Sri Lanka is optimistic about reaching an agreement soon with bondholders to restructure about US$12 billion in debt, a top official said on Monday (Apr 1), a big step that will help the island nation emerge from its worst financial crisis in decades.

China, the world’s and Sri Lanka’s biggest sovereign creditor, pledged to support the island nation to take forward its debt restructuring plan during Sri Lankan Prime Minister Dinesh Gunawardena’s visit to Beijing last month.

Sri Lanka held talks with bondholders in London last week.

“We are optimistic we will come out with a positive outcome,” State Finance Minister Shehan Semasinghe said, without elaborating on the details of the negotiations.

Sri Lanka defaulted on its overseas debt in May 2022 after a severe shortage of foreign exchange reserves triggered the worst financial crisis since independence from Britain in 1948.

The Indian Ocean island nation eventually secured an agreement in principle with China, India and the Paris Club nations last November and now needs agreements with each of the bilateral creditors – a key condition in its bailout package from the International Monetary Fund (IMF).

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Sri Lanka secured a US$2.9 billion bailout from the IMF in March last year, helping it temper inflation, increase state revenue and rebuild foreign exchange reserves.

The IMF programme helped Sri Lanka’s economy to slowly stabilise and it is expected to return to growth this year after contracting 2.3 per cent in 2023.

Semasinghe said he was confident Sri Lanka’s growth will be over 2 per cent in 2024. REUTERS