Sri Lanka and its creditors, led by Japan, are finalizing negotiations to suspend debt repayments until 2028, aiming to prevent China's influence from expanding on the debt-ridden island. The repayment period will extend from 2028 to 2042, with a reduced interest rate of around 2%. Despite a plea from Sri Lanka for further debt reduction, no additional cuts are expected. China, the largest creditor, is participating as an observer, but the terms of its debt restructuring are likely to mirror those agreed upon with other creditors. Sri Lanka's outstanding debt stood at $37.3 billion by the end of 2023, with China holding $4.7 billion of it. The transfer of the Hambantota Port to China in 2017 raised concerns about debt traps, prompting caution from other creditors like Japan and India regarding China's expanding influence in the Indo-Pacific region. Sri Lanka asserts that its agreements with China are purely commercial and not military in nature, although it remains vigilant in areas affecting national security, particularly concerning India.

Sri Lanka's debt repayments to be suspended until 2028 | Nikkei Asia