ECONOMYNEXT – Sri Lanka’s Securities and Exchange Commission is exploring possibilities of introducing infrastructure and Municipal Bonds, its chairman said, to replace government funding for projects like roads, railway networks, and other key constructions which have been funded by the government.
Sri Lanka’s central government still allocates a significant amount of its budget for public investments across the country.
However, with the last month Ditwah devastation, the island nation is compelled to explore alternatives to rebuild the country’s destroyed infrastructure.
“I have already put up a proposal on Infrastructure bonds. I will also be going towards introducing Municipal Bonds as well,” SEC Chairman D.B.P.H. Hareendra Dissabandara told reporters on Monday (29) on the sideline of a SEC event.
The plan is to choose the Municipal Councils (MS) which have financial discipline and SEC is in the process of starting a dialogue with a few selected MCs to introduce the new bonds, he said.
The funds from the bonds will be raised based on project by project basis while small investors will be given an opportunity to invest in the new investment tool, Dissabandara said.
Infrastructure bonds and municipal bonds are financial instruments designed to fund large-scale public projects by raising capital from investors.
Infrastructure bonds typically issued by governments or development banks for national initiatives like roads, railways, airports, and energy infrastructure, while municipal bonds are floated by local authorities for urban developments such as water systems, waste management, and public transport.
Infrastructure bonds work by offering fixed or variable interest rates over long tenors (often 10-30 years), backed by government guarantees or project revenues, attracting institutional investors like pension funds through tax incentives or concessional terms.
Municipal bonds operate similarly but rely on local tax revenues or user fees for repayment, fostering decentralized financing and reducing central government burden.
In Sri Lanka, introducing these bonds faces significant hurdles, including a fragile post-2022 economic crisis environment with high sovereign debt, making investor confidence low amid macroeconomic uncertainties and inflation risks.
Regulatory frameworks are underdeveloped, as highlighted in the World Bank’s 2019 Infrastructure Financing report, which notes weak public-private partnership structures and limited market depth for bond issuance.
Post-Cyclone Ditwah in 2025, while the SEC proposed infrastructure bonds to accelerate recovery, challenges persist due to potential for abuse in opaque governance-linked instruments, fears of cronyism in project allocation, and inadequate credit ratings for municipalities, deterring international buyers.
Speculations arise that without robust safeguards, these could exacerbate debt traps or enable political favouritism, as seen in some past projects, while broad definitions in related laws risk stifling dissent under anti-terror pretexts. (Colombo/December 30/2025)