July 3 (Reuters) -
Sri Lanka has secured a deal to move forward on restructuring about $12.5 billion of international debt, the government said on Wednesday, a major step in the island nation's fragile recovery from a severe financial crisis.
The South Asian country defaulted for the first time on its foreign debt in May 2022 after its economy was driven to the brink by a slump in foreign exchange reserves.
Restructuring international bonds was one of the key conditions set by the International Monetary Fund (IMF) under a $2.9 billion bailout program that helped Sri Lanka tame inflation, stabilize its currency, and improve public finances.
The latest agreement comes after Sri Lanka held a second round of formal talks with bondholders this week.
"Sri Lanka ... looks forward to further constructive interaction to finalize the ISB (International Sovereign Bonds) restructuring," the government said in a regulatory statement.
The deal with selected bondholders, who cover about 50% of Sri Lanka's bonds, is contingent on confirmation by the Official Creditor Committee made up of bilateral creditors and the IMF to ensure it is in line with the global lender's debt sustainability analysis for the country.
The bondholder group and the IMF did not immediately respond to a request for comment.
Sri Lanka in late June signed an agreement with creditor nations including Japan, India and China to restructure about
$10 billion
in bilateral debt.
Sri Lanka now needs to present the proposal to all its bondholders who need to agree to the deal for the restructuring to be finalized.
The country, whose total external debt is $37 billion, also has to finalize arrangements with China Development Bank to restructure debt of $2.2 billion, according to the latest finance ministry data. (Reporting by Uditha Jayasinghe in Colombo and Pushkala Aripaka in Bengaluru; Editing by Devika Syamnath and Chris Reese)
