"We don't need the money. But there are some patriotic people out there who want to share in the nation building process," Treasury Secretary P B Jayasundara told reporters.
"A lot of Sri Lankans working abroad have expressed their desire to have their savings in foreign currency denominated bonds," he said.
Pressed by mediamen, Jayasundera could not name a specific development project where the money would go.
But he said the government had lined up a number of donor-funded projects and the money can go toward providing counterparty funds.
State-run Bank of Ceylon will lead manage the issue, with Deutsche Bank AG acting as custodians.
To kick off the process, Jayasundara said the government would start with a smaller US$25million tranche and raise the balance, depending on the appetite and the state's requirements.
Minimum subscription for the five-year scripless issue starts at US$500, Sterling Pounds 250 or Euro 500.
Last December, Fitch Ratings assigned a speculative BB- sovereign rating to the country while Standard & Poor's gave a lower B+ rating.
But the patriotic bond carries a six-month floating rate of interest pegged to US treasuries or equivalent in British or German government securities, which are all AAA rated countries.
A statement from the Central Bank said the dollar denominated bonds would carry a rate of 4.45 percent, sterling denominated ones 4.28 percent and Euro at 3.23 percent, based on current rates.
The government may have to pay up to LIBOR plus 150 basis points or more (4.7+1.5 percent) on up to a billion dollars of bonds marketed by Citibank.
Late last year the government paid LIBOR plus 95 basis points on a US$100million syndicated loan structured by Citibank.
But Jayasundera defended the move to pay lower rates to patriots.
"The government has to find money from different sources at the lowest rates," Jayasundera said.
He also pointed out that the reconstruction bonds paid a higher rate than foreign currency accounts of commercial banks, where most overseas resident workers parked funds.
"We are not targetting sophiticated investors, simply small time savers," Jayasundara explained.
But buyers get other sweeteners such as duty waivers on imported vehicles, up to 1/5 of the value invested.
Sri Lankan diplomatic missions abroad will be used to market the instrument with roadshows lined up in the Middle East, Singapore, Australia and South Korea, Central Bank's Deputy Governor W A Wijewardene said.
Nearly a million Sri Lankans who live and work overseas, who remitted around US$1.7billion to the island last year.