Debt-restructuring bears fruit immediately

• Japan to announce resumption of stalled projects soon  
• Five-year grace period for debt payment  
• Light rail project to be discussed later  
• Interest payments to continue even during grace period  
• US welcomes process, encourages reforms process  

The signing of debt restructuring agreements with the Paris  Club of Nations, EXIM Bank of China and India appeared to have borne  immediate results with Japan bracing for the announcement of the resumption  of all the stalled loan projects except the light rail project.  

In the immediate aftermath of signing the agreement, the  Foreign Ministry announced the invitation extended by Japanese Foreign  Minister Yoko Kamikawa to her Sri Lankan counterpart Ali Sabry who is  now scheduled to undertake an official visit to Japan from July 1,  2024. An informed source said that Japan would announce its plans for  resumption of the projects stalled due to bankruptcy announced in April,  2022. It will include the development of the Bandaranaike International  Airport.  

The Minister will engage in bilateral discussions with his  Japanese counterpart which will focus on making further progress on the  outcome of the latter’s official visit to Sri Lanka in May 2024. He will  also call on several other dignitaries including Chief Cabinet  Secretary of Japan Yoshimasa Hayashi, according to the Ministry.  

Meanwhile, the debt restructuring agreement with EXIM Bank  of China was signed in Beijing yesterday securing a grace period of five  years for Sri Lanka to settle its loans. Daily Mirror learns that the  Chinese bank offered Sri Lanka more than two decades to service its  debts in instalments. The agreement provides for restructuring Chinese  debts amounting to US $ 4.2 billion. However, interest payments will  continue even during the grace period. Also, there is no reduction of  the debt component to be settled.   

According to the government’s statistics, bilateral  creditors account for 28.5 per cent of outstanding foreign debt of $37  billion. China is the largest single bilateral creditor, accounting for  $4.66 billion. Japan is second, with $2.35 billion, and India third with  $1.36 billion.  

Sri Lanka dealt with India and the Paris Club of Nations  that included countries such as Japan, France and the United Kingdom  together and China separately in restructuring its debts.   
Sri Lanka’s commercial borrowings include US $12.55 billion  raised through International Sovereign Bonds (ISB), and another $2.18  billion from the China Development Bank. The major global players- the  United States, Japan, the United Kingdom, France and India- played a key  role in getting Sri Lanka’s debts restructured. China, a country with  geopolitical rivalries with these nations, played a pivotal role in  restructuring its debts with Sri Lanka. Sri Lanka managed to have an  even-handed approach in debt treatment with all the nations  accordingly. 

All these powers had reason to fall in line with Sri Lanka  in helping it get over the economic crisis. Japanese Foreign Minister  Kamikawa who visited Sri Lanka last month even mentioned that  strategically placed Sri Lanka’s economic recovery is essential for  stability in the Indo-Pacific region and urged the government to swiftly  restructure its foreign debt. Sri Lanka is located halfway along the  main east-west international shipping route. 

“The restoration of stability and economic development of  Sri Lanka, which is at a strategic location in the Indian Ocean, is  essential for the stability and prosperity of the entire Indo-Pacific  region,” she added at a press conference last month in Colombo. 

Sri Lanka’s final agreement on debt restructuring signed on  the sidelines of the Paris Forum 2024 was welcomed by the United  States. US Ambassador to Sri Lanka Julie Chung, taking to X formerly  known as Twitter, said it is a positive step in the country’s economic  recovery. She said her country encourages Sri Lanka to continue the  reform process.   

Altogether, the agreements, valued at a combined US $ 10  billion, encompass restructuring arrangements with major bilateral  lenders under the auspices of the OCC, co-chaired by Japan, India, and  France.  

The other committee members include Australia, Austria,  Belgium, Canada, Denmark, Germany, Hungary, South Korea, the  Netherlands, Russia, Spain and Sweden.