The outlook is for moderate but still strong growth in Sri Lanka in 2012, the bank forecast in its Asian Development Outlook report released last week.
While the government has been trying to reduce bottlenecks to growth not enough has been done to cut red tape, the report said.
"Investor confidence is a key factor in attracting investment and this requires a predictable policy environment as articulated and reinforced through the legal, regulatory, and institutional framework," the ADB said.
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"Thus the lack of such an environment for the private sector is a major obstacle to private sector development.
"Developing that framework will reduce uncertainties in the business environment and avoid unplanned actions that may send mixed signals to potential investors."
The government wants to see a greater role for the private sector through increased investment by both domestic and foreign investors, as investment is needed to bolster growth after the end of the 30-y