The World Bank Group has reclassified Sri Lanka from a lower-middle income to an upper-middle income economy, effective July 1, formally recognising the country’s recovery from the 2022 crisis.
The move was driven by 5% real GDP growth in 2025, a broad-based industrial rebound and steady expansion in services, which pushed gross national income per capita just above the threshold. GDP in current prices rose 8.8%, while a shrinking population and modest exchange-rate depreciation also contributed.
Sri Lanka last held upper-middle income status in 2019 before slipping back the following year and then defaulting on external debt in 2022. Foreign reserves ran dry and inflation surged during the crisis, prompting a painful IMF-backed reform programme and the debt restructuring that underpinned the current rebound.
The World Bank cautioned that the classification is not permanent. It said public debt remains elevated, growth is projected to slow to around 3% in 2027, and cost-of-living pressures continue to weigh on households. Poverty indicators have not yet returned to pre-2022 levels.
“The 2027 reclassification comes after a genuine crisis and a hard-fought recovery. That makes it more meaningful. However, as experienced in 2019, it does not make it permanent,” the Bank said in a statement.
Upper-middle income status is uncommon in South Asia. The World Bank said Sri Lanka has long outperformed regional peers on health, education and human development, and that the new classification brings its formal income standing closer to those achievements.
Income group thresholds are reviewed every July 1 using the Atlas method. Small shifts in exchange rates, real growth or inflation can move a country across the line within a single year, meaning maintaining the status will depend on continued fiscal discipline and structural reforms.
