The World Bank says that although Sri Lanka’s economy has grown for 12 consecutive quarters and returned to pre-crisis levels, household incomes, employment opportunities and poverty levels continue to lag behind the broader economic recovery.
In its latest Sri Lanka Development Update, titled “From Recovery to Transformation,” the World Bank projects that Sri Lanka’s economy will grow by 4.4% in 2026, driven by strong industrial sector performance and continued growth in the services sector. The forecast represents an upward revision from previous projections.
According to the report, real GDP grew by 4.7% during the first half of 2026, bringing the economy back to the level recorded in 2018. However, the World Bank noted that the recovery remains incomplete and uneven, with the poverty rate at 16.9%, significantly higher than before the economic crisis.
Economic growth is projected to slow to 4.2% in 2027 due to weaker recovery momentum and low productivity.
The World Bank also warned that volatility in global energy markets and potential El Niño-related weather conditions could pose risks to productivity and food security.
“Sri Lanka’s reclassification as an upper-middle-income country amidst a challenging global environment is a testament to the commitment of its people and the government’s dedication to rebuilding the economy,” said Gevorg Sargsyan, World Bank Group Country Manager for Sri Lanka.
He added that reaching this milestone was “a beginning, not an end,” and stressed the need for Sri Lanka to use the opportunity to transform its economy and create new employment opportunities.
The report noted that Sri Lanka’s fiscal performance has strengthened, with a significant increase in the primary budget surplus. However, inflation has risen in recent months due to higher energy and food prices.
The World Bank said Sri Lanka needs to move away from an economic model driven by public spending and place greater emphasis on private investment, exports and productivity to sustain long-term economic growth.
Achieving this, it said, would require improved infrastructure, a stable investment climate and greater private sector participation in key areas of the economy.
The report also identified agribusiness as a sector with significant potential to drive economic growth, create jobs and reduce poverty.
