Sri Lanka struck an in-principle deal with a committee of official creditors, including India and the Paris Club, to restructure about $5.9 billion of its debt, a key step toward the nation’s efforts to recover from an unprecedented economic crisis.

The agreement will cover a mix of long-term maturity extension and reduction in interest rate, the nation’s ministry of finance said in a statement Wednesday. “Sri Lanka now intends to focus its efforts on reaching comparable debt restructuring agreements with external commercial creditors, and in particular with its holders of international sovereign bonds.”

The breakthrough is key for keeping the IMF program on track, with the nation winning initial approval for a $330 million payout in October. Sri Lanka reached a tentative agreement with the Export-Import Bank of China to restructure $4.2 billion of debt last month and is in discussions on a proposal submitted by its commercial creditors.

The move comes after the South Asian nation in September also restructured about $10 billion of local debt. The official creditors committee had delayed its proposal until it could review the Chinese deal.

After today’s agreement, “the next steps will include finalizing similar agreements with our remaining official bilateral creditors, including Saudi Arabia, Pakistan, Kuwait and Iran, altogether representing a further $274 million of outstanding claims,” the finance ministry said in a statement.

Sri Lanka defaulted on its overseas debt for the first time in May last year as soaring food and oil prices during the pandemic depleted its dollar stockpile. While inflation has dramatically cooled and reserves have inched up to $3.6 billion in October, the nation needs the IMF loan to bolster its recovery after falling into a deep recession in 2022.

Central Bank Governor Nandalal Weerasinghe had said an official creditor proposal would pave the way for IMF board approval before the end of the year. China, which is Sri Lanka’s biggest bilateral lender, has an observer status on the official creditors committee.

Sri Lanka 2030 dollar bonds were up 1.7 cents to about 50 cents on the dollar according to indicative pricing compiled by Bloomberg. Bonds maturing in 2023 were up about 1.8 cents to 52 cents on the dollar, with both notes climbing the most since mid-October.

“We expect the bond complex to trade firm, the news is positive.” said Avanti Save, credit strategist at Barclays Plc. “The government is keen to keep inter-creditor comparability.”

--With assistance from Asantha Sirimanne, Karl Lester M. Yap, Anusha Ondaatjie and Malavika Kaur Makol.

(Updates with debt size in first paragraph)