By Libby George, Karin Strohecker and Uditha Jayasinghe LONDON (Reuters) -Sri Lanka reached a draft deal with creditors to restructure $12.5 billion of international bonds, it said on Thursday, in a major boost to the island nation's fragile recovery just two days before its presidential election.

Cash-strapped Sri Lanka will vote for its next president Saturday in an effective referendum on an unpopular International Monetary Fund austerity plan enacted after the island nation's unprecedented financial crisis.

Sri Lanka’s upcoming presidential election has become a referendum on a $3 billion International Monetary Fund loan program that has helped to pull the island nation out of its worst economic crisis since independence.

Two of the leading presidential contenders, opposition leader Sajith Premadasa and Marxist-leaning parliamentarian Anura Kumara Dissanayake, have expressed interest in reworking Sri Lanka's $2.9 billion International Monetary Fund bailout.

President Ranil Wickremesinghe charted a path for Sri Lanka out of its worst financial crisis in decades, but the austerity measures that were key to this recovery may hinder his bid to return to his job in Saturday's presidential election.

Sri Lanka said it’s reached an agreement in principle with bondholders to restructure about $12.6 billion in bonds, just two days before the country heads to elections that have rattled investors.