The research ranks 175 countries around the world on trade, taxation, business start-up costs, labour laws and legal procedures.

Sri Lanka retained its 89th spot in the "Doing Business 2007" report, which was released on Tuesday.

Some South Asian neighbours did better in their overall rankings, with the Maldives in 53rd place, Pakistan ranked 74th and Bangladesh listed 88th.

Sri Lanka however, scored well above Nepal (100th), India (134th), Bhutan (138th) and Afghanistan (162nd).

The authors also ranked countries in individual problem areas.

Sri Lanka was ranked as the 98th most expensive country in the world to employ workers, as restrictive labour laws make it costly to dismiss staff.

"Although it is easy to hire, it is almost impossible to fire a worker ... where it costs 178 weeks of wages," the report said, adding that "reforming labour laws is an urgent priority."

Rigid labour laws are also pushing workers into the informal sector and stifling the creation of new jobs.

"Sixty-two percent of jobs in Sri Lanka remain in the informal sector. There, workers have no health or social benefits and are not protected by any contracts," the report said.

Sri Lanka was in 157th place for its tax environment, the worst ranking in South Asia.

"Businesses must make 61 different payments a year and spend an average of 256 hours to comply with tax rules," the report said.

The authors estimate firms have to set aside 75 percent of their profits to pay taxes. "The result is significant tax evasion and avoidance," the report said.

In neighbouring Bangladesh, firms set aside only 40 percent of their profits for taxes, while in Nepal the tax burden is only 33 percent.

Sri Lanka ranked 90th for "enforcing contracts."

"It takes 837 days and 20 procedures to enforce a contract. Such practices encourage business to trade with a narrow group of known business partners, or simply internalise the risks and avoid trade altogether," the report said.

Sri Lanka ranks 71st in the world in terms of dealing with business licenses, which take 167 days to get approval.

To get a building permit in Colombo costs more than 400 dollars, whereas its free in most other countries.

The report also highlights that it costs 550 dollars to get an electricity connection and 220 dollars to get a telephone line in Colombo.

When it comes to winding up a business, Sri Lanka ranked in 59th place. Creditors spend on average four years to recover their money and only get 20 cents on the dollar.

India was the most inefficient nation for winding up firms: it takes more than 10 years to recover just 13 cents to the dollar.