Make Work Crisis
"Therefore the burden is on the state and the perception of the graduate, articulated by certain political parties, is that it is the duty of the state to provide them with employment," Warnapala said.
"As long as the entire system remains totally state funded, such perceptions cannot be eliminated."
The perception has been found to be profitable for tens of thousands of graduates who have found 'make work' jobs in the state.
Unlike parents who mortgage their houses to send children abroad at a one off cost to themselves and the country, such graduates are a permanent drain on the people, who will eventually be paid a pension from people's money.
In 2008, 53.6 percent of all taxes collected from the people, went to pay salaries and pensions of state workers.
The World Bank says the government itself must spend more on higher education, to improve the quality and relevance of existing state institutions.
Compared to other middle income countries, public education expenditure as a proportion of the government budget is much lower in Sri Lanka. In South Asia, Pakistan, India and Bangladesh spent more on tertiary education.
"I think that Sri Lanka faces a historic opportunity to go from a low income country to a middle income country, from a country in conflict to a country in lasting peace," World Bank's country director Naoko Ishii said.
"A higher education is definitely one of the important areas you have to improve to become a knowledge economy."
Between 13 to 15 percent of students who qualify from the schools get admission to a university program.
But about 58.0 percent of those reading for degrees is enrolled in external degrees, where students study 'soft' subjects, and no academic support is provided by the university.
Minister Warnapala says Sri Lanka's Kelaniya University has about 100,000 such students. Students learn at unregulated 'tuition classes'.
"Universities register external graduates in large numbers and students perceive the system as a means to obtaining degrees without much intellectual effort," he said.
"The quality of the graduate who we produce through this program is poor because of the way it is conducted and the poor quality of courses and programs."
The World Bank says a core of state universities are producing excellent quality graduates in medicine, engineering, and information technology.
The Moratuwa University is streets ahead with strong linkages to the private sector where graduates are offered jobs even before they complete their degrees.
It is also offering cutting edge courses, including ones such as fashion design that is needed to transform the country's apparel sector to a higher plane of productivity and growth.
"There are several lessons one can learn from the high quality institutions," says Harsha Athurupane, senior economist at World Bank Sri Lanka and one of the co-authors of its education report, The Towers of Learning.
"One is that there is a very high caliber of academic staff working in these institutions, so the quality of academic staff or university lecturers and professors is critical.
"The second is that these institutions focus their development strategy very much on promoting employable graduates. That has in fact worked in several of the universities.
"The third is that they move with the times."
Centres Excellence But Sri Lanka has a weak record in producing new research as it lacks top notch research universities.
In terms of other countries that are on the fast track to becoming knowledge economies, Sri Lanka lags behind in four important aspects. High tariff and non-tariff barriers were making Sri Lanka less open to the world.
Sri Lanka also had very small internet and computer hardware use, compared to other middle income countries.
"Third area and fourth area are directly related to higher education. Sri Lanka very much lacking behind in terms of gross tertiary enrolment," says Ishii.
"Then the final area is how many patents are registered, how much royalty Sri Lanka is earning from patents, and how many times Sri Lankan scientists are quoted in the international quality journals."
Sri Lanka is almost nowhere on patents and research papers, compared to middle income peers.
Minister Warnapala says steps need to be taken needed to improve scholarship and research.
Though some regional universities have been set up to improve access, they have found it difficult to attract good quality academic staff because the area lacks facilities including education for the children of staff.
Retaining good academic staff, who go abroad to obtain post-graduate qualifications is another problem in the system.
Athurupane says university students need information technology and English to be relevant to today's market place.
"The main need of the country now is to a wide spread of graduates who are employable in the global labor market as well as graduates whose degree content is of international quality," says Athurupane.
"So there has to be a shift in emphasis away from promoting access to improving quality and employability."
In addition to students going abroad, several private sector institutions are offering foreign degrees.
"There are private degree awarding institutions which are essentially franchiser or cross border providers," says Athurupane.
"What we can do to stimulate that sector more is to have a quality assurance and an accreditation process so that Sri Lankan private higher education institutions can arise but ensure that they provide a reasonable quality of higher education."
The World Bank report says private higher education institutes had appeared in the Russian Federation in 1992. By 2005 private organizations had grown to 413 compared to 655 state-supported ones.
In China the first private higher education institutes had started in 1978. By 2000, more than 1,200 private institutes were operating.