Japanese and Sri Lankan leaders on Thursday confirmed the importance of "transparent and fair" debt restructuring, apparently warning against China's alleged debt-trap diplomacy, which uses loans as leverage to gain concessions from borrower nations.
The agreement came during a meeting in Tokyo between Japanese Prime Minister Fumio Kishida and Sri Lankan President Ranil Wickremesinghe, who expressed appreciation for the Asian country's role in restructuring his nation's debt.
Sri Lanka defaulted on its debt in April 2022 amid the worst economic crisis since the South Asian country, with a population of 22 million, gained independence from Britain in 1948, with China emerging as the biggest bilateral creditor to the nation in recent years.
Against a backdrop of Beijing's so-called debt trap diplomacy, many developing countries receiving massive loans from China, including Sri Lanka, have given up control of key infrastructure after the debt liabilities become untenable.
During the three-day Group of Seven summit through Sunday in the western Japan city of Hiroshima, the leaders urged all nations to refrain from using "economic coercion" as a tool to pursue political objectives with China in mind.
Wickremesinghe, meanwhile, told Kishida at the outset of their meeting, which was open to the media, that the debt-strapped country's efforts to improve its fiscal health have made "remarkable headway" on the back of support by Japan and other major democracies.
Japan, France and India have launched an initiative to coordinate the restructuring of Sri Lanka's hefty loans among its creditors. The first meeting of the nation's lenders was held earlier this month, which Beijing attended as an observer.
Sri Lanka will be able to conclude the debt restructuring talks "by September or November at the latest," Wickremesinghe told Kishida, adding, "That would mean the end of the phase of Sri Lanka's economic crisis."
As of September 2022, Sri Lanka had $35.1 billion in foreign debt. By country, 19 percent of it was owed to China, 7 percent to Japan and 5 percent to India, according to Japan's Finance Ministry.