Sri Lanka has reached an agreement in principle with major bondholders to restructure approximately $12.5 billion of its international debt, a significant step as the country prepares for upcoming elections. The discussions, which took place between September 12 and September 18, involved nine members of the steering committee of the Ad Hoc Group of Bondholders, who control about 40% of the outstanding bonds, along with representatives from the Local Consortium of Sri Lanka (LCSL) and China Development Bank. The revised debt treatment introduces governance-linked bond features that could reduce repayment obligations based on the government meeting specific governance and anti-corruption targets. This agreement comes after a series of consultations with the International Monetary Fund and aims to align with Sri Lanka's IMF-supported program. The government must now present the proposal to all bondholders for final approval, marking a crucial step in the nation’s economic recovery following its historic debt default in May 2022.