COLOMBO (AFP) - South Asian leaders meeting in Sri Lanka this weekend will discuss improving commercial ties but political and other tensions have dampened hopes a regional free trade pact will be implemented any time soon, economists say. The eight-member South Asian Association for Regional Cooperation or SAARC first mooted a free trade pact in 1995, but it remains largely limited to paper and member states have begun cutting bilateral deals instead. SAARC, whose leaders meet in Colombo for a two-day summit starting on Saturday, has made little headway toward regional economic integration since it was formed in 1985, analysts say. "Politics have hijacked SAARC's economic agenda," HSBC economist Arjunna Mahendran told AFP. Analysts say the group has been held hostage to hostility between India and Pakistan - its two largest members - which have fought three wars since independence from Britain, two over Kashmir. Tensions now are rising again due to a deadly attack on the Indian embassy in Afghanistan earlier this month that New Delhi blames on "elements" in Pakistan and a clash this week between Indian and Pakistani forces along the border dividing Kashmir. "I see the temperature (between India and Pakistan) intensifying rather than cooling," said Mahendran. SAARC leaders are due to take up the regional free trade issue and look at the possibilities of forging a common currency along the lines of the euro at their meeting. The South Asian Free Trade Area (SAFTA) agreement aimed at achieving zero tariffs on almost all products by 2012 was signed in January 2004 and finally came into effect in July 2006. The free trade zone would encompass the eight members - India, Pakistan, Nepal, Sri Lanka, the Maldives, Bangladesh, Bhutan and Afghanistan. But SAFTA has failed to take off and bring the promised economic benefits to the 1.5 billion people living in one of the world's poorest regions. Regional trade remains low due to quarrels over tariff concessions especially between India and Pakistan, economists say. "SAARC economies have improved with time," said Deshal de Mel, an economist at the Institute of Policy Studies, a Sri Lankan think-tank. But intra-regional trade has failed to rise significantly, he added. The India-Pakistan rivalry as well as fears among the other nations that they might be swamped with cheap goods have delayed any concrete steps toward free trade, economists said.  "India is the biggest market in SAARC but they have been slow to allow competition to come in. India has instead struck trade deals with individual member countries like Sri Lanka, Nepal and Bangladesh," de Mel told AFP. "I can't see things moving forward (in the free trade area) in the near future," said HSBC's Mahendran. "Everybody prefers bilateral deals because it's easier to agree on what can be imported and exported." India, for instance, has struck bilateral deals with Singapore and is increasingly looking at the Association of Southeast Asian Nations to do business, said Mahendran. Economist and Sri Lankan government advisor Saman Kelegama said it was in the interest of SAARC members to dismantle trade barriers and create a "SAARC investment area" to encourage foreign and regional investment. Sri Lanka's foreign minister was optimistic that progress would be made at the meeting towards regional economic integration. "It took the European Union 50 years to get the euro out. We're still just 23 years old.  We'll try to get there (to lower trade barriers and forge a currency union) much faster," Foreign Minister Rohitha Bogallagama told reporters this week.