Debt-stricken Sri Lanka signs a free trade pact with Thailand

In this Handout photograph released by the Sri Lanka President's Office HO, Sri Lankan President Ranil Wickremesinghe, second right, poses for a photograph with Thai Prime Minister Srettha Thavisin at the presidential secretariat in Colombo, Sri Lanka, Saturday, Feb. 3, 2024. (Sri Lanka President's Office HO via AP)

In this Handout photograph released by the Sri Lanka President's Office HO, Sri Lankan President Ranil Wickremesinghe, right, receives Thai Prime Minister Srettha Thavisin at the presidential secretariat in Colombo, Sri Lanka, Saturday, Feb. 3, 2024. (Sri Lanka President's Office HO via AP)

COLOMBO, Sri Lanka (AP) — Debt-stricken Sri Lanka signed a trade pact with Thailand on Saturday in a bid to boost trade and investment as the Indian ocean island nation is struggling to recover from its worst economic crisis that hit two year ago.

The Sri Lanka Thailand Free Trade Agreement covering trade in goods, investment, custom procedures and intellectual property rights was signed in the capital Colombo in the presence of Sri Lanka President Ranil Wickremesinghe and Thai Prime Minister Srettha Thavisin.

Sri Lanka began talks with Thailand on a free trade agreement in 2016.

The countries’ two-way trade was worth about $352 million in 2022, with Thailand's exports at $292 million and Sri Lanka’s exports at $58 million, according to Sri Lankan government’s data.

Sri Lanka exports include mainly precious stones, apparel, tea and spices while exports from Thailand include smoked rubber sheets, natural rubber, plastic and cement. Sri Lanka's government expects the trade pact would boost two-way trade up to $1.5 billion.

Thavisin said that the countries agreed to promote investment in areas such as fisheries, food processing, tourism and green energy. Thailand has made over $92 million in direct investment in Sri Lanka from 2005 to 2022.

Giving further boost to tourism, Thavisin said that Thailand's flag carrier Thai Airways would resume daily flights from Bangkok to Sri Lanka next month.

Sri Lanka has been struggling with an economic crisis since declaring bankruptcy in April 2022 with more than $83 billion in debt, more than half of it to foreign creditors. The crisis led to protests that ousted then-President Gotabaya Rajapaksa.

Severe shortages of food, fuel and medicine have largely abated over the past year under Wickremesinghe. But public dissatisfaction has grown over the government’s effort to increase revenue by raising electricity bills and imposing heavy new income taxes on professionals and businesses. The International Monetary Fund approved a four-year bailout program last March to help the South Asian country.

Sri Lanka is hoping to restructure $17 billion of its outstanding debt and has already reached agreements with some of its external creditors.

Calling the agreement “a milestone in the economic partnership” between the two countries, Wickremesinghe said Sri Lanka has made “significant progress in economic stabilization” since the crisis erupted.

“As Sri Lanka begins to stabilise its economy and regain international confidence towards recovery and growth, we are looking at Thailand’s support as Sri Lanka undertakes this very important journey of economic transformation and integration with Asia,” Wickremesinghe said.

He also said the free trade agreement was Sri Lanka's second with an ASEAN country, after Singapore. Sri Lanka is also in talks with neighbouring India and China on trade agreements.