Sri Lanka and Japan have recently come to an agreement to restart halted bilateral projects, such as the $1.5 billion Japanese-funded light railway project. This development was revealed during a visit to Sri Lanka by Japanese Foreign Minister Yoko Kamikawa. Sri Lanka's efforts to restructure its foreign debt are part of a larger $2.9 billion bailout orchestrated by the International Monetary Fund (IMF) following the severe financial crisis experienced in 2022, which led to a foreign debt default.
During the visit, Kamikawa expressed Japan's expectations for the prompt signing of a memorandum of understanding between Sri Lanka and the official creditor committee tasked with assisting in the restructuring of Sri Lanka's bilateral debt, a committee co-chaired by Japan. Kamikawa shared Japan's commitment to supporting Sri Lanka's development by quickly resuming yen loan projects once the MoU on debt restructuring is finalized and the Sri Lankan government's readiness to swiftly conclude a bilateral agreement is confirmed. Sri Lanka withdrew from the rail venture in 2020, a decision made as the country was moving towards closer ties with China under the previous president.
In July, the Sri Lankan cabinet authorized President Ranil Wickremesinghe to determine the appropriate timeline for reactivating projects with Japan, signaling a positive step towards collaboration. Japan, positioned as Sri Lanka's primary bilateral lender after China, currently holds around $2.7 billion in outstanding loans, as reported by the finance ministry. Additionally, India stands as the third significant creditor to Sri Lanka. Sri Lanka's Foreign Minister Ali Sabry expressed confidence in the country's ability to finalize the necessary agreements in due time to complete the upcoming IMF review, highlighting a positive outlook on the nation's economic recovery and development progress.