Sri Lanka will start issuing bonds in China in the coming months in a bid to raise up to $1 billion, the central bank governor said Tuesday, as the country faces a balance of payments crisis.

Arjuna Mahendran said funds raised in China's domestic market would be used to pay Chinese companies planning to build infrastructure projects on the island.

"We need to get a rating in the Chinese market and there is some due diligence work to be done," Mahendran, of the Central Bank of Sri Lanka, told reporters. "It will take about three months to complete."

Mahendran said he expects to raise between $500 million and $1 billion by issuing yuan bonds at around five percent interest on an annual basis.

"We are looking at five to 10 years. We can raise money in China at rates lower than through dollar bonds," he said.

Mahendran's announcement comes a day after the International Monetary Fund said it was on track to agree a bailout loan to Sri Lanka, which faces a spiralling debt crisis.

During an official visit last week to Beijing, Sri Lankan Prime Minister Ranil Wickremesinghe said he would seek to restructure some of the cash-strapped island's $8 billion Chinese debt.

Wickremesinghe announced legal reforms on Sunday to encourage much-needed foreign investment.

But the IMF said Sri Lanka must take further steps to remove "bottlenecks" to trade and investment and enhance access to finance.

During his trip, Wickremesinghe said he hoped to convert some of Sri Lanka's Chinese-loan burden into stakes in infrastructure projects including a second international airport.

After coming to power in January 2015, the government halted work on all Chinese-funded projects commissioned by the previous president Mahinda Rajapakse, pending probes into corruption and environmental concerns.

But earlier this year the government gave the go-ahead to a massive land reclamation project known as "Port City" in Colombo which is being built by the Chinese.

After his visit to Beijing, Wickremesinghe said the $1.4 billion project "is not a threat to anyone".

aj/tha/sm

BANK OF CHINA