Sri Lanka plans to sell $275 million of dollar-denominated bonds locally this month to pay for maturing debt, three months after failing to raise a targeted $100 million from a debt issue.

The South Asian nation will issue $175 million of two-year debt and $100 million of three-year paper, the Central Bank of Sri Lanka said on its website today. Subscriptions for the so- called development bonds, which will pay a margin over the six- month London interbank offered rate, close on June 18.

“Looking at the liquidity situation, I expect favorable rates,” C.J.P. Siriwardena, head of the central bank’s public debt, said in a telephone interview. “We want to extend the yield curve and maturity structure.”

President Mahinda Rajapaksa, who was re-elected to a six- year term in January, has pledged to spend $1 billion on ports, roads and power plants this year to help drive economic growth to as much as 7 percent.

The government is targeting a budget deficit of 7.5 percent of gross domestic product in 2010, compared with an actual shortfall of 9.7 percent last year. The International Monetary Fund set a deficit target of 6 percent for this year when it granted a $2.6 billion emergency loan in July 2009 to help the nation tide over a foreign-exchange crisis.

Sri Lanka may find it “challenging” to meet this year’s budget-deficit target as the government steps up spending to rebuild infrastructure after the end of a three-decade-long civil war, central bank Governor Nivard Cabraal said on Feb. 9.

The nation raised $92 million by selling development bonds in March. The government sold $37 million of two-year bonds at a weighted-average yield of 380 basis points above Libor and $55 million of three-year debt 395 basis points over Libor. A basis point is 0.01 percentage point.

Source-Bloomberg