Sri Lanka’s reputation will take a hit after its ultranationalist government is set to scrap two multimillion dollar investment projects funded by Japan, reports NikkeiAsia, as international debts continue to mount.
The two projects which were agreed under previous “good governance regime” were scrapped by the ultranationalist regime led by accused war criminal, Gotabaya Rajapaksa. The construction of an elevated commuter rail project through Colombo and the development of a container terminal in the Colombo Port were set to be funded by the most favourable loans rates available to Sri Lanka.
The cancellations have reportedly "taken Japanese officials by surprise".
Japan had agreed to provide a US$1.8 billion loan for the light rail project and a $500 million loan for the Eastern Container Terminal Venture where the interest rate for the LRP was 0.1%. Japan has consistently provided the lowest interest rate on available loans to Sri Lanka compared to other major lenders with its average being 0.7%.
The cancellation brought criticism from financial commentators and opposition politicians.
One senior industry insider said “If you want to cancel the LRT you have to make a statement of intent, rather than doing it in an arbitrary manner and creating an international crisis... The talk in the corridors of business is the government is scuttling the LRT to give it to the Chinese.” Sri Lankan MP Harsha de Silva said “the real cost is not financial but diplomatic," adding "the government is certainly not strengthening the friendship with Japan who has been there for Sri Lanka over the years”.
Eastern Container Terminal (ECT)
Development at the ECT, which was to be led by India as well as Japan, has faced intense opposition from Sinhala unions. Earlier this year Sri Lanka’s port workers said they would rather the Sri Lankan Parliament be handed over to India than allow for Indian-led investment to develop the East Container Terminal (ECT) at the Colombo Port, as opposition to the project continues to grow. Workers at the Colombo port have been leading protests against the project and have even offered to find the money to build it themselves.
The development of the port was initially agreed in May 2019 by the previous Sri Lankan regime, when former prime minister Ranil Wickremesinghe signed a memorandum of cooperation (MoC) with India and Japan to upgrade the terminal. The deal would have allowed the Sri Lanka Ports Authority (SLPA) to retain full ownership, whilst India and Japan had a 49% stake in running the terminal.
Earlier this year Sri Lanka’s prime minister Mahinda Rajapaksa announced the formation of a committee to examine the $700 million dollar deal between Colombo and New Delhi, after pressure from trade unions provoked long-standing anti-Indian sentiment. Sinhala nationalist groups have longed voiced their objecting to any “foreign involvement”.
Sri Lanka economic woes
Sri Lanka’s economy continues to suffer as both Standard and Poor and Fitch Ratings downgraded Sri Lanka’s credit score.
This builds into a mounting debt crisis, Sri Lanka’s US$88 billion economy is currently straddled with a debt pile of US$50.8 billion and is currently under pressure to pay an average of $4 billion annually in foreign debt over the next four years as its foreign reserves has shrunk to a three-year low of US$5.8 billion.
In August last year, TNPF MP G G Ponnambalam spoke in parliament on the issue of development in the North-East. Land grabs by the military have been a consistent problem in the North and East.
Commenting on the issue of development, Ponnambalam stated :
“ The North East has been a war zone for over 30 years, the people of the North and East’s economy is 30 years lagging behind, you cannot treat people in the North-East equally, you have to protect them. You have to allow their economy to grow”