Indian Council of World Affairs

Sri Lanka and Japan established diplomatic relations in 1952, and Japan became a member of the Colombo Plan in 1954. Since then, Japan has been Sri Lanka’s long-time socio-economic development partner and has taken a keen interest in Sri Lanka’s peace building and reconciliation process. Over the years, it has also emerged as one of the largest bilateral creditors to Sri Lanka by providing about $8.8 billion worth of Official Development Assistance (ODA) to nearly 120 projects.[i] In 2022, after Sri Lanka plunged into the economic crisis, Japan provided a total of $104 million in grant assistance, including $77.8 million in humanitarian assistance, which was “the highest amount of annual grant assistance provided by Japan to Sri Lanka in its history”[ii]. The year 2022 also marked the 70^th anniversary of the establishment of diplomatic relations between the two countries. 

Focus on Economic Recovery 

In this background, the decision announced by Japan on 24th July 2024 that it will resume disbursement to Yen Loan Projects in Sri Lanka is a clear boost to the country’s economic recovery process, as it can also lead to more investments in various sectors by other external donors[iii]. Japan suspended its projects after Sri Lanka declared bankruptcy in April 2022. It has now emerged as the first country to resume the suspended projects after Sri Lanka signed the Debt Treatment Agreement with Official Creditor Committee (OCC) in July 2024.[iv] Japan, as a co-chair of the OCC, also played an important role in the conclusion of the agreement. Nearly 11 Japan-funded stalled projects are going to be restarted in the sectors, such as aviation, water sanitation, healthcare, capacity building, agriculture, etc. According to reports, “Japan’s loan portfolio in Sri Lanka is estimated at $2.3 billion with another $1.1 billion committed for the ongoing projects”[v]. The OCC deal, therefore, has opened up the opportunity for both countries to utilise the committed funds for stalled infrastructure projects.[vi]

Japan’s decision to resume the suspended projects, including the development of Bandaranaike International Airport’s (BIA) $383 million project,is an important push for bilateral relations that hit a low during the Presidentship of Gotabaya Rajapaksa. During his tenure, Sri Lanka unilaterally cancelled a Japan International Cooperation Agency (JICA)-funded $1.5 billion Light Rail Transit (LRT) project for Colombo, citing high costs.[vii] The Sri Lankan Government also cancelled the $500 million tripartite deal to develop the Colombo Port’s Eastern Container Terminal (ECT) together with India. Despite a few setbacks, Sri Lanka kept its official engagement with Japan active, and the economic crisis also propelled Sri Lanka to reach out to its traditional donor. After Ranil Wickremesinghe took over the reins of the Presidency following the economic crisis in July 2022, he tried to normalise relations with Japan. He visited Japan twice, in the month of September (26–28^th) 2022 as well as in May (24–27^th) 2023. During his visit to Japan in May 2023, he expressed his regret on the cancellation of LRT to the Prime Minister of Japan, Fumio Kishida. He also stressed that “bilateral large-scale projects cannot be halted or cancelled without the agreement of both parties, and emphasised on the need for legislation in the Parliament that can look at the future bilateral agreements”[viii].

This year, two important high-level exchanges between Japan and Sri Lanka took place to discuss priority areas of bilateral cooperation. The Japanese Foreign Minister Kamikawa Yoko, during his visit to Sri Lanka on 5th May 2024, appreciated the efforts taken by “the Sri Lankan Government to overcome the economic crisis and in promoting economic reforms”[ix]. The visit of Minister of Foreign Affairs of Sri Lanka, M.U.M. Ali Sabry, to Japan in July 2024 focused on debt restructuring efforts. Japan’s side stressed the need for a more “stable relationship between the Sri Lankan government and the Northern and Eastern provinces, to further enhance the investment environment for overseas companies including Japanese businesses in the provinces”[x]. 

Free and Open Indo-Pacific: A Priority  

Another dimension to Japan’s engagement with Sri Lanka is the strengthening of maritime cooperation between the two nations given the strategic location of Sri Lanka in the Indian Ocean connecting Asia and Africa. The Joint Statement between Sri Lanka and Japan in 2014, during the visit of the then Prime Minister of Japan Shinzo Abe to Colombo, elevated the bilateral relations into “a new partnership between maritime countries to strengthen cooperation in the stability and prosperity of the Pacific and Indian Ocean regions”.[xi] To further the maritime partnership, both countries have also established a Sri Lanka-Japan Dialogue on Maritime Security and Oceanic Issues. The 4^th Dialogue was held in 2020 and focused on rules-based maritime order and the need for quality infrastructure as a prerequisite to achieve Sri Lanka’s vision to position itself as a trade and maritime hub of the Indian Ocean region”.[xii]

Japan, at present, is keen on engaging with Sri Lanka within the framework of Free and Open Indo-Pacific (FOIP) to ensure rules-based international order, economic prosperity, peace and stability.[xiii] To realise the objective, Japan is supporting projects in port building for improving connectivity (ex. development of Colombo port as well as Trincomalee port (equipment provision)), mine clearing, maritime security and safety initiatives, counter terrorism and disaster risk reduction. Cooperation in maritime security is also an important component of cooperation, and Sri Lanka has been facilitating port calls by the Japan Maritime Self-Defense Force (JMSDF) for many years.The JMSDF destroyer JS Samidare (DD-106) made a visit to the port of Colombo in June 2024. By increasing maritime engagement with Sri Lanka, Japan is hoping to counter the influence of China in the region. 

