Japan and China have played a crucial role in shaping Sri Lanka’s infrastructure through various large-scale projects. Recently, Sri Lanka announced the revival of multiple stalled projects funded by these two nations, marking a significant step toward economic recovery.
Debt Restructuring and Project Revival
In March 2025, Sri Lanka and Japan finalized an agreement to restructure $2.5 billion of Sri Lankan debt. This restructuring has paved the way for resuming major development projects, including the expansion of Sri Lanka’s primary airport.
The country’s financial crisis had led to a foreign debt default in April 2022, bringing many projects to a halt. However, with this agreement, Sri Lanka is on a path toward stability and progress.
Under the new administration, at least 87 foreign-funded projects have restarted. President Anura Kumara Dissanayake confirmed this as Sri Lanka declared itself free from bankruptcy following its debt restructuring completion by the end of 2024.
He emphasized that due to sound economic policies, the government has successfully revived 11 Japanese-funded and 76 Chinese-funded projects that were previously suspended.
Economic Policies and Stability
Speaking at the 26th anniversary of the Chamber of Young Lankan Entrepreneurs (COYLE) in Colombo, President Dissanayake highlighted that the 2025 budget aims to foster a more dynamic and resilient economy.
By focusing on economic mobility, the government seeks to promote sustainable growth without causing significant economic disruptions. Additionally, policies are being crafted with consideration for the Sri Lankan Rupee’s stability and in line with International Monetary Fund (IMF) recommendations.
The President also underscored that trust in Sri Lanka’s economy had eroded due to past mismanagement but affirmed that decisive actions have restored confidence, helping the nation recover from its bankruptcy status.
Key Infrastructure Projects
Colombo Light Rail Transit (LRT) Project: Originally launched in 2017 with $1.5 billion in funding from the Japan International Cooperation Agency (JICA), this initiative aimed to enhance urban mobility in Colombo.
However, the Sri Lankan government terminated it in 2020, leading to financial losses and diplomatic strains. Although discussions about its revival have taken place, Japan has yet to recommit, pending further economic reforms from Sri Lanka.
Samanalawewa Hydroelectric Power Project: Commissioned in 1992 with support from Japan and the UK, this hydroelectric facility generates approximately 405 GWh annually. Despite technical issues such as a leak in the dam’s right bank, it continues to be a vital contributor to Sri Lanka’s power grid.
Chinese-Funded Developments
Colombo Outer Circular Expressway (E02): Spanning 29 km, this expressway connects key transportation routes and alleviates congestion in Colombo. It was constructed in phases, with significant input from Chinese firms.
Port Development Initiatives: China has played a major role in Sri Lanka’s port infrastructure development, particularly in projects like Hambantota Port and Colombo Port City, as part of the Belt and Road Initiative. However, concerns persist over debt sustainability and the strategic implications of heavy borrowing.
Balancing Geopolitical Interests
Sri Lanka’s location in the Indian Ocean has made it a focal point for both Japanese and Chinese investments, each driven by distinct geopolitical interests. Japan typically provides development aid and infrastructure funding under favorable terms, focusing on transparency and sustainability.
In contrast, China’s large-scale investments have rapidly transformed Sri Lanka’s infrastructure but have also raised concerns about debt dependency and sovereignty.
The Sri Lankan government faces the challenge of managing these partnerships strategically, ensuring that economic development rem
By carefully navigating its relationships with Japan and China, Sri Lanka aims to optimize economic benefits while maintaining financial and political stability.
