Sri Lanka’s image has become a land that is submerged under the debt of Chinese projects on its land.
One such project is the Humbertta port, which Sri Lanka gave to the merchant port Holdings Limited Company of China for 99 years on lease. In 2017, this port was handed over to the company for 1.12 billion dollars.
This port is presented as an example of how Sri Lanka is getting entangled in China’s debt and is forced to hand over the property related to its national and strategic importance to China.
It has become a common assumption that the amount of loan that Sri Lanka has taken from China for the construction of the Humbertta port will not be able to pay it, and that’s why the ownership of this port has gone into the hands of China.
Experts believe that it is merely a hallmark of China’s debt on Sri Lanka, in reality the situation has become much more horrific, many times more terrible.
Humbertta port a bad project
It is a fact that the Exim Bank of China has released funds for the construction of the Hambantota port. Given the barriers in Sri Lanka’s economy, this project was not told from the beginning as a sensible step.
In Sri Lanka, serious concerns were expressed about the need to build an additional international port. Especially if that fund is to be funded from other countries.
It is also clear that Sri Lanka could not earn enough money from Hambantota to pay Chinese debt, which is why Sri Lanka considered it better to hand over this port to China.
This situation is worrisome for Sri Lanka. Going to the hands of Hambantota port in China points towards a major economic crisis in Sri Lanka.
Why leased at Humbertta port?
The Sri Lankan government took loans from the years 2007 to 2016 for the construction of the Hambantota port. This whole loan was taken from Exim Bank.
There is a grace period of five years of grace for all types of debt and after 15 years there is a time limit for repaying the loan.
Because of this, the quantity of Hambantota’s debt has not been very large as Sri Lanka’s foreign debt.
The loan taken by Sri Lanka for the construction of the Hambantota port is approximately 5 percent of its total annual foreign debt.
Sri Lanka also decided to hand over Hambantota port to China, because Sri Lanka was unable to make proper balance in the payment of its foreign debt.
At the same time, the amount of foreign investment in Sri Lanka was also decreasing, due to which Sri Lankan planned to give Hambantota one way to China as foreign reserves.
Although the Hambantota port is now in the hands of the Chinese company, but still Sri Lanka has not been discharged from its debt, because in the agreement, the government had accepted that it will pay the debt.
The money that Sri Lanka has got from leasing this port to China has made it possible to strengthen its dollar collection.
But, why the dollar?
In fact, the foreign exchange reserves of any country are in the form of gold or dollars.
Great challenge from China’s challenge
The problem of Sri Lankan debt is not limited to China alone. It is also linked to changes in harmony with foreign debt.
Along with this, structural weakness in the economy, such as decrease in trade, increase in protectionism and the decrease in government revenue are huge.
By the end of the year 2017, only a little over 10 percent of the foreign debt in Sri Lanka was connected to China and it was mostly in the form of concessional debt.
Instead, the largest share of Sri Lankan foreign debt was in the form of international Sovereign bond. By 2017, this total foreign exchange accounted for 39 percent.
This is actually a commercial credit taken from the international market since 2007, and this bond has increased later as a strange form of foreign debt.
Like a loan taken at concessional rates, the loan is not given long term to repay the amount, and there is no option to repay the smallest amount.
When this Sovereign bond becomes maturity, then the amount of foreign debt of any country increases significantly.
The danger of increasing the amount of foreign loan payments is that it has to be paid in foreign currency. To keep it simple, all the countries do transactions in foreign currency and insist on FDI.
Sadly for Sri Lanka, FDI did not come in the right amount. On the contrary, the quantity of export in Sri Lanka has decreased in proportion to their GDP. This was 39 percent in 2000 but 21 percent in 2017.
According to this thought, they have to find an option to hand over Hambantota port to China.
Alongside this, there are reports that the Sri Lankan government is also considering leasing one of the world’s lowest airports in Mathtala Rajpaksha International Airport.
According to the reports, talks between Sri Lanka and the Indian government are also going on for this.
It was also taken from China for construction of this project and at that time it was also financially described as a poor investment.
Between 2008 and 2012, Sri Lanka has taken almost 60 percent of foreign lands from China.
India’s concern is growing in Sri Lanka?
By the way, in all the ongoing projects in Sri Lanka, China’s hands are involved somewhere. Despite this, Sri Lanka has taken the loan from the international market and at the financial rates, the Sri Lankan is facing the most difficult.
Sri Lanka will have to overcome their political challenges before settling down from this crisis and there will be stability in it, only then Sri Lanka will be able to look towards its economic landscape.