COLOMBO, Nov 26, 2024 (BSS/AFP) - Sri Lanka said Tuesday it would honour a deal secured by its predecessor to restructure $12.55 billion in international sovereign bonds, a key condition to maintain an IMF bailout loan.

The leftist government of President Anura Kumara Dissanayake, who came to power two days after the bond deal was announced in September, said it will implement the restructuring immediately.

A majority of private creditors of the South Asian nation agreed two months ago to a 27 percent haircut on their loans, but it needed approval of the new administration.

Dissanayake's National People's Power (NPP) party had criticised the restructuring as being unfavourable to the impoverished nation and vowed to renegotiate after coming to power.

However, since Dissanayake's party went onto win a landslide at November 14 parliamentary elections he has made a U-turn, saying the recovery was too fragile to make any changes.

"We extend our gratitude to our external creditors, the IMF and the Official Creditor Committee (OCC) for the good faith negotiations that have enabled us to reach this point," Dissanayake said in a statement also referring to bilateral lenders.

Sri Lanka declared a sovereign default on its external debt in April 2022 after running out of foreign exchange to pay for essential imports such as food, fuel and medicines.

The shortages led to months of street protests that forced then president Gotabaya Rajapaksa to step down.

The central bank had expected a debt restructure within a few months, but talks had dragged for more than two years.

International Sovereign Bonds account for just over $12.5 billion of the island's foreign debt, which stood at $46 billion during Sri Lanka's default in 2022.

As part of the deal agreed in September and ratified Tuesday, bondholders will also take an 11-percent haircut on overdue interest payments accumulated since the default.

Sri Lanka secured a $2.9-billion bailout from the IMF in 2023 after doubling taxes, withdrawing energy subsidies and raising prices of essentials to shore up state revenue.

The IMF announced over the weekend that Dissanayake's government had agreed to press ahead with the bailout programme that involves tough austerity and economic reforms.