Sri Lanka signed a deal with creditor nations to restructure about $5.8 billion in bilateral debt, the office of the country's president said on Wednesday, in a move that would help stabilise its crisis-hit economy.

The deal brings the island nation closer to finalising a debt restructuring process, which started in September 2022 after its reserves hit their lowest levels and forced the country to default on its foreign debt for the first time in history.

The agreement, which covers a total of 17 countries, allows Sri Lanka to move forward with a $2.9 billion programme with the International Monetary Fund that is aimed at helping the island nation recover from its financial crisis.

The deal was signed by Sri Lankan officials in Paris with the Official Creditor Committee (OCC), which is co-chaired by Japan, India, and France.

"This agreement grants significant debt relief, allowing Sri Lanka to allocate funds to essential public services & secure concessional financing for its development needs," the president's media office said in a statement.

The country is also in the process of signing separate bilateral agreements with China EXIM Bank to restructure $4.2 billion of debt, State Minister of Finance Shehan Semasinghe said on social media platform X.

"I also commend the OCC Secretariat for their dedication to finding a resolution to our debt crisis and achieve this significant milestone, which will enhance confidence in our economy and foster growth," he said.

The island nation also needs to convince bondholders to restructure $12.5 billion in international bonds.

Sri Lanka's dollar-denominated bonds slipped as much as 0.4 cents to trade around 60 cents, Tradeweb data showed.

However, its international bonds have rallied over the past two months, adding around 5 cents, with a few trading at their strongest levels since late 2021.

President Ranil Wickremesinghe is scheduled to address the nation later in the day and is expected to give more updates on Sri Lanka's economy, his office said.

Japan, which has backed the swift implementation of debt restructuring to underpin Sri Lanka's economic recovery, emphasized the importance of comparable treatment by non-OCC official bilateral creditors and private creditors in the latest Paris Club annual report.

"For future cases, we should encourage all official bilateral creditors to be a member of an OCC to achieve comparable treatment in a transparent and swift manner," said Daiho Fujii, deputy vice minister for international affairs at Japan's Ministry of Finance. (Reporting by Uditha Jayasinghe and Karin Strohecker in London; editing by Sudipto Ganguly and Anil D'Silva)