Sri Lanka suspends Japanese-funded rail project over costs

COLOMBO, Sept 24 (Reuters) - Sri Lanka has suspended a $1.5 billion Japanese-funded light rail project for the capital Colombo, citing financial problems, a government official said on Thursday.

The project, meant to ease congestion in the city, was being financed through a $1.4 billion soft loan from the Japan International Cooperation Agency.

"It is on temporary hold because of foreign exchange difficulties we are facing now. Some other projects have also been temporarily halted," Monti Ranatunga, secretary to the Secretary to the ministry of transport, told Reuters.

Earlier, local media reported that President Gotabaya Rajapaksa had written a letter asking the transport ministry to cancel the light rail project because of high costs.

Rajapaksa's office confirmed the despatch of a letter, but declined to give further details.

Sri Lanka, which lies along key shipping routes in the Indian Ocean, has become a hotspot for influence between India and Japan on the one side and China on the other.

China has built ports, highways and power stations on the island as part of its Belt and Road Initiative, prompting a pushback from India which has long seen the island as part of its sphere of influence.

In recent years Japan has also sought to step up investment in infrastructure there in partnership with India. (Reporting by Waruna Karunatilake; Writing by Sanjeev Miglani; Editing by Hugh Lawson)