Japan to support Sri Lankas debt restructuring negotiations

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Japan, Sri Lanka

ECONOMYNEXT – Sri Lanka’s debt re-structuring efforts were backed back Japan, France and other countries at an ambassador’s forum with President Ranil Wickremesinghe, an official said.

“Several missions, including Japan and France, extended their country’s support towards Sri Lanka and its debt restructuring efforts,” Dinouk Colombage, Director International Affairs for President Wickremesinghe said.

Sri Lanka will meet all external creditors in an online forum Friday presenting to them an update on current economic conditions and an discussions with the International Monetary Fund.

Sri Lanka ran into a severe currency crisis in 2022 and defaulted on its foreign debt, after borrowing large volumes of commercial debt through two currency crises from 2015 to 2018, in the course of operating flexible inflation targeting with stimulus.

Government spending also ratcheted up from 17 to around 20 percent after spending based consolidation was abandoned under a politically naive strategy called revenue based fiscal consolidation. In 2020 tax cuts were added to monetary stimulus to target and output gap.

Sri Lanka has already hiked rates to slow private credit and raised taxes and energy utility prices to reduce public domestic credit to reduce outflows and stabilize the currency in the course of striking a staff level agreement with the International Monetary Fund

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