Sri Lanka to open up Chinese-backed 'Port City', offer tax breaks

A mega Chinese real-estate development in Sri Lanka will open early next year offering tax concessions to attract investors and revive the struggling economy, the government said Tuesday in its first budget.

Colombo Port City -- a $1.4 billion land reclamation project beside the capital's port which started in 2014 -- has doubled the size of Sri Lanka's current financial district.

The development -- the largest single foreign investment in Sri Lanka so far -- is one of several massive Asian infrastructure projects funded by China as Beijing increases its footprint in the region.

With Sri Lanka's economy reeling from last year's Easter Sunday suicide bombings and the coronavirus pandemic and lockdowns, the recently elected government led by the Rajapaksa brothers is hoping the development will attract new investment to the country.

"I expect to present to parliament a new legal framework conducive to promote commercial services and investment in this Special Economic Zone in January," Prime Minister Mahinda Rajapaksa, who is also the finance minister, told parliament in his budget address.

He said the Port City -- an area of 269 hectares (665 acres) reclaimed from the Indian Ocean -- will offer tax concessions to attract trade, banking and foreign exchange transactions.

He did not give further details.

"We believe that the Colombo Port City will become a prime choice for investors and business community due to the business and investor-friendly legal framework," he added.

The government is set to build roads and set up electricity and water supplies as it tries to attract commercial property developers.

Under Rajapaksa's leadership when he was president between 2005-15, Sri Lanka borrowed billions of dollars from China, accumulating a mountain of debt. Some of the infrastructure became white elephants.

The country had also handed a 99-year lease to China for its Hambantota deep-sea port because it could not repay loans to Beijing for the harbour in the island's south.

The Rajapaksas have denied that such projects could become hidden debt traps.

Sri Lanka's pandemic-hit economy is expected to contract by 5.5 per cent this year, according to the Asian Development Bank.

Rajapaksa did not reveal a growth estimate in the budget but said he was hopeful of a 5.5 per cent expansion next year.

International rating agencies have downgraded the country's credit worthiness as foreign reserves fell sharply. A fresh wave of lockdowns was introduced recently after a bout of new cases.