But it claimed the minority of schools that are making good use of their libraries are boosting results by encouraging reading for pleasure and individual interest.
The report says most libraries inspected are well-resourced, with a large selection of books.
Inspectors say earlier intervention is still needed in primary schools to help young pupils struggling to reach acceptable standards in literacy. Reading is doing better than writing generally, where poor punctuation and sentence construction is common, particularly at secondary level.
The Assembly government aims for 80 per cent of 11-year-olds to achieve the common standard indicator in English by 2010.
Recommendations for improvement include appointing a senior manager to deal with reading and writing and skills; more focus on literacy improvement schemes; and more strategies to interest boys.