Sri Lanka’s Economic Rebound Leaves Households Behind

The country’s recent reclassification as an upper-middle-income economy marks a significant turnaround, yet fiscal metrics mask a difficult reality for those struggling to rebuild. Real GDP grew by 4.7% in the first half of 2026, bolstered by a primary budget surplus and industrial output. However, rising food and energy costs continue to erode purchasing power, keeping poverty levels well above pre-crisis benchmarks.

To bridge this gap, the World Bank suggests shifting focus toward the agrifood sector, which currently supports over 40% of the nation’s employment. By moving away from inefficient subsidies toward private investment in cold-chain logistics, digital traceability, and climate-smart technologies, the government could unlock new rural prosperity. Gevorg Sargsyan, the World Bank’s Country Manager, noted that this transformation requires a stable policy environment to turn agricultural potential into sustained, inclusive growth. Without such reforms, experts warn that productivity constraints and global market volatility could cause the current growth trajectory to ease to 4.2% by 2027.