(Bloomberg) -- The Paris Club of creditors formally supports debt restructuring for Sri Lanka, bolstering the bankrupt nation’s efforts to unlock a $2.9 billion bailout from the International Monetary Fund, according to people familiar with the discussions.

The IMF received the assurance from the informal group — comprising mostly rich, western bilateral creditors — in recent days, according to the people who asked not to be identified because they didn’t have permission to speak publicly. One of them said that the Paris Club drafted a communique last week.

The IMF didn’t immediately respond to requests for comment.

The Paris Club’s backing clears another hurdle for Sri Lanka, which aims to get the IMF loan by the end of March. That would help to mend an economy that has fallen into recession amid sky-high inflation and elevated borrowing costs, and pave the way for further assistance. Sri Lanka still needs a similar assurance from China, which holds 52% of the nation’s bilateral debt, before the IMF board can approve the loan program. Talks with Beijing are ongoing, one of the people said. 

India — one of the island’s other major bilateral creditors — gave its assurances last month, saying it hoped the endorsement would “clear the way for Sri Lanka to move forward,” and ensure equal treatment.

Debt negotiations have dragged on since Sri Lanka defaulted in May, with creditors bickering on the size of losses they are willing to accept and whether local debt should be included in the restructuring. 

In a bid to expedite the process, Sri Lanka’s government is said to have considered including a special clause in its debt-restructuring proposal to assuage doubts among other creditor nations that China could be offered better terms. 

“As the largest bilateral creditor of Sri Lanka, we expect that China will provide credible and specific debt assurances regarding its readiness to join the rest of us in the IMF standards regarding debt restructure,” Victoria Nuland, the US undersecretary for political affairs at the Department of State, said during a visit to Colombo on Feb. 1.

--With assistance from Asantha Sirimanne.

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