"This program will help reduce the significant mismatch that exists between the competencies of graduates and labor market demand, which has left youth unemployment very high at 17.
3 percent," Sungsup Ra, Director for Human and Social Development at ADB's South Asia department said in a statement.
The state will be able to revamp its technical and vocational education and training (TVET) school system to equip youth with the required skills for the job market.
The skills mismatch has become even more evident during the recent period of economic growth as both education and TVET systems have not been able to adapt to the rapid labor market shifts, ADB said.
Private sector employers often cite lack of skilled workers matching their needs.
Under a new program the state will introduce a targeted stipend scheme for disadvantaged groups including the poor, women, school drop-outs to increase their participation in areas where skills are in short supply.
Though a large number of women are enrolled for training in traditionally female occupations, women's participation is low at around 26 percent in technology-related courses that would lead to higher-paying jobs, ADB said.
The program aims to increase women's participation and improve their rates of employment, especially in the sectors of construction, tourism, information technology, and manufacturing.
The ADB is giving the loan on a 'results based lending' program where goals will be set.
In addition to technical education, analysts say Sri Lanka's higher education sector is also in trouble with the state teaching citizens skills in universities that are not needed by productive sectors.
Degree awarding has been a state monopoly for many decades and there is still resistance by statists to attempts by the current administration to five more tertiary education freedoms to citizens, critics say.
Tens of thousands of unemployable university graduates are made into lifetime tax-spenders by the elected ruling class every year expanding an already bloated state worker cadre, adding to the burdens of all ordinary productive workers who pay tax.