Ranatunga, who became a household name after leading Sri Lanka to the World Cup title in 1996, says drastic measures are needed to ensure the sport flourishes in the cricket-crazy island nation.
"Not many people outside Sri Lanka realise how bad the situation is," Ranatunga, 41, said.
"The talent is there but it is not being harnessed properly. The way things have gone over the past few years we could soon be at the bottom of the pile."
Ranatunga said the current Sri Lankan team, captained by Marvan Atapattu, was a top-class side capable of taking on the best in the world.
But the future looked bleak because few talented junior players are rising from the ranks.
"You can't expect seniors like Atapattu, Chaminda Vaas, Sanath Jayasuriya and Muttiah Muralitharan to go on forever," he said.
"They have been the backbone of the side for a long time, even when I was playing.
"But what after them? Mahela Jayawardena, Kumar Sangakkara and Thilan Samaraweera are young and very talented but they will have to be around for a long time to keep the team afloat.
"Soon we may not be able to defeat anyone."
Ranatunga, who played in Sri Lanka's inaugural Test against England in 1982 aged 18, quit cricket in August 2000 to follow his father into politics.
Now the junior minister for tourism, Ranatunga blamed the current mess in Sri Lanka cricket on officials who sought power without responsibility.
"I have said it many times before, our World Cup victory in 1996 came with a lot of unnecessary baggage," he said.
"As money came into cricket, it attracted a lot of unwanted people who were more concerned about themselves than the good of the sport.
"We are paying for it now."
Ranatunga supported the government's recent move to take over the administration of Sri Lanka Cricket (SLC).
"It should have happened a long time ago, but better late than never," he said.
In a dramatic coup that stunned world cricket in March, sports minister Jeevan Kumaratunga sacked the elected representatives of SLC and appointed an interim committee in its place.
SLC president Thilanga Sumathipala, who was then attending a meeting of the International Cricket Council (ICC) in New Delhi, was ejected from the meeting and replaced by a government nominee.
Sumathipala responded by locking the SLC's headquarters in downtown Colombo and sent the staff on paid leave to prevent the interim committee from taking charge.
Matters came to a head last Tuesday when armed officers of the Criminal Investigation Department (CID) raided the SLC headquarters and installed the government nominees headed by businessman Jayantha Dharmadasa.
Former Test captain Duleep Mendis, who served as the SLC's paid chief executive, quit his post in disgust but was persuaded by the interim committee to continue.
Sumathipala has moved court against his dismissal, but for now the government-appointed committee appears in control of the SLC.
Ranatunga hopes the new bosses will put cricket back on track and was himself willing to contribute towards it.
"I will always have time for cricket," he said. "I stood aside earlier because I felt the people running the game were very dubious.
"But if the interim committee is serious about cricket, I will willingly help. Sri Lankan cricket needs all the support it can."
Sri Lanka host the West Indies for two Tests in July followed by a One-day triangular also featuring India in August.