China Could Play 'IMF Card' To Force Sri Lanka To Allow Its Spy Ship To Dock At Hambantota Port

Is Sri Lanka's decision against letting China dock its spy ship at Hambantota jeopardising Colombo's chances of securing a bailout from the International Monetary Fund (IMF)? There is a risk that it might, if China decides to use this card against Sri Lanka.

A report by The Economic Times states that India is receiving information which indicates that Beijing is playing this card in its conversations with Colombo.

What is Beijing's goal? It is to ensure that Colombo goes back on its decision to not allow its spy vessel to dock. Last week after India's protests, Colombo told Beijing to defer ship Yuang Wang's visit to Hambantota.

So, what is the leverage that China has? To secure a bailout package from IMF, Colombo needs an approval from principal creditors on IMF's Sri Lanka Debt Sustainability Assessment (DSA) report.

This report is rather negative on Sri Lanka, due to the island nation's current financial situation. As a result of this, it becomes necessary that the creditor countries, many of whom are on the IMF board, take a lenient view.

"Now, that's where the catch lies. IMF would not want that any package, if and when it materialises, goes into just servicing Sri Lanka's debts. As of now, Sri Lanka's public debt is 115 per cent of its GDP. Usually, according to World Bank and IMF, this should not cross to 60-65 per cent even for poorer countries. Over 40 per cent of the debt composition is external and there, four categories emerge - multilateral aid, private commercial credit, China and credit by Paris Club countries," reads the report.

It is crucial that these creditors agree to terms that allow the IMF package to be used for larger public benefit and economic revival instead of just servicing Lanka's debts.

So, it is important that many of these countries express a willingness to write off some of the loans or delay and restructure their payment schedules.

China is one of the largest creditors to Sri Lanka. Due to this fact, Beijing's consent becomes crucial for the IMF. Beijing can, if it chooses, throw a wrench in the process by dragging its feet, extending Lanka's economic plight.

Technically, India too can hold of its consent, as India is a major creditor to Lanka in the non-Paris club category. However, considering the fact that India was proactive in helping Lanka, it is unlikely India will go in the opposite direction.

What is worrying Colombo? Colombo's worry is that China may link Sri Lanka's message to defer the Yuan Wang 5's 'refueling stop' at Hambantota with the IMF approval process.

Beijing maintains that Yuan Wang is a research vessel and harbours no negative intent.

India disagrees. The government is concerned due to the fact that Yuang Wang is a designated Strategic Support Vessel, one that is used for satellite trackcking, among other things. "It tracks Chinese Inter Continental Ballistic Missiles and rockets once they lift off beyond their base station controls," according to news reports.

Moreover, the ship has capabilities to intercept signals intelligence in frequency bands used by India. India's assessment has been confirmed by US inputs as well.

The arrival of the vessel in Hambantota is not just an immediate threat, it also signifies the risk of Hambantota port being turned into an active Chinese military asset.

This standoff comes just after the US-China standoff over Nancy Pelosi's visit to Taiwan. Conventional wisdom suggests that it is not in China's interest to have multiple conflict points, but this case suggests that China now feels confident enough to simultaneously handle multiple conflict points.

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