Thailand and Sri Lanka signed a Free Trade Agreement on Saturday, a move Sri Lanka hopes will help it emerge from its worst financial crisis in decades.

The island nation has been renewing a focus on trade deals to foster economic growth and help its battered economy, which is estimated by the World Bank to have contracted 3.8% last year, after a severe foreign exchange crunch plunged it into a wider financial crisis.

The Free Trade Agreement (FTA) is aimed at enhancing market opportunities, with negotiations covering various aspects such as Trade in Goods, Investment, Customs Procedure and Intellectual Property Rights, the short statement added.

A delegation headed by Thai Prime Minister Srettha Thavisin arrived in Colombo on Saturday to sign the FTA along with other agreements and Thavisin will also attend Sri Lanka's 76th Independence Day celebrations on Sunday.

"This will provide tremendous business opportunities for both sides. We encourage our private sectors to explore the potentials of two-way trade and investment," Prime Minister Thavisin told a joint media briefing following the signing.

The two countries also signed a new bilateral air services agreement, providing for liberalized air services between the two countries.

The countries' two-way trade was worth about $460 million in 2021, Sri Lankan central bank data shows. Sri Lanka exports mainly tea and precious stones to Thailand and imports electronic equipment, food, rubber, plastics and pharmaceuticals.