China-Sri Lanka port deal helps Sri Lanka boost forex reserves, attracts more investments

Sri Lanka's deal with China to develop the Hambantota Port in southern Sri Lanka will boost Sri Lanka's foreign-exchange reserves and help bolster investors confidence, rating agency Moody's said on July 31.

Moody's said in its latest report that earnings from the Hambantota Port stake sale will feed into the Sri Lankan central bank's foreign-exchange reserves, which will help bolster investors confidence and encourage future portfolio inflows.

"Importantly, the sale will allow the government to set aside earnings to repay its upcoming debt maturities and reduce its external debt, a key constraint on Sri Lanka's credit quality," it added.

The rating agency noted that the development of the broader Hambantota Port area will help bring in foreign direct investment into Sri Lanka, especially from China.

The buildup of associated infrastructure surrounding the port also can help attract greater private-sector investments, and this, together with other ongoing development projects, will provide a stable source of financing for Sri Lanka and support its economic growth, according to Moody's.

China Merchants Port Holdings and the Sri Lanka Ports Authority signed an agreement in Colombo on July 29 to develop the Hambantota Port. Under the deal, the Chinese side will hold a 70 percent stake in two joint ventures to be launched to take charge of the commercial and administrative management operations of the port respectively.

After 10 years, the Sri Lankan side will gradually purchase an additional 20 percent stake, resulting in the two sides owning an equal share of 50 percent each, according to the agreement.