Sri Lanka returns to domestic dollar debt market with new bond issuance for local banks

The government announced its return to the domestic dollar debt market with an offering of US$ 50 million in ‘Domestic Dollar Bonds’ (DDBs), marking a strategic shift from the previously used Sri Lanka Development Bonds (SLDBs). 

This issuance, scheduled for early December 2025, is the first of its kind under the new Public Debt Management Act No. 33 of 2024 and signals a cautious testing of domestic foreign currency appetite following the country’s economic stabilisation.

According to the offer documents released by the Public Debt Management Office (PDMO), the government aims to raise an initial US$ 50 million with an option to upsize by an additional three times based on favourable market response. The bonds are being offered in tenures of one, two, and three years, with a fixed interest rate to be determined through competitive bidding. 

The subscription window is set to open on 1 December and close on 3 December 2025, with the settlement date scheduled for 10 December. 

This new instrument replaces the Sri Lanka Development Bonds (SLDBs), which were the primary vehicle for raising foreign currency domestically prior to the economic crisis. 

A key distinction in this new issuance is the restricted investor base; unlike SLDBs, which were open to a broad range of investors including foreign citizens, non-resident Sri Lankans, and corporate bodies, the new DDBs are strictly limited to locally incorporated Licensed Commercial Banks. Branches of foreign banks incorporated outside Sri Lanka are explicitly excluded from investing.

The shift to DDBs follows a Cabinet decision in October 2025 to approve the issuance of domestic dollar bonds to absorb improved foreign exchange liquidity within the banking sector. By restricting the issuance to local banks, the government appears to be targeting the dollar deposits held within the domestic financial system rather than seeking fresh inflows from individual or foreign investors as was common with the SLDB model.

The PDMO has confirmed that both principal and interest payments will be made in US dollars, with the bonds serving as a direct, unconditional, and unsecured obligation of the issuer.