Sri Lankan expert says interest rate of Chinese loan for port project appropriate
Posted on January 12th, 2017


COLOMBO, June 4 (Xinhua) — The interest rate of a Chinese loan to construct the Hambantota Port in southern Sri Lanka is appropriate and low, a leading financial expert said in respond to local media’s questioning of the loan.

The expert said the 15-year loan agreement of Hambantota Port Phase I was signed between the China EXIM Bank and Sri Lanka in October 2007. The total loan volume was 307 million U.S. dollars with a grace period of four years.

“At first, the Sri Lankan team tried to seek loans from banks from other countries. However, those banks had no interest in providing loans to a country which was facing a civil war. Then, the Sri Lanka side turned to Chinese banks and companies,” the expert said on condition of anonymity.

The Sri Lankan team did try to seek a preferential loan from China, he added, but the quota of China’s preferential loans then to Sri Lanka had been used for the Norochcholai Coal Power Plant and other projects.

“Given the importance to construct the Hambantota Port Phase I, the Sri Lankan delegation decided to ask for commercial loans. In fact, to get commercial loans as large as 300 million U.S. dollars during the war was not easy,” the expert said, referring to financial risks in the then civil war-stricken island nation.

The China EXIM Bank had given two options to Sri Lanka, one was the fixed rate at 6.3 percent, the other was the floating rate with the London Interbank Offered Rate (LIBOR), which was above 5 percent then with the trend to rise higher.

“The delegation thought the fixed option was more beneficial for Sri Lanka and chose the fixed rates option. One should note that the interest rate of the Treasury bill was 12-14 percent in 2007. Considering all the factors, the fixed rate at 6.3 percent was the best choice then,” the expert explained. “Anyone in that situation would make such a decision, and couldn’t predict the sudden international financial crisis and dramatic drop of LIBOR in 2008. It is unfair to judge the then decision based on the situation afterwards.”

The China EXIM Bank, the largest loan provider to Sri Lanka, has provided over 6 billion U.S. dollars to Sri Lanka. Some 77 percent of the loans are preferential loans, of which the interest rate is 2 percent per year. The remaining fund gap has been covered by commercial loans. Both these two types of loans have contributed a lot to the development of Sri Lanka, the expert noted.

6 Responses to “Sri Lankan expert says interest rate of Chinese loan for port project appropriate”

  1. NeelaMahaYoda Says:

    Financial resources provided by China as foreign assistance falls into three categories: Grants (gratis cash), interest-free loans and concessionary loans. The first two comes from China’s state finances while concessionary loans are provided by the Export-Import Bank of China (Exim Bank) as designated by the Chinese government. concessionary loans for commercial use should also pay an insurance premium issued by Chinese Sinosure, a state-owned insurance company protect the loan. That may be the reason why commercial loans has high interest rates.

    If the 1.332 billion USD loan is taken for 15 year repayment period, if you pay it back at a rate of 111million USD per year as MR says, then the interest rate I get from ( is only 3.1% including the insurance premium issued by Chinese Sinosure, a state-owned insurance company for import-export business.(Loan protection policy)

    Ranil knows that they are incompetent in handling a business venture, let alone the country’s economy, and that is why they are very keen on leasing out the Hambanthota harbour. Unfortunately the Country has to wait for another 99 years get it back.

  2. S.Gonsal Says:

    Who is the “leading financial expert ” ? Why no name ?

  3. Dilrook Says:


    The interest rate is 6.3% as the article says. Your calculation is correct for the Phase I in 2007 of $307 million, not the total. $111 million relates to the total loans. The article says the rest ($1.025 billion) was borrowed on commercial terms (and explains why to which I agree).

    As the article says 77% of $6 billon was preferential loans which means 23% of $6 billion were not. That is 23% x 6 = $1.38. This is the amount (very close) the new deal will eliminate. So we will be left with only preferential loans. A good deal in that regard.

