Japan Urges Sri Lanka to Restructure ForeignDebtfor Economic Recovery

Japanese Foreign Minister Yoko Kamikawa has emphasized the importance of Sri Lanka restructuring its foreign debt to achieve economic recovery, which is crucial for the stability of the Indo-Pacific region. During her two-day visit to Sri Lanka from May 4-5, 2024, Kamikawa highlighted Japan's commitment to supporting Sri Lanka's economic development anddebt restructuring efforts.

Why this matters: A successful debt restructuring process in Sri Lanka can have a positive impact on the entire Indo-Pacific region, promoting regional stability and economic growth. Moreover, Sri Lanka's recovery can serve as a model for other countries facing similar economic challenges, providing valuable lessons for international cooperation and debt management.

Kamikawa arrived in Sri Lanka on May 4 to discuss the country's debt and economic restructuring process. She is expected to meet with high-level government officials, including President Ranil Wickremesinghe and Prime Minister Dinesh Gunawardena. The primary objective of her visit is to urge Sri Lanka to restructure its foreign debt, which is crucial for the country's economic recovery andregional stability.

In a recent media briefing, Kamikawa stated,"It is essential for the stability and prosperity of the entire Indo-Pacific region that Sri Lanka, located at a strategic junction in the Indian Ocean, regains stability and returns to the path of economic development. "She further added,"Japan believes the priority for Sri Lanka is to finalize the debt restructuring and restore debt sustainability. Economic growth, furthermore, the various reforms that Sri Lanka is currently undertaking are all essential for Sri Lanka to bring itself back on track for economic growth and financial stability."

Sri Lanka's Foreign Affairs Minister Ali Sabry, PC, expressed optimism that the country will conclude its debt restructuring process in time for the next tranche of the International Monetary Fund (IMF) Program. During a joint media briefing with Kamikawa, Sabry stated,"We remain very grateful to Japan for the important supporting role it played in the external debt restructure in process as the Co-chair of the official creditor committee, OCC, as well as for itsgrant assistance. "He further added,"As of today, the country has not only recovered from economic collapse, but has experienced a rapid revival, showcasing the resilience and the determination of the Sri Lankan people."

Japan has played a crucial role in Sri Lanka's debt restructuring process as the Co-chair of the official creditor committee (OCC) and has provided grant assistance to the country during its economic crisis. In March 2024, Sri Lanka and Japan signed an Exchange of Notes for a grant assistance of approximately LKR 3.3 billion (Japanese Yen 1,600 million) under the Japanese Economic and Social Development Programme. Japan has provided a cumulative total of USD 111 million in grant assistance, including emergency humanitarian aid, since Sri Lanka's default two years ago.

Japan and Sri Lanka have a longstanding friendship, with Japan supporting Sri Lanka's peace-building efforts and hosting the Tokyo Conference on Reconstruction and Development of Sri Lanka in 2003. The two countries are also cooperating in various areas, including cultural exchanges, people-to-people exchanges, and maritime domain cooperation. Japan is confident that Sri Lanka will emerge from its current crisis in the near future through debt restructuring and economic reforms.

Sri Lanka is working to stabilize its economy, enhance debt sustainability, and implement growth-oriented structural reforms. The debt restructuring process is expected to be concluded in time for the next tranche of the IMF Program, which is a crucial step towards Sri Lanka's economic recovery. As Sabry noted,"As of today, the country has not only recovered from economic collapse, but has experienced a rapid revival, showcasing the resilience and the determination of the Sri Lankan people."

Key Takeaways

• Japanese FM Yoko Kamikawa emphasizes Sri Lanka's debt restructuring for Indo-Pacific stability.
• Sri Lanka's economic recovery is crucial for regional stability and economic growth.
• Japan supports Sri Lanka's debt restructuring and economic development efforts.
• Sri Lanka aims to conclude debt restructuring in time for next IMF Program tranche.
• Japan provides grant assistance of USD 111 million to support Sri Lanka's economic recovery.