Sri Lanka has regained its upper-middle-income economy status, with the World Bank upgrading the country from the lower-middle-income category following a broad-based economic recovery after the 2022 financial crisis.

In its latest income classification update, the World Bank said Sri Lanka's economy expanded by 5% in 2025, supported by a rebound across industries and strong growth in tourism and financial services. The country had slipped into the lower-middle-income category after the severe balance-of-payments crisis and sovereign debt default in 2022.

The World Bank described Sri Lanka's return to upper-middle-income status as "a story of recovery," noting that the reclassification reflects the country's resilience, although it only narrowly crossed the income threshold. The recovery has been underpinned by IMF-backed economic reforms, fiscal consolidation, debt restructuring, stronger worker remittances and improved external sector performance.

Coinciding with the reclassification, the World Bank's Board of Executive Directors approved US$150 million in financing under the Sri Lanka Reforms for Growth, Resilience and Openness (REGROW) Development Policy Operation.

The funding, the first in a proposed three-operation series, will provide budget support for reforms aimed at boosting private investment, improving competitiveness and creating jobs. The programme focuses on reducing trade barriers, strengthening the investment climate and financial sector, improving the governance of state-owned enterprises, expanding women's workforce participation and enhancing power sector efficiency.

The World Bank said the initiative marks a shift from economic stabilisation towards long-term, private sector-led growth. It currently supports 13 active projects in Sri Lanka valued at more than US$1.5 billion across sectors including education, health, energy, transport, agriculture and social protection.