Japan presses Sri Lanka to secure China debt deal

Japan pressed bankrupt Sri Lanka on Saturday to expedite its debt restructuring, including with its biggest creditor China, to stabilise the island nation's economy after an unprecedented crisis.

Tokyo's foreign minister Yoshimasa Hayashi welcomed economic reforms under the auspices of an International Monetary Fund bailout but said Sri Lanka needed to pick up the pace in its negotiations with creditors.

"I conveyed my expectations for further progress in the debt restructuring process," Hayashi told reporters after his one-day visit.

China holds about 52 percent of Sri Lanka's bilateral credit, with Japan and India the next biggest lenders.

All bilateral creditors except China have pledged to support a plan to delay repayments on loans.

Beijing has been reluctant to agree to a debt deferral and instead initially offered more loans to pay off older debt, a move unacceptable under IMF bailout rules.

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China's delay held up a $2.9 billion IMF bailout which was finally granted in March, almost a year after Colombo defaulted on its $46 billion foreign debt.

Sri Lanka must secure agreement from all official creditors and a majority of private bondholders to draw down its second IMF instalment of $330 million in September.

'As smoothly as possible'

Japanese foreign ministry spokeswoman Yukiko Okano told reporters that resolving Sri Lanka's debt burden remained an urgent priority to unlock further funding for the island.

"For us now the important thing is this debt restructuring process will go as quickly as possible, as smoothly as possible," Okano said.

She said Japan had been assured that all bilateral creditors will be offered "comparable treatment".

There have been fears among Sri Lanka's creditor nations that China may ask for more favourable terms, leaving others to carry a bigger share of the restructure's burden.

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Under Colombo's proposal, bilateral lenders are spared a haircut on loans but will be asked to extend maturity by up to 15 years at an annual fixed interest rate of 1.5 percent, with a nine-year moratorium on interest payments.

Okano added that Japan was concerned about China's big infrastructure projects in Sri Lanka and elsewhere in the region as they did not meet international finance standards.

Unable to repay a huge loan taken from China in 2017 to build a deep sea port in southern Hambantota, Sri Lanka handed it over to a Chinese firm for $1.12 billion on a 99-year lease.

Sri Lanka ran out of cash to pay for even the most essential imports last year, leading to chronic shortages of food, fuel and medicines.

Then-president Gotabaya Rajapaksa, who faced allegations of mismanagement, was forced to flee the country and resign in July 2022 after months of protests.

Source: AFP