Japan to resume funding for stalled Lanka projects

Japan will resume funding for all stalled projects in Sri Lanka, Tokyo’s envoy there said, the first such announcement since the island nation finalized a $10 billion restructuring deal with its official creditors.

A total of 11 projects will restart and bring in $1.1 billion in funds over the next five years, finance ministry official Ajith Abeysekera told reporters.

Sri Lanka began talks on restarting suspended projects with Japan earlier this year to resuscitate its economy after a severe foreign exchange crisis in early 2022 triggered a foreign debt default.

Bilateral creditors, including Japan, China, and India, signed up to a $10 billion debt rework last month, which gave Sri Lanka breathing space to defer repayments for four years and save $5 billion in repayments.

An expansion of Sri Lanka’s main international airport, as well as water sanitation, health care, and other infrastructure projects, are among the ventures to be restarted, Mizukoshi Hideaki, Japan’s ambassador to Colombo, said at a ceremony with Finance Ministry officials.

Sri Lanka still has to put the finishing touches to a preliminary agreement with bondholders on restructuring $12.5 billion of debt ahead of a third review by the International Monetary Fund (IMF) later this year.

Sri Lanka’s economy is expected to grow 3 percent in 2024 after Colombo secured $2.9 billion in lending from the IMF last year.

The island’s economy shrank 7.3 percent in 2022 and 2.3 percent last year after a record shortfall of dollar reserves and huge debt sparked a severe financial crisis.

Sri Lanka’s central bank cut interest rates by 25 basis points on Wednesday in a surprise decision aimed at spurring economic recovery following the crisis.