Japan first to resume development funding after debt deal
„■ US $ 75mn inflows expected in next few weeks, with overall US $ 1.1bn over next 5-6-year horizon for existing projects
Japan yesterday became the first country to resume bilateral funding for the development projects in Sri Lanka, after sealing the external debt restructuring agreement with the country’s official creditors in the previous month.
Japanese Ambassador to Sri Lanka Mizukoshi Hideaki and Japan International Cooperation Agency (JICA) Senior Representative Ide Yuri announced yesterday in Colombo that Japan would resume funding for its development projects in Sri Lanka.
The official announcement of JICA President Dr. Tanaka Akihikoon on the resumption of the disbursement was handed over to Finance, Economic Stabilisation and National Policies Ministry and Treasury Secretary K.M. Mahinda Siriwardana by Yuri.
Over the next three to four weeks, Sri Lanka is expected to receive around US $ 75 million to settle the pending contractor bills from Japan. The country has approximately US $ 1.1 billion in committed but undisbursed funds from Japan over the next five to six years.
“This is a major signal of the confidence in the Sri Lankan economic reforms and catalyst for other development partners and investors,” Siriwardana said.
With this landmark decision, the suspended projects, including the Bandaranaike International Airport (BIA) development project, utility projects, health sector improvement projects, rural development projects, among others, are set to kick off.
“This provides Sri Lanka with fresh finances to support critical infrastructure and also it will ease the fiscal cash flow pressures, which will help to maintain domestic interest rate moderate, in supporting economic recovery and growth.
The resumption of financing will go a long way towards reigniting sectors such as construction and supporting numerous jobs and livelihoods with positive multiply effects along the way,” Siriwardana said.
In particular, the BIA development project, which is only 10 percent completed, is expected to provide the much-needed boost to Sri Lanka’s tourism sector along with trade and investments, which in turn would boost Sri Lanka’s debt servicing capacity.
Meanwhile, Hideaki noted that it was too early to comment on resurrecting the cancelled light rail transit project, stating there was no definite decision on the matter.
In the coming weeks, the two countries are expected to work drafting the amendment clauses to the project loan agreements, in line with the debt restructuring agreement and to incorporate the other factors such as cost escalations.
Sri Lanka reached the final agreement on its debt treatment with the members of the Official Creditor Committee (OCC) of Sri Lanka’s bilateral creditors on June 26, 2024. As a long-standing development partner of Sri Lanka, the government of Japan supported the initiation of the coordination platform with Sri Lanka’s bilateral creditors and played a vital role throughout the process of reaching the agreement with the OCC.