Instead, a 70% share of the port was leased for 99 years to China Merchants Port Holdings Company Limited (CM Port) for $1.12 billion. However, this $1.12 billion was not used to pay off the debts received for the construction of the port. This large inflow of dollars has been used to strengthen the country`s foreign exchange reserves and to make short-term repayments of external debt. To be exact, it is fair to say that the money earned through the Hambantota port agreement has been widely used to cover balance-of-payments (BOP) problems resulting largely from the increase in the cost of debt servicing, while growth in Sri Lanka`s exports and FDI flows remains slow. As a result of the agreement, the port underwent some modifications and a terminal service agreement (TSA) was signed with NYK, a Japanese shipping company, making it the first roll-on-roll-off (RoRo) agreement between a Japanese shipping company and a Sri Lankan port. Subsequently, due to increased activity in the roro, bulk and cargo liquid sectors, the port reached its mt reference value for 2019. The Chinese government was quick to welcome the Sri Lankan president`s statement. In a statement, the Chinese embassy stressed that it respects Sri Lanka`s sovereignty and that the security of the port is in the hands of the Sri Lankan government and navy. However, in a meeting with foreign correspondents at the Colombo base, Rajapaksa said his government did not hope to change the trade conditions of the agreement and would only consider possible changes to the security of the port. This hypothesis, which identifies the economic risks that Sri Lanka faces in light of the revaluation relative to the average income status, is studied by several researchers who give an important insight into the debate.
Nilanthi Samaranayaka, in his analysis of China`s relations with South Asian countries, explains that a combination of factors – low levels of direct services and low revenues from exports and remittances – has caused difficulties in repaying dollar loans, which has influenced the decision to exchange the port for FDI. Dr. Dushni Weerakoon and Professor Sisira Jayasuriya also point out that Sri Lanka`s debt problem is not in China – successive Sri Lankan governments that, despite persistent budget and current account deficits, have been borrowed from international markets, leading to a vicious cycle of debt repayment. In an interesting turn of events, Sri Lanka`s new president, Gotabhaya Rajapaksa, expressed concern about the Hambantota port lease agreement with China, signed by the previous government in 2017. In his first-ever interview as newly elected president, Rajapaksa said he would take over the Hambantota port lease and renegotiate it. Rajapaksa`s comments have attracted interest from many, as the port agreement with Hambantota is still frequently cited to highlight China`s “debt trap” phenomenon. However, there are many myths about this port agreement, most of which have received little or no details. There were five loans (without a loan for a bunker project) from 2007 to 2014 to obtain the port under the leadership of Mahinda Rajapaksa, who now holds the post of Prime Minister.
Some of the loans were obtained at interest rates of up to 6 percent, while some were dealer loans. The total amount of these loans was $1.263 billion. Of these five loans, only two were granted at commercial interest rates with a total value of $357 million, indicating that the bulk of the loans for the Hambantota port project were granted. However, the loan repayment period was not long, resulting in higher credit rates after the additional time was closed. First, the Hambantota port agreement cannot be interpreted as an exchange of equity debt, or the Chinese who cancel the debt in exchange for control of the port, when this seems to be a well-established narrative. The Sri Lankan government is still required to repay five loans received from the Exim Bank of China for the construction of the port of