    I agree it is the government’s incompetency that has led to this. They seem to have recognise their inability in managing the Southern Expressway extension as well. They are now borrowing $1.7 for that which is higher than the port cost! They are hiring a Chinese consultancy to project manage it for $90 million.

  4. aloy Says:

    Reference to Dilrooks’s last line.
    Only Chinese dare to match the ‘interest rates’ our fellows demand. No other company from anywhere else will want to talk with GOSL when they want to allocate more than $1 million per kilometer for management (supervision) alone. I and some colleagues of mine tried to get overseas consultants to lead with collaboration of those already in such expressways. This was during MR’s time. They are going ahead with Chinese/local combination now. Probably they should stop it as there are highways which are more than wide enough already to serve the area. This would reduce the so called debt burden that required the pawning of Humbantota port.

  5. aloy Says:

    These are all hush hush deals of SLFP/UNP governments that heaps uncalled for burden on Sr Lankans which ultimately lead to break up of country starting from Humbantota and not from North.

  6. Ananda-USA Says:

    The infrastructure developments (Hambantota Port, Colombo Port City, Matt ala Airport) under the MR/UPFA government would have generated good returns in due course. It takes a startup time for such large long-term infrastructure developments to become profitable.

    Besides, the Hambantota Port was already servicing container ships, as MR said in a video, and was cited in newspaper reports. Furthermore, the loans taken from Chine were well within the ability of the govt to service them, and the loan were quite affordable.

    It was the UNP that belittled these long term developments as “white elephants” and the Chinese loans as corrupt deals. That was to create the conditions necessary to implement the regime change.

    After the regime change was done, they had to go through the motions of ending the China deals they had demonized as corrupt to retsin their credibility and election promisrs. They could not do that without upsetting the delicate repayment arrangements by the previous MR/UPFA govt that made those large investments possible.

    The Yamapalanaya thought that mega-buck loans would come from the IMF and the WB, but they had guessed wrong, because those institutions are very risk averse, don’t have the investment funds that China does, and don’t have any real motivation to invest in Sri Lanka.

    As soon as they stopped the Chinese projects, and could not get funds to replace them, other foreign investors got nervous and pulled out their funds causing a large outflow of funds from SL causing the exchange rate to shoot up creating a balance of payments problem.

    That loss was compounded by the funds lost in the Bond Scam, and the wasteful consumption expenses of public employees salary increase promised brfote the election, large purchases of fleets of new vehicles to bribe all the Ministers and MP’s.

    As a result, the Yamapalanaya was trapped in a financial sinkhole of its own making, and could not service the Chinese loans without selling those assets at fire sale prices!

    In short, the Yamapalanaya missteps created the financial missteps, and not any intrinsic lack of viability of the infrastructure developments themselves!

    The desperate situation the Yapalanaya put itself into made them also backtrack on that they said about “white elephants” and begin to praise those very concepts and revive MR/UPFA govt plans for these tremendous national assets. Today, the Yamapalanaya has climes on the infrastructure bandwagon in a big way, but they don’t have they money to implement any of them except by selling the assets that already exist.

    In particular, there is absolutely no money to implememt Champika Tanawaka’s much ballyhooed Megalopolis Plan. They don’t even have money to collect and dispose of garbage, generate sufficient electricity or provide safe drinking water for the people! All of those things were not problems before the Yamapalanaya govt came into being.

    Last week there appeared a newspaper report that the Yamapalanaya was floating $1.5 billion Treasury Bonds, and was trying to float yet another $1.5 billion in loans, $3.0 billion in all!

    How is this bankrupt govt going to service what are effectively more loans? What more are they going to sell?

    These pea-brains don’t seem to have learned that the FIRST THING to do when you find yourself in a deep hole is to STOP DIGGING!

    The most LUDICROUS thing is, it seems that Ravi Karunanayake, the Finance Minister who presided over all these debacles, including the GREAT CENTRAL BANK ROBBERY, has received an “AWARD” as the “Best Banking Orofessional” in South Asia! The Tamil Diaspora must have arranged that stunt!

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