Sri Lanka signed a deal with Japan on Friday to restructure $2.5 billion in loans, marking the first agreement with official creditors who had pledged debt relief to the cash-strapped nation last year.

Japan said it was granting concessions on a ¥369.45 billion ($2.5 billion) loan under a comprehensive debt treatment plan, which the International Monetary Fund considers essential for Sri Lanka's economic recovery.

"The development of Sri Lanka, which is located at a strategic point in the Indian Ocean, is essential for the stability and prosperity of the entire Indo-Pacific region," the Japanese Foreign Ministry said in a statement.