ECONOMYNEXT – A deal to lease Sri Lanka’s southern Hambantota harbour to a Chinese firm will have economy-wide benefits, helping boost foreign exchange reserves and relieving pressure on the rupee, Minister of Ports and Shipping Mahinda Samarasinghe said.
Loans from China to build Hambantota and other infrastructure some at commercial rates had put Sri Lanka in a debt trap, he told the ‘Logistics Leaders Evening’ forum of the Chartered Institute of Logistics and Transport.
An agreement with China Merchants Port Holdings to run Hambantota port should be ready soon, with all issues ironed out and a solution acceptable to both parties being reached after several rounds of talks, he said.
“The importance of these talks is that it will be one of the largest FDIs (foreign direct investments),” Samarasinghe said.
“It is of paramount importance to get them, so we can build international reserves and use it to stabilise the rupee and control the cost of living.”
Samarasinghe said there’ll be a ‘demonstration effect’ when this kind of huge investment comes in, prompting other investors to look at Sri Lanka seriously.
“And there’ll be downstream projects planned – there will also be investment that will come in to the industrial park we agreed to set up, jobs will be created, the region will be developed.”
Samarasinghe said there were “compelling reasons” for the government to consider giving the port to the Chinese firm on long lease.
“The previous government of Mahinda Rajapaksa borrowed heavily, sometimes at commercial rates, which we are burdened with repaying. During 2017-20, our debt service ratio will increase further. So, we need to reduce this.
It was in that context that Prime Minister Ranil Wickremesinghe went to China for talks on the port loan.
The planned Chinese lease of Hambantota for $1.12 billion can be used to pay off the whole loan.
“So, our debt service ratio will come down and we will have a surplus that can be used to bolster international reserves.
“Unfortunately, this has not been explained to the public who think we are selling the port to the Chinese at a giveaway price, or that we are forced to sell it to China. The prime minister has got us out of the debt trap that previous government put us into.”
(COLOMBO, July 03, 2017)