country’s economic recovery.

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