Small countries like Singapore and Hong Kong scored high on economic freedoms and the rule of law, but not all countries needed to go to that level.
"None of this has to be perfect," Sally told the LBR-LBO CFO Forum, a gathering of senior business executives in Colombo.
"But they have to be better than they are in bigger markets like India, China and Indonesia. The challenge for a small country like Sri Lanka is to do these things better because foreign investors will be worried otherwise.
"Of course there are big deficits, to put it mildly."
Sri Lanka's macro-economic management has improved over the last few year with inflation held low and budget deficits, thought still high, being lower than in the past.
At the moment the country's peg with the US dollar is temporarily under pressure from high credit growth and sterilized intervention due to a failure by authorities to raise interest rates in time.Led by the Central Bank, Sri Lanka has also been bettering a World Bank and International Finance Corporation compiled 'Doing Business' ranking. But expropriations including listed companies and land in plantations have now clouded the island's property rights.
Sally says the rule of law and trade freedoms of citizens were also important for a country to progress and for investments to take place.
"Mercantilists tend to think, exports, exports, exports, without realizing that you cannot have an efficient diversified productive export economy without having efficient productive, diversified import economy allied with open door for foreign investments," Sally observed.
"Foreign investments are often the key to both imports and exports all of which have to repose the foundation of a decent domestic business environment and a decent policy framework around it."
Legal analysts and rights activists have said that rule of law, the public service and civil liberties have been systematically undermined over several decades through constitutions enacted in 1972 and 1978.
Sri Lanka is recovering from a 30-year ethnic war which ended in May 2009, and official commission to inquire into the conflict has called for rule of law to be re-established.
Sally says it is important for the wounds of war to be healed and Sri Lanka to regain its past image as a multi-ethnic country which it had been during his childhood.
"I am not just making a political or humanitarian point, these are of course important political and humanitarian points but there is an instrumental utilitarian economic point here as well," Sally said.
"If Sri Lanka is perceived to be not a truly multi-ethnic country, and it is perceived to be a country where a segment of the population is not considered one of us and certain issues from the war are left to linger and fester, foreign investors will simply display skepticism and caution."
"Because they don't have to come here. They will be under pressure from NGOs not to come here and they will go elsewhere because they have lots of choices. That is something to be borne in mind when it comes to issues of economic branding.
"If Sri Lanka is to be miracle or wonder of Asia a lot has to be done not only on the economic front but the political front as well."
This year Sri Lanka is slated to get more than a billion dollars in foreign direct investments largely into tourism, which has boomed after the war.