New Zealand and Sri Lanka are to progress discussions on trade and investment, which could include a Free Trade Agreement.
The Trade Minister, Todd McClay, met with Sri Lanka's Prime Minister, Ranil Wickremesinghe, at the World Economic Forum in Switzerland overnight.
Mr McClay said Sri Lanka and New Zealand are complementary economies with potential for greater trade both ways.
He said Mr Wickremesinghe had agreed to open a diplomatic post in New Zealand and New Zealand is doing the same in Sri Lanka.
Officials in both countries were instructed to consider how New Zealand and Sri Lanka can grow their economic relationship through a trade arrangement.
Two-way trade between New Zealand and Sri Lanka was worth $307 million in the year to October 2016.