Jayasundara said the structure of the billion-dollar issue is being worked out and will be announced shortly.
"If the financial advisors tell us it is better to raise it all at once we will consider it," Jayasundera said.
LBO learns the Citi-managed 7-year issue bond issue would carry a six-month floating interest above the London Interbank Offered Rate or LIBOR.
Last December, Citigroup raised US$ 100 million for the government through a three-year syndicated loan priced at 95 basis points above LIBOR, though total issue costs may have been 125 bp above LIBOR.
Analysts believe the government may have to pay at least 150 basis points for the 2006 issue.
Sri Lanka's foray into the international capital markets comes after the island got its maiden sovereign rating last December, a first step in tapping the international bond market for bonds.
Fitch gave Sri Lanka a BB- rating while Standard and Poor's awarded a lower, B+ rating.
The government claims the proceeds from this issue, which is separate from the Sri Lanka Nation Building Bonds aimed at foreign resident citizens, will be used to fund infrastructure projects and improve the nation's balance sheet.
But analysts say the bulk of it may go to bridge the revenue account deficit and to repay maturing older debt.
Sri Lanka practices fiscal policies focused on directing vast amounts of resources towards subsidizing petroleum, power and fertilizer in addition to swelling an already bloated public sector with more workers, in a bid to reduce unemployment in the country.
In 2006 the government is projecting a 9.1 percent budget deficit, but it is a target that is usually observed in the breach. "We get about US$ 1.5 billion in concessionary aid each year, depending on the project requirement. But our per capita income is going up and then we dont become eligible for concessionary loans," explained Jayasundara.
But fiscal critics say the government is turning to international markets because a slowdown in economic reforms and policy reversals has robbed the government of bankable plans to attract cheap, donor program-loans.