Sri Lanka’s recovery from Cyclone Ditwah has opened a critical debate over how the country should finance large-scale reconstruction at a time of tight public finances. With damaged railways, roads and utilities demanding urgent attention, regulators and policymakers are increasingly looking to the capital market specifically infrastructure bondsas a way to bridge widening funding gaps.
The Securities and Exchange Commission (SEC) has confirmed discussions with the Ministry of Finance on mobilising long-term capital through infrastructure bonds to support post-cyclone rebuilding. The urgency is stark. Restoring damaged railway tracks alone is estimated to cost around Rs. 200 billion, a figure that far exceeds the Government’s immediate fiscal capacity. Against a backdrop of debt restructuring and constrained budgets, traditional Treasury funding is no longer sufficient.
Infrastructure bonds offer clear advantages. By tapping institutional investors such as pension funds, insurance companies and long-term savers, the State can spread reconstruction costs over time while avoiding heavy short-term budget pressure. Well-structured bonds can also improve transparency by linking funds to specific projects, reassuring investors that proceeds are ring-fenced for rebuilding efforts.
However, the approach is not without risks. Issuing large volumes of bonds could increase contingent liabilities if projects fail to generate expected economic returns. Poorly designed instruments may crowd out private sector credit or push up domestic interest rates. Investor appetite will also depend on confidence in governance, project selection and repayment capacity areas where Sri Lanka’s recent economic history has made markets cautious.
Beyond bonds, the SEC is examining broader capital market reforms to support development financing. One proposal under consideration is the listing of well-managed State-owned enterprises on the Colombo Stock Exchange (CSE), which could unlock equity capital while improving transparency and accountability. Yet such listings require strong political commitment and corporate governance reforms to succeed.
The cyclone has also highlighted structural weaknesses in Sri Lanka’s capital market. Fewer than 1% of citizens currently hold stock market accounts, and market capitalisation remains around 20% of GDP—far below regional peers. Without expanding investor participation and deepening the market, infrastructure bonds alone may struggle to attract sufficient demand.
As Sri Lanka charts its recovery path, infrastructure bonds could become a vital tool in turning disaster into an opportunity for modernisation. But success will hinge on credible frameworks, disciplined execution and restoring investor trust without which the cost of rebuilding could rise even further.
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