Colombo: Sri Lanka's creditor nations held their first meeting and discussed restructuring the island country's debt but China, which is itself the largest creditor, raised doubts over the success of the process, Nikkei Asia reported.

Earlier, on Tuesday, India, Japan and France co-chaired the meeting where participants agreed to reduce Sri Lanka's debt at an early date but China was just an observer there.

Twenty-six nations took part in the virtual meeting.

Masato Kanda, Japan's vice finance minister for international affairs, told reporters after the meeting he would continue to call upon China to participate as a full member in future meetings, reported Nikkei Asia.

"Even in the event that [China's] official participation is not forthcoming, the process with the creditor nations is expected to move forward," Kanda said. "We'll continue to negotiate without losing momentum."

Japan has called on Sri Lanka not to hold talks outside the creditor nations' meeting framework.

Sri Lanka's economy depends heavily on tourism, which ground to a near halt during the pandemic. Sri Lanka became the first middle-income nation to essentially fall into default in May last year after failing to repay infrastructure funds extended by China and other countries.

Inflationary pressures have placed low- to middle-income nations in dire straits. Interest rate hikes in wealthier economies have added extra debt-servicing burdens on debtor nations, creating the risk that the problems will spill over from low-income nations to other middle-income nations, as per the report in Nikkei Asia.

According to the publication, the creditor nations meeting is significant because it targets a middle-income nation. Finance and central bank chiefs from the Group of Seven nations will meet in Japan starting Thursday when they are expected to discuss the debt problems affecting low- to middle-income nations.

Sri Lanka's external debt totalled USD 35.1 billion at the end of September last year, according to Japan's Finance Ministry. China is the biggest bilateral creditor, followed by Japan and India.

Sri Lanka occupies a strategic location in a sea lane connecting East Asia with the Middle East and Africa. In April last year, India lobbied the International Monetary Fund to provide assistance to Sri Lanka, reported Nikkei Asia.

In March, the IMF approved USD 3 billion in loans to Sri Lanka over four years. Of the total USD 3 billion International Monetary Fund (IMF) approved fund for Sri Lanka, the economic crisis-hit country will immediately receive an initial disbursement of about USD 330 million, IMF Executive Board said.

The IMF Executive Board approved a 48-month extended arrangement under the Extended Fund Facility of USD 3 billion to support Sri Lanka's economic policies and reforms, Nikkei Asia reported.