Sri Lanka is considering tapping the international capital markets for about $300m to help rebuild its shattered economy.

This would be the country's first foray into the markets since it agreed a ceasefire with separatist Tamil Tiger rebels last year.

Two decades of internal strife had pretty much blocked the country's route to external financing.

But with peace talks set to take place later this month in Thailand, the country appears to be back in favour with international lenders.

Earlier this week, the World Bank and United Nations promised Sri Lanka $65m (�42m) in aid to rebuild the war-ravaged north east of the country.

The cash-strapped country has also borrowed $266m from the International Monetary Fund (IMF).

Any money that Sri Lanka manages to raise on the markets from investors would likely go to cleaning up the country's two state banks, re-structuring state companies and re-building infrastructure.

Reassuring investors

The country is also talking to the international ratings agency Fitch IBCA about obtaining a sovereign rating.

Such a rating would be almost essential if the country decides to issue a bond to borrow money from international investors. A rating is an indicator of how creditworthy a borrower is and should reassure investors as to Sri Lanka's ability to repay its debts.

"It would be very difficult to do it without a rating," Brian Coulton, Fitch's senior director in Hong Kong, told BBC News Online.

He added that a rating will make investors feel more confident.

Sri Lanka is also believed to be considering a syndicated loan from a group of banks, including JP Morgan Chase, Salomon Smith Barney, Goldman Sachs, HSBC and Standard Chartered Bank.

A bank loan would not be so dependent upon Sri Lanka having a rating because the smaller number of investors involved would be able to do their own homework.

Back on track

Sri Lanka's economic policy went off track last year, as security concerns intensified following a terrorist attack on the country's sole international airport.

The country's gross domestic product (GDP) contracted by 1.4% last year from an expansion of 6% in 2000.

However, the country's involvement with the World Bank and the IMF should "send a good signal in terms of reform commitment", said Fitch's Mr Coulton.

The agency is believed to be considering a rating of between B+ and BB+, below investment grade and similar to India's rating.

Too much debt?

Fitch - which will look to establish how creditworthy Sri Lanka is - is looking at the country's deficit, which rose to 11% of GDP last year - several percentage points above the government's target - as well its debt situation.

The government's total debt is up from 97% of GDP in 2000 to 103% in 2001.

"That is a high level for a country with Sri Lanka's income," said Mr Coulton.

External government debt of $10bn - money owed to investors outside the country - is about 50% of GDP.

"But a lot of the debt is owed to multilateral and bilateral lenders and has been lent on fairly generous terms," said Mr Coulton.

"So the servicing burden is not so bad."

However, Fitch will be watching the government's policy-making and the peace talks quite closely.

"Clearly putting the economy back on track and looking at their capacity to do that is important," said Mr Coulton.