Despite Sri Lanka touting the approval of the IMF loan as a resounding vote of confidence in Sri Lanka and some Sri Lanka and India based analysts projecting it as a boost for investor confidence, there has been no significant investment flow into the country according to market watchers.

Following the approval of the US dollars 2.5 billion stand by loan by the International Monetary Fund (IMF), the largest amount of resources ever given to Sri Lanka by the global financial institution, Minister of Export Development and International Trade Prof. G.L. Peiris touted it as a clear indication of the IMF’s confidence in the government’s economic management capabilities and predicted ‘very considerable advantages to Sri Lanka’.

Joining the Sri lankan government in painting a rosy picture were UK-based banks HSBC and Standard Chartered. Both gushed about the IMF loan, without any reference to ongoing internment of Tamils  or the gross human rights abuses the Sri Lankan government has committed.

The IMF loan "is a significant positive for Sri Lanka’s external liquidity position and should further boost sentiment toward the country," Standard Chartered’s Mumbai-based analyst Priyanka Chakravarty wrote in a research report.

"It is noteworthy that the final IMF loan amount is appreciably higher than originally discussed."

Nick Nicolaou, chief executive officer of HSBC Sri Lanka, pitched that "the IMF endorsement provides confidence to overseas investors... Sri Lanka has an excellent story to tell."

However, in reality the IMF loan has not helped Sri Lankan attract investors as it had hoped.

Traders say foreign funds were waiting to see the government's approach in attracting investors from western countries as Sri Lanka's relations with the West took a hit in the closing months of the war and immediately afterward.

"Investor sentiment was low," said Prashan Fernando, executive director at Acuity Stockbrokers.

"Foreign investors are not stepping in as expected. They might be waiting to see the full impact of IMF loan conditions on the exchange rate."

Analysts said despite the central bank's maintaining of a steady exchange rate, foreign investors are still not convinced it will prevent gradual depreciation of the rupee.

IMF approved the loan On July 24 to help the country weather the global financial crisis and build up its low reserves, while rebuilding the north after a 25-year civil war.

With no significant invest flow, Sri Lanka is considering a $500 million sovereign bond issue among possible fundraising options.

"We are considering several options, one of which could be a $500 million bond, it could be a syndicated loan, it could be an extension of the bills and bonds that we have already opened out for foreigners," , central bank governor Ajith Nivard Cabraal told Reuters.