Japan could forgive some of Sri Lanka’s debt in planned meeting with its creditors: report

Move could be more effective at winning Colombo’s support, observers note, with Tokyo keen to stop Sri Lanka’s biggest creditor, China, from exerting more influence

Discussions expected to focus on reducing debt payments, postponing repayment deadlines, with other creditor nations asked to help ease Colombo’s burden

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Anti-government protesters hold placards during a protest against the current economic and political crisis, in Colombo, Sri Lanka earlier this month. Photo: EPA-EFE

Published: 8:30am, 19 Oct 2022

Japan intends to host a meeting of Sri Lanka’s creditor states before the end of the year as part of efforts to solve the nation’s financial problems, the Yomiuri newspaper has reported, with some analysts suggesting that Tokyo could take the initiative by forgiving a portion of the debt that it is owed.

Any assistance would be more significant than simply helping another Asian government stave off a full-blown economic crisis, they point out.

Tokyo will be equally keen to stop Sri Lanka’s biggest creditor, China, from exerting more influence on the Colombo government as it struggles to pay off its debts, observers say, while a well-publicised conference that examines the root of Sri Lanka’s debts may dissuade other governments from accepting large loans from Beijing.

Japanese Prime Minister Fumio Kishida (right) and Sri Lankan President Ranil Wickremesinghe during their meeting in Tokyo in late September 2022. Photo: Kyodo

Quoting sources in the Japanese government, the Yomiuri reported that Sri Lankan President Ranil Wickremesinghe requested assistance from Japan when he met Prime Minister Fumio Kishida in Tokyo in late September. Wickremesinghe was in Tokyo to attend the funeral of Japan’s slain former leader Shinzo Abe.

Discussions at the meeting are expected to focus on ways to reduce debt payments and postpone repayment deadlines, while other creditor nations will be asked to help ease the burden on Colombo.

According to Sri Lankan government figures, the country has borrowed a total of US$2.74 billion from Japan, along with around US$1.68 billion from India and millions from France, Austria, South Korea and other nations. By far the biggest debt, however, is owed to China. Colombo must repay Beijing US$7.32 billion, which amounts to 52 per cent of its total overseas debt.

In total, including amounts owed to international institutions, the nation’s external debt at the end of June came to US$46.6 billion, or about 70 per cent of its gross domestic product.

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