"Some of the concessional loans we got in the 1980's have now become costlier due to currency movements. Japan is good example, what we have borrowed in the past is expensive as the Japanese Yen has appreciated," Jayasundera told businessmen at a forum organized by the Federation of Chambers of Commerce and Industries of Sri Lanka.
In the future, Jayasundera says, the country will receive less concessional aid from international lenders due to rising per capita income, which was around $1,191 in 2005.
The government is in the process of finalising plans for a sovereign bond issue this year, which will carry a maturity period of seven years or more.
"We want to see if we can test the market by tapping money for a ten-year issue at reasonably low rates of interest," he said, adding that details are being finalised with the help of Citibank, who will raise the money on behalf of the government.
Bilateral and multilateral loans come at about 1-2 percent interest and a quarter percent commitment fee, with payback periods stretching to 20 or 30 years.
Sri Lanka's public at Rs2,150 billion (US$21 billion), is around 100 percent of GDP and about half Rs927 billion (US$9 billion), is foreign.
But the long-term concessionary nature of the external debt has allowed the country to keep repayment levels low, to just over 10 percent of external receipts.
Critics say a large, 7 or 10-year billion dollar commercial bond issue costing around 7 percent or more, with the added burden of having to make a bullet repayment, may substantially alter the country’s external debt profile for the worse.
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 international markets for money.
Fitch gave Sri Lanka a BB- rating while Standard & Poor's awarded a lower, B+ rating.
Sri Lanka is also taking a serious look at foreign loans borrowed on behalf of the private sector, which are currently giving low returns on investment.
"The US$40 million loan for private sector plantation development is lying idle at DFCC Bank now. We have identified several other projects of similar status and talk to donors to re-allocate them to other sectors which give us high returns on investment," he added.
-Mel Gunasekera: mel@vanguardlk.com