Japan resumes funding Sri Lanka after debt restructure

Japan will resume funding stalled infrastructure projects in Sri Lanka, including the expansion of the main international airport, government officials said Wednesday, after the bankrupt island nation successfully restructured its foreign debt.

Bilateral lenders including Japan had cut project funding when Sri Lanka defaulted on its $46 billion in foreign borrowings two years ago during an unprecedented economic crisis.

"Japan is the first country to resume financing for the suspended projects," its ambassador to Sri Lanka Hideaki Mizukoshi told reporters.

A Sri Lankan finance ministry official said Japan will in the coming weeks release the first tranche of about $75 million for 11 projects suspended after Colombo's sovereign default, including the Colombo airport expansion.

Japan's loan portfolio in Sri Lanka is estimated at $2.3 billion with another $1.1 billion committed for ongoing projects and is to be disbursed in the next five years, Sri Lankan officials said.

The ambassador said Tokyo was satisfied that bilateral debt restructuring had been done in a fair manner with "comparability of treatment" for all creditors.

Japan is the second largest bilateral creditor to Sri Lanka after China.

Colombo clinched a restructuring deal four weeks ago with its bilateral lenders covering up to $10 billion in debt, a critical step towards recovery after its 2022 financial crash.

A collapse in foreign exchange reserves at the time left Sri Lanka unable to import food, fuel and other essentials, leading to months of widespread shortages.

Public anger culminated in a huge crowd storming the home of then-president Gotabaya Rajapaksa, forcing him to temporarily flee abroad, from where he resigned.

His successor Ranil Wickremesinghe sealed a $2.9 billion International Monetary Fund rescue package.

He has also hiked taxes and cut generous public subsidies to help restore the nation's ruined finances.