Sri Lanka moves back into upper-middle income bracket, World Bank says

Sri Lanka has been reclassified as an upper-middle income economy by the World Bank, a milestone officials are calling hard-won but fragile because the country has been here before, and lost the status within a year.

The change was confirmed in the World Bank Group’s Country Income Classifications for the fiscal year running from 1 July 2026 to 30 June 2027, which sort economies into four income bands based on gross national income (GNI) per capita. Sri Lanka’s Atlas GNI per capita came in at USD4,670, just above the new upper-middle income threshold of USD4,636 a narrow crossing that echoes the country’s last brush with the category.

That history is central to how the Bank itself is framing the news. In July 2019, Sri Lanka was classified as upper-middle income for the first time, with a GNI per capita of USD4,060 just $64 above the line at the time. The status lasted exactly one year: by July 2020, revised data had placed the country fractionally back below the threshold, and by 2022 Sri Lanka was in the grip of its worst economic crisis in decades, defaulting on its external debt for the first time in its history as foreign exchange reserves ran dry and inflation surged.

This time, the Bank says, the upgrade follows a genuine crisis and a hard-fought recovery, which it argues makes it more meaningful though not necessarily permanent. Sri Lanka joins Jordan, the Philippines and Vietnam in climbing out of the lower-middle income group this round, while Togo moved up from low income to lower-middle income. No country was downgraded.

Real GDP grew 5.0% in 2025, driven by a broad-based industrial rebound and steady growth in services which now make up 54.6% of the economy particularly financial and tourism-related activity. GDP in current prices rose 8.8%. Notably, the Bank points out that a shrinking population (down 0.7%) and currency depreciation (0.4%) also played a small role in nudging the country’s per-capita figure over the line, alongside actual income growth.

The Bank is also flagging several reasons for caution. Public debt remains elevated following Sri Lanka’s 2022 default and the restructuring that followed, and the fiscal discipline that enabled the recovery will need to continue. GNI per capita is an average, and doesn’t capture how income is distributed many households are still dealing with cost-of-living pressures from the crisis years, and poverty indicators have not fully recovered to pre-2022 levels. Growth is also expected to slow, with the Bank projecting Sri Lanka’s economy to expand by around 3% in 2027, down from the sharper rebound of the past two years meaning staying above the threshold will depend on structural reforms rather than recovery momentum alone.

Regionally, upper-middle income status remains rare in South Asia, and the Bank notes it brings Sri Lanka’s formal income classification closer in line with its long-standing strengths in health, education and human development an alignment that had been missing since 2022.

The classification is reviewed every year on 1 July, and the Bank has been explicit that exchange-rate movements, a growth slowdown or data revisions could push Sri Lanka back below the line within a single cycle, just as happened in 2020. For now, though, the milestone stands as a marker of how far the economy has come since the depths of the crisis with the caveat, officials say, that the work is not finished.