Sri Lanka regains upper - middle - income status

Just three years after a severe economic crisis brought the country to the brink of collapse in 2022, real GDP grew by 5% in 2025, driven by a rebound across industries and growth in financial and tourism services - WB

Says the reclassification is a marker of resilience, though the country only narrowly crossed the threshold

Sri Lanka was among five economies upgraded to upper-middle-income status in the World Bank's 2026-27 classification cycle, alongside Jordan, Micronesia, the Philippines and Vietnam 

By Shabiya Ali Ahlam

Three years after facing what was the worst economic crisis which pushed Sri Lanka to the brink of collapse, the island nation has regained upper-middle-income status.

The World Bank, in its latest income classification update released yesterday reclassified Sri Lanka from the lower-middle-income category after the economy expanded by 5 percent in 2025, supported by a broad-based recovery across industries and growth in tourism and financial services.

This is a commendable recovery from the 2022 economic meltdown and offers fresh international validation of Sri Lanka's progress in restoring stability and growth under a difficult reform programme.

Describing the country as "a story of recovery", the World Bank said: "Just three years after a severe economic crisis brought the country to the brink of collapse in 2022, real GDP grew by 5% in 2025, driven by a rebound across industries and growth in financial and tourism services." "The reclassification is a marker of resilience, though the country only narrowly crossed the threshold," it added.

The promotion is a major turnaround for Sri Lanka, which slipped from upper-middle-income status following a succession of shocks that weakened economic activity and eroded per-capita income.

The Easter Sunday attacks in 2019, the COVID-19 pandemic and the subsequent balance-of-payments crisis culminated in the country's sovereign default in 2022, pushing the economy into its deepest downturn in decades.

Yesterday's reclassification indicates the progress made since then under a far-reaching economic stabilisation effort backed by the International Monetary Fund (IMF), alongside fiscal consolidation, monetary reforms and external debt restructuring.

The recovery is attributed to revival in tourism, stronger worker remittances, improving external sector performance and a return to economic growth following two years of contraction. These gains helped lift Sri Lanka's Gross National Income per capita above the World Bank's upper-middle-income threshold.

The upgrade also strengthens Sri Lanka's economic credentials, which would help the government attract greater foreign direct investment, accelerate private sector-led growth and reposition the country as a more competitive destination for capital.

However, the World Bank's income classifications do not directly reflect living standards or poverty levels.

Sri Lanka first entered the upper-middle-income category in 2019 before falling back to lower-middle-income status as economic growth slowed and income levels deteriorated amid mounting domestic and external pressures.

Sri Lanka was among five economies upgraded to upper-middle-income status in the World Bank's 2026-27 classification cycle, alongside Jordan, Micronesia, the Philippines and Vietnam.