Against this backdrop, the World Bank’s decision to reclassify Sri Lanka as an upper-middle income economy received comparatively little attention. Sri Lanka moved out of the lower-middle income category on the back of the economy expanding by five percent last year. While describing the reclassification as a reflection of the country’s resilience, the World Bank noted that Sri Lanka only narrowly crossed the relevant income threshold. Although the world economy has weathered the impact of the conflict better than initially anticipated, the threat of further hostilities remains a considerable downside risk. In its July World Economic Outlook update, the International Monetary Fund raised its global headline inflation forecast for 2026 to 4.7 percent.