As Sri Lanka approaches the completion of its debt restructuring process, optimism is rising for the resumption of long-stalled development initiatives. Eleven Japanese-funded projects, previously halted due to the country’s economic and political turmoil, are set to restart. Economists stress that while ongoing projects will be reinstated, any new ventures will depend on Sri Lanka’s ability to demonstrate fiscal stability.
The Government is focused on enhancing transparency, governance, and digitalisation to cultivate a better financial environment. Donors are looking for stronger fiscal reforms as Sri Lanka grapples with the challenging task of balancing economic growth with sustainable financial management.
During a recent meeting at the Presidential Secretariat, Ambassador of Japan to Sri Lanka Mizukoshi Hideaki announced the immediate resumption of 11 development projects, signaling renewed confidence in Sri Lanka’s development trajectory. The Ambassador reaffirmed Japan’s commitment to collaborate closely with Sri Lanka, particularly in assisting the new administration’s efforts against corruption and irregularities.
The projects include significant initiatives such as the Kandy City Wastewater Management Project, the second phase of the Bandaranaike International Airport Development Project, and various improvements in water supply and infrastructure. Ongoing efforts like the Habarana-Veyangoda transmission line and the Anuradhapura North Water Supply Project are nearing completion with Japanese assistance.
A Significant Step Forward
In an interview with The Sunday Morning Business, Advisor to the President on Economic Affairs and Finance Prof. Anil Jayantha Fernando emphasized that the resumption of these Japanese-funded projects marks a significant step for Sri Lanka. While the projects are back on track, timelines for completion may vary, especially for larger initiatives.
“Each project has different reasons for its previous cessation, whether due to the impact of Covid-19 or delays in payments,” he noted. The timeline for major projects, such as the airport development, could extend up to two years, while others will require further assessment.
The incoming Government’s commitment to transparency and good governance has played a crucial role in securing Japanese support. Prof. Fernando highlighted that the anti-corruption drive and emphasis on establishing good governance are vital to ensuring project continuity.
“We aim to establish a production-oriented economy,” he said, contrasting this with the prior administration’s approach. He stressed that without adequate infrastructure and a conducive environment for entrepreneurs and investors, progress would be hampered. The resumption of these projects signals to investors that Sri Lanka is on a promising path, laying the groundwork for new investments, including Foreign Direct Investment (FDI).
Fund Disbursement and Project Progress
Treasury Deputy Secretary R.M.P. Rathnayake provided additional insights, noting that while specific completion dates remain uncertain, the disbursement of funds has begun. He explained that the course of action for each project would depend on how far along they are in their respective processes.
“The majority of these projects are ongoing initiatives backed by previous agreements with the Japan International Cooperation Agency (JICA),” Rathnayake said.
Caution Over New Projects
Prof. Priyanga Dunusinghe from the University of Colombo pointed out Japan’s legal constraints regarding new project initiation in Sri Lanka, emphasizing that Japan can only move forward once debt restructuring agreements are in place.
Japan remains cautious about new projects, as it requires assurance of Sri Lanka’s capacity for sustainable financing. Prof. Dunusinghe emphasized the importance of demonstrating improved fiscal capability to attract future investments and avoid higher borrowing costs.
Significance of Debt Restructuring
First Capital Chief Research and Strategy Officer Dimantha Mathew discussed the significance of Sri Lanka’s ongoing debt restructuring process. He noted that the resumption of Japanese projects follows the restart of many multinational agency-funded projects earlier in 2023.
However, Mathew cautioned that Sri Lanka’s high debt-to-GDP ratio necessitates careful consideration of future debt-funded projects, advocating for a shift towards equity-funded initiatives, particularly through Public-Private Partnerships (PPPs).