S.Lanka targets $500 mln from diaspora for development

COLOMBO, Feb 2 (Reuters) - Sri Lanka hopes to raise $500 million from its citizens living abroad to invest in government securities for a raft of development projects, the central bank said on Monday, after it failed to get foreign commercial funds.

"We have a target of approximately around $500 million in the year from over 1.5 million Sri Lanka diaspora," Ajith Nivaard Cabraal, central bank governor told a news conference.

A global credit squeeze and rapidly worsening economic conditions worldwide are limiting many developing countries' options for external borrowing. The funds will be used for infrastructure projects such as express highways, new ports, new coal and hydro power plants and tourism zones with an aim to attract more private sector investments into the country, Cabraal said.

The central bank will maintain a separate sinking fund for the diaspora's investments in T-bills and T-bonds to boost the confidence of the investors and will facilitate withdrawals of investments when required, central bank officials said.

Investors can invest in any currency they are earning from where they live and withdraw in the same currency.

At present, returns on T-bills and T-bonds range from 15-19 percent, central bank data showed. But with rapid slowing inflation, yields on these securities have declined in the recent weeks.

The central bank will also assure investors that despite any depreciation in the Sri Lankan rupee, the net return will be higher than in most advanced economies.

"Imagine, in the worst case if the Sri Lankan rupee gets depreciated by around 10 percent, investors will still have a 5-7 percent net return, compared to 1.5-2 percent returns in other countries," said Arjuna Mohottala, assistant director of Economic Research Department at central bank.

Sri Lanka's latest external financing bid comes after it failed to attract international investors for a $300 syndicated loan announced in October 2008.

Sri Lanka's central bank sold a $500 million debut sovereign bond in Octover 2007 and raised up to $300 million from a syndicated loan in March 2008.

Sri Lanka opened its T-bill and T-bond market to foreigners in 2007, but $400 million of foreign investments were withdrawn in the latter part of last year as financial turmoil battered global markets.

Sri Lanka has opened 10 percent of its total outstanding total T-bond and T-bill markets to foreigners. Funds from Sri Lankans abroad will be included in that category. (Reporting by Shihar Aneez; Editing by Kim Coghill)