Sri Lanka has accepted offers to exchange about $10 billion worth of defaulted local debt for new bonds, the Finance Ministry said on Tuesday, taking it a step towards meeting debt restructuring requirements ahead of an International Monetary Fund (IMF) review.

Sri Lanka has been battling its worst financial crisis in more than seven decades after its foreign exchange reserves depleted to record lows and forced the island to default on its debts in May 2022.

The bonds, largely from superannuated funds, were eligible for exchange under a domestic debt restructuring program announced by Sri Lanka in June.

A total of 3.2 trillion rupees of the 8.7 trillion rupees in bonds eligible for exchange were accepted, the Finance Ministry said in a statement. The settlement date of the exchange has been set at Sept. 14.

"The success of the Invitation to Exchange will enable the Republic to reduce Gross Financing Needs (GFN) over the next 10 years, thereby contributing to achieving the Republic's GFN target agreed in the context of the current IMF-supported programme," the statement added.

A delegation from the IMF will arrive in Colombo on Thursday to start the evaluation process for the first review of the $2.6 billion four-year program which Sri Lanka secured in March.

Under the IMF program Sri Lanka has set a target of restructuring its debt for the next 10 years and reducing its debt-to-GDP ratio from the current 120% to about 95% by 2032.

However, Sri Lanka still needs to complete talks with key bilateral creditors, including Japan, China and India, before it can take the next step to restructure its debt. (Reporting by Uditha Jayasinghe; Editing by David Holmes)