Damaging Lies: Sri Lankan Port Deal With China not a ‘Debt Trap’

By Ssemanda Allawi and Ntende Trevor

Damaging lies: Sri Lankan port deal with China not a ‘debt trap’

In December 2017 Sri Lankan government agreed to lease their major southern port Hambantota which was built by Chinese, a development that caused discussion with several analysts inventing the so-called China’s debt diplomacy while others referred to it as China’s debt trap with some critics claiming that China forced Sri Lankan government into this deal after Sri Lanka failed to pay what critics described as Chinese huge loans.

Since then, China’s critics have always given Sri Lanka as an example arguing that the country was forced to lease its port to pay back Chinese loans, a claim that lacks facts.

Indeed, Sri Lanka’s ministry of Finance’s chair of Public Private Partnership Unit Thilan Wijenighe confirmed that $1.131 billion loan from China was not spent in funding Hambantota port related activities but Sri Lankan government used these funds to boost then failing state reserves as a preparation not to default paying external debts Sri Lanka owed to several western entities.

Put differently, before leasing of Hambantota port, China accounted to just 10% of Sri Lanka’s external debt of which most of these loans are concessional with a long-term payment plans, while the other over 40% of other borrowings was from other ‘traditional’ development partners like World bank and with a short time recovery which distressed Sri Lanka government as opposed to Chinese concessional loans.

In particular, the $1.31 billon China loaned Sri Lanka through Export-Import Bank of China, 90% of this loan was concessional at 2% interest rate and was meant to be recovered in 15 – 20 years. Therefore, it is not logical that to argue that Sri Lanka was forced to lease the port to pay its debt when the loan still had over ten years to be recovered.

Indeed, Sri Lankan government later explained that it was only for commercial reasons that Sri Lanka Ports Authority decided lease 70% shares of its Hambantota port to a Hong Kong based China Merchants Port Holdings since Sri Lanka Ports Authority alone would not manage to make the port realise set economic targets. At the time Sri Lanka Ports Authority decided to lease its majority shares, the port was operating in loses.

Cars parked at Hambantota port, Sri Lanka. Courtesy photo.

Figures from Sri Lanka Ports Authority shows that before its takeover, Hambontata was making losing over $80 million annually and since the deal to was made with China Merchants Port Holdings, the loss reduced by a half in a period of one year and the port has been consolidating its roll on-roll off (RoRo) business doubling the number of vehicles that go through it

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