The two leaders held wide-ranging talks on ways to boost their economic ties and later witnessed signing of agreements to enhance cooperation in tourism, education, railways and cultural fields.
Both countries had signed Free Trade Agreement (FTA) last year and are hoping to see their trade volume double from the existing 200 million US dollars.
Gen Musharraf said the FTA has facilitated duty free access to over 200 tariff lines and bodies well for the private sector of the two countries.
The two leaders emphasised that increased interaction between the business communities of their countries would set the pace for higher trade to their mutual benefit.
Pakistan and Sri Lanka are also members of the seven-nation South Asian Association for Regional Cooperation (SAARC) which agreed during a summit meeting in the Bangladeshi capital Dhaka last year to pursue a free-trade arrangement in the region that is home to one-fifth of the worlds population.
''Islamabad believes that a vibrant SAARC can be greately helpful in the achievement of common goals of peace and development in the region,'' Gen Musharraf said.
The two leaders also discussed regional and bilateral issues including the ongoing composite dialogue between Pakistan and India and the peace process in Sri Lanka.
On resumption of peace talks with the Tamil Tigers, Gen Musharraf expressed hope that Sri Lanka would achieve peace and stability.
He specially referred to the Jammu and Kashmir issue between Pakistan and India and said Islamabad has forwarded substantive proposals of demilitarisation and self-goverance to settle the lingering issue.
The Sri Lankan President expressed hope that peace process between the South Asian nuclear neighbours would lead to desired results for durable peace and security in the region.
President Mahinda, who flew to Islamabad early in the day for a three-day state visit, is the second Sri Lankan President to visit Pakistan in a years time. Earlier President Chandrika Kumaratunga toured Pakistan in February 2005.
UNI XC PR PC2308