Japan and Sri Lanka agree to resume $1.5bn light rail, other projects

COLOMBO (Reuters) -- Sri Lanka and Japan agreed on Saturday to work to resume stalled bilateral projects including a $1.5 billion Japanese-funded light railway.

The two nations announced the agreement during a visit to Sri Lanka by Japanese Foreign Minister Yoko Kamikawa.

Sri Lanka is working to restructure its foreign debt as part of a $2.9 billion bailout from the International Monetary Fund (IMF), after its worst financial crisis in more than seven decades in 2022 triggered a foreign debt default.

Japan expects the early signing of a memorandum of understanding between Sri Lanka and the official creditor committee appointed to assist in restructuring Sri Lanka's bilateral debt, which Japan co-chairs, Kamikawa said.

"I also conveyed Japan's intention to further support Sri Lanka's development by swiftly resuming yen loan projects once the MoU on debt restructuring is signed and the Sri Lanka government's intention to swiftly conclude a bilateral agreement is confirmed," she told reporters in Colombo.

Sri Lanka pulled out of the rail project in 2020, when it was moving closer to China under the then-president.

The Sri Lankan cabinet in July gave approval for President Ranil Wickremesinghe to decide on the appropriate time frame to reactivate projects with Japan.

Japan is Sri Lanka's biggest bilateral lender after China, with about $2.7 billion in outstanding loans, according to finance ministry data. India is the third key creditor.

Sri Lanka is confident of concluding the necessary agreements in time to complete the next IMF review, Sri Lanka Foreign Minister Ali Sabry said.