Sri Lanka, on the other hand, sees Japan as a bridge between the “Global South” and the “Global North”[xiv].It also supported Japan’s bid for permanent membership in the United Nations Security Council (UNSC). The economic crisis has pushed Sri Lanka to go beyond the traditional trade partners such as the US and the EU and look for trade and investment opportunities, particularly in the Asian region (South, East and West). This is evident from the recent Free Trade Agreement signed with Thailand in February 2024, which is expected to boost business opportunities and two-way trade and investment.[xv]Therefore, by active economic and political engagement with Japan and with the resumption of stalled projects, Sri Lanka is hoping to realise its vision of emerging as a global hub in the region.[xvi]In addition to the infrastructure projects, renewable energy, aviation and IT development are other areas where Sri Lanka is hoping to get Japan’s cooperation and investment.[xvii]This will also enable Sri Lanka to diversify its Foreign Direct Investment (FDI) sources and avoid overdependence on one donor, which can lead to a debt burden in the future. In this context, the recent announcement by Japan to resume the stalled projects in Sri Lanka and high level engagement between Sri Lanka and Japan assumes importance and is welcome.   

*****

*Dr. Samatha Mallempati, Research Fellow, ICWA. 
Disclaimer: The views expressed are personal.

Endnotes 

[i]Bandula Sirimanna,“Japan resumes funding for 11 stalled projects; other donor nations will also follow”, 28 July 2024, https://www.sundaytimes.lk/240728/news/japan-resumes-funding-for-11-stalled-projects-other-donor-nations-will-also-follow. Accessed August 1, 2024.

[ii]Embassy of Japan in Sri Lanka, “Economy and Development Cooperation”, https://www.lk.emb-japan.go.jp/itpr_en/eco_dev_00001.html#:~:text=The%20Government%20of%20Japan%20also,Human%20Security%20Trust%20Fund%20etc. Accessed August 2, 2024.

[iii] Embassy of Japan in Sri Lanka, “Japan Officially Notifies Sri Lanka of Its Decision to Resume Disbursement to Yen Loan Projects”, 24 July 2024, https://www.lk.emb-japan.go.jp/itpr_en/11_000001_00477.html.  Accessed August 4, 2024

[iv]Daily Mirror, “Japan first to resume development funding after debt deal”, 25 July 2024, https://www.dailymirror.lk/business-news/Japan-first-to-resume-development-funding-after-debt-deal/273-288013. Accessed August 4, 2024

[v]The Business Times, “Japan resumes funding Sri Lanka after debt restructure”, 24 July 2024, https://www.businesstimes.com.sg/international/japan-resumes-funding-sri-lanka-after-debt-restructure. Accessed August 3, 2024

[vi]Daily Mirror, “Japan first to resume development funding after debt deal”, 25 July 2024, https://www.dailymirror.lk/business-news/Japan-first-to-resume-development-funding-after-debt-deal/273-288013. Accessed August 6, 2024

[vii]KelumBandara, “LRT Project: Sri Lanka keen but Japan not”, 6 May 2024, https://www.dailymirror.lk/breaking-news/LRT-Project-Sri-Lanka-keen-but-Japan-not/108. Accessed August 6, 2024.

[viii]Presidential Secretariat, Sri Lanka, “President meets Japanese Prime Minister”, 25 May 2023, https://www.presidentsoffice.gov.lk/index.php/2023/05/25/president-meets-japanese-prime-minister/. Accessed August 2, 2024.

[ix]Embassy of Japan in Sri Lanka, “Courtesy Call on President Wickremesinghe of the Democratic Socialist Republic of Sri Lanka by Foreign Minister Kamikawa”, 4 May 2024, https://www.lk.emb-japan.go.jp/itpr_en/11_000001_00430.html. Accessed August 3, 2024.

[x]Ministry of Foreign Affairs of Japan, “Japan-Sri Lanka Foreign Minister’s Meeting and Working Dinner”, 2 July 2024, https://www.mofa.go.jp/press/release/pressite_000001_00400.html. Accessed August 6, 2024

[xi] “Joint Statement Between Sri Lanka and Japan”, https://www.mofa.go.jp/files/000051016.pdf.  Accessed August 6, 2024.

[xii]Ministry of Foreign Affairs, Sri Lanka, “4th Sri Lanka – Japan Dialogue on Maritime Security, Safety and Oceanic Issues concludes”, 1 October 2020, https://mfa.gov.lk/sri-lanka-japan-maritime-security/. Accessed August 7, 2024

[xiii]Free and Open Indo-Pacific, https://www.mofa.go.jp/files/000430632.pdf. Accessed August 8, 2024

[xiv] Ibid

[xv]Bangkok Post, “Thailand and Sri Lanka sign trade pact”, 3 February 2024, https://www.bangkokpost.com/business/general/2735730/thailand-and-sri-lanka-sign-trade-pact.

[xvi] Tamayo Muto, “Sri Lanka calls for Japanese investments in infrastructure and IT”,  3 July 2024, https://asia.nikkei.com/Editor-s-Picks/Interview/Sri-Lanka-calls-for-Japanese-investments-in-infrastructure-and-IT2.

[xvii]Ibid