ABC of becoming an upper middle-income country: Risks outweigh benefits

IN its latest classification of countries, the World Bank has elevated Sri Lanka from a lower middle-income country to an upper middle-income country. What does this mean? Let us find out. But first, the basic facts.

- By W.A. Wijewardena

World Bank's classification of countries

The World Bank classifies countries every year based on their level of development.

This year, Sri Lanka moved up one step, from lower middle-income to upper middle-income. Why did the World Bank do this? It pointed to Sri Lanka’s recovery story.

Three years ago, in 2022, the country was in a severe economic crisis. Now, it has turned around. In 2025, the World Bank noted, based on official statistics, that Sri Lanka recorded real economic growth of 5%. Real economic growth means the economy has produced 5% more goods and services than in the previous year. For instance, if coconuts were the only commodity produced, and Sri Lanka produced 100 coconuts in 2024, production would have increased to 105 in 2025. Thus, in measuring real production, the effect of price changes on value has been removed, and only the actual quantity of goods and the volume of services have been taken into account.

The World Bank, again based on official data, says this growth was driven by a rebound across industries. Financial services and tourism also grew strongly. The World Bank complimented Sri Lanka, saying the current upgrade was a ‘marker of (economic) resilience’ for the country. That means the country has shown it can bounce back from hardship.

But the World Bank also added a note of caution. Sri Lanka crossed the threshold only narrowly. The required Gross National Income per person was $ 4,636. Sri Lanka’s level was just $ 4,670, a very small margin of only $ 34 above the threshold. In other words, it just managed to qualify. The new classification is valid from 1 July 2026 to the end of June 2027. After that, the World Bank will review it again.