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Japan to Resume $1.1 Billion Projects in Sri Lanka Amid Debt Restructuring

Japan resumes funding for stalled projects in Sri Lanka, generating $1.1 billion in revenue. Credit: EconoTimes

Japan will resume funding for stalled projects in Sri Lanka, generating $1.1 billion in revenue over the next five years, following a $10 billion debt restructuring deal.

Japan to Restart 11 Stalled Projects in Sri Lanka, Expected to Generate $1.1 Billion Over Five Years

Tokyo's envoy to Sri Lanka announced on July 24 that Japan will resume funding for all stalled projects. According to Reuters, this is the first such announcement since the island nation finalized a $10 billion restructuring agreement with its official creditors.

Ajith Abeysekera, an official from the finance ministry, informed reporters that 11 initiatives will be restarted, generating $1.1 billion in revenue over the next five years.

As part of its efforts to revive its economy following a severe foreign exchange crisis in early 2022 that resulted in a foreign debt default, Sri Lanka initiated discussions earlier this year to resume suspended projects with Japan.

Bilateral Creditors Agree to $10 Billion Debt Restructuring for Sri Lanka, Projects to Restart

Last month, bilateral creditors, including Japan, China, and India, agreed to a $10 billion debt restructuring. This agreement allowed Sri Lanka to postpone repayments for four years and save $5 billion.

At a ceremony with finance ministry officials, Mizukoshi Hideaki, Japan's ambassador to Colombo, announced that water sanitation, healthcare, and other infrastructure projects, as well as the expansion of Sri Lanka's primary international airport, will be restarted.

Sri Lanka is still required to finalize a preliminary agreement with bondholders regarding restructuring $12.5 billion of debt in anticipation of the International Monetary Fund (IMF)'s third review later this year.

Colombo secured $2.9 billion in IMF lending last year, and Sri Lanka's economy is anticipated to expand by 3% in 2024.

After a severe financial crisis triggered by a record shortfall of dollar reserves and a significant debt, the island's economy experienced a 7.3% decline in 2022 and a 2.3% decline the previous year.

In an unexpected move to accelerate economic recovery after the crisis, Sri Lanka's central bank reduced interest rates by 25 basis points on July 24.

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