Shaky Sri Lanka courts Japan for new investments

In a bid to foster economic revival and boost development, Sri Lanka has extended a warm invitation to Japan to resume its investments in crucial projects, including power, roads, and ports. The call came as Japanese Foreign Minister Yoshimasa Hayashi concluded the first high-level visit to the crisis-hit country in nearly four years, signifying renewed efforts to strengthen bilateral ties.

Sri Lanka’s Foreign Minister, Ali Sabry, emphasized his country’s eagerness to attract Japanese investment in various sectors, particularly power, infrastructure, and dedicated investment zones. Additionally, Sri Lanka is seeking Japanese involvement in the green and digital economies, as it charts a path towards sustainable growth and economic diversification.

The South Asian island nation has been grappling with a severe financial crisis that prompted default and led to the resignation of its president last year. To navigate through the economic challenges, Sri Lanka is in the process of restructuring its substantial debt while relying on a $2.9 billion bailout from the International Monetary Fund.

“We are confident that Sri Lanka’s economic recovery, which has made a promising start, and future growth prospects will provide us with greater opportunities to enhance the Japan-Sri Lanka relationship,” stated Minister Sabry during a news conference.

The visit of Japanese Foreign Minister Yoshimasa Hayashi to Colombo is part of a multi-country diplomatic tour, which includes India, South Africa, Uganda, Ethiopia, and the Maldives. During his stay, Hayashi conveyed his expectations for further progress in the debt restructuring process, emphasizing the importance of transparency and involvement of all creditor countries in the restructuring efforts.

While Minister Hayashi did not respond publicly to Sabry’s investment invitation, the visit represents an effort to strengthen relations between Japan and Sri Lanka. Historically vibrant relations between the two countries cooled after Sri Lanka unilaterally suspended a $2 billion light railway project in 2020. However, ties have improved in recent months after President Ranil Wickremesinghe appealed to Japan for support in navigating the crisis, which was triggered by economic mismanagement, deep tax cuts, and the impact of the COVID-19 pandemic.

Recently, President Wickremesinghe received Cabinet approval to reactivate the suspended light rail project, signaling a renewed commitment to infrastructure development in the country.

Sri Lanka, strategically located along key shipping routes in the Indian Ocean, has become an area of interest in terms of influence for countries like India, Japan, and China. Japan stands as Sri Lanka’s largest bilateral lender after China, with approximately $2.7 billion in outstanding loans, while India remains a significant creditor as well.

As Sri Lanka works towards economic recovery and navigates its debt restructuring process, closer collaboration with Japan and other key partners will be critical in unlocking new investment opportunities and fostering sustainable growth in the country. The outcome of these efforts could also have broader implications for regional dynamics in the Indian Ocean region.