Default from the perspective of victim : The Case of Sri Lanka’s Hambantota Port

Abstract

The IMF and World Bank emphasize that countries seeking external loans should conduct detailed assessments of their ability to repay these loans. The case of Hambantota Port in Sri Lanka highlights a lack of such assessments before securing loans from China, leading to the country defaulting in 2017. The Responsible Sovereign Lending and Borrowing Concept by Buccheti and Gulati is used to analyze this issue, focusing on realistic assessment, honesty, inheritance to future generations, and pre-disbursement diligence. The absence of a realistic assessment is evident in Sri Lanka’s debt-to-GDP ratio preceding the loan agreement in 2007, indicating a lack of consideration for repayment capabilities. Transparency issues arose, revealing corruption and violations in economic activities, especially concerning the Hambantota Port Project. Despite defaulting, Sri Lanka still grapples with economic challenges and debt repayment struggles, burdening future generations. Concerning pre-disbursement diligence, the project exacerbated environmental and human rights impacts. Thousands were evicted, habitats like Sri Lanka’s lagoon were harmed, and rare wildlife suffered due to the port’s construction. This reflects irresponsible lending and borrowing practices. In close, the Hambantota Port loans lacked critical assessments, transparency, consideration for future generations, and due diligence.