A new Boston Consulting Group study reveals that while average incomes and consumption have risen in nominal terms, the country’s income pyramid has thickened at the bottom, leaving more families in lower segments since the 2020 crisis.

A new study by Boston Consulting Group (BCG), prepared with the Ceylon Chamber of Commerce, shows that roughly 0.4 million households have slipped out of the middle-income “Emerging” segment since 2020 and into the lower “Aspirer” and “Struggler” categories.

The report, The Changing Path to Purchase in Sri Lanka: How Consumers Discover, Select and Transact Today, paints a picture of a recovery that is real in aggregate but uneven in distribution. For international readers, the findings illustrate a broader post-crisis pattern seen across emerging economies: headline growth can mask a quieter erosion of the middle class that once drove aspiration and consumption.

Recovery in Numbers, Uneven in Reality

Between 2020 and 2026 the number of households in Sri Lanka grew from 5.7 million to 6.7 million. Average monthly household income rose from Rs. 67,000 to Rs. 109,000. Real household consumption reached approximately Rs. 8.9 trillion in 2025 (at 2015 prices), surpassing the pre-crisis peak of Rs. 8.2 trillion in 2019, and has since approached Rs. 9 trillion. Consumption now accounts for about 67 per cent of real GDP, up from 61 per cent before the crisis.

These figures reflect stabilisation after the severe 2022 economic collapse that triggered debt default, hyperinflation and widespread shortages. Sri Lanka regained upper-middle-income status from the World Bank in 2026 after strong growth in 2025. Yet BCG’s analysis of income distribution tells a different story. 

Parul Bajaj, BCG India Leader for Marketing, Sales and Pricing and Managing Director and Partner, told local media that the two lowest-income segments expanded. About 400,000 households moved downward from the middle-income Emerging category.

BCG classifies households earning less than Rs. 40,000 a month as “Strugglers” and those above Rs. 150,000 as “Established+”. The study did not adjust for inflation between 2020 and 2026, so the rise in average income is nominal. Real purchasing power has not fully recovered for large sections of the population. The result is a thicker base of the income pyramid and greater concentration of spending power higher up.

Rural Middle Class Still Dominant, Affluent Power Concentrated

Geography amplifies the divide. Rural Sri Lanka accounts for 56 per cent of all middle-class households and remains the backbone of national consumption. The middle class as a whole drives roughly 70 per cent of spending. Affluent households, however, are heavily concentrated in the Urban West, where they are twice as numerous as in rural areas. These households make up only about 4 per cent of the total but contribute around 11 per cent of national consumption and show the strongest intention to increase spending.

Nishant Gupta, Managing Director and Senior Partner at BCG, noted that consumer behaviour differs sharply by income segment. “Over a period of time, economies typically move up the ladder,” he said. In Sri Lanka’s case, the movement has been uneven. Essentials absorb as much as 71 per cent of spending among Struggler and Aspirer households. Housing costs, including rent and utilities, have edged up to 22 per cent of household budgets from 21 per cent in 2020, while education’s share has slipped from 8 per cent to 7 per cent.

Spending Intent Outpaces Income Growth

Looking ahead, 77 per cent of consumers expect to spend more over the next six months, yet only 38 per cent expect their incomes to rise. This gap forces deliberate choices. Families plan to allocate more to essentials such as staples and personal care, maintain spending on everyday items, and cut or defer discretionary purchases, especially high-ticket items such as vehicles, large appliances and furniture.

Higher-income households demonstrate greater resilience; their intention to cut discretionary spending is about 40 per cent lower than the national average. Lower-income groups face tighter constraints. The pattern is consistent with persistent poverty challenges that have shadowed the recovery, even as macroeconomic indicators improved.

Digital Divide and Access to Finance Widen Gaps

Access to finance and technology further separates income groups. Only 19 per cent of consumers overall hold credit cards, rising to 33 per cent among households earning above Rs. 150,000 a month. Digital banking is used by just 25 per cent of account holders, but the figure ranges from 8 per cent in the lowest-income segment to 47 per cent among the affluent – a sixfold difference. Awareness and use of generative AI follow a similar pattern: 71 per cent of affluent consumers are aware of it and 29 per cent use it, compared with 55 per cent awareness and 18 per cent usage across the broader population.

Banks have left substantial demand untapped, particularly in rural areas that house the bulk of the middle class. Credit products remain concentrated among higher-income urban households, limiting the potential for credit-led consumption growth.

Brands Must Re-earn Preference in a More Cautious Market

Consumer discovery has also shifted. Word of mouth remains the strongest influence at 66 per cent, but digital influence has risen to 51 per cent from 32 per cent in 2020, led by YouTube and social media. Generative AI is emerging as a new tool for researching brands and products. Single-brand loyalty has weakened in several categories: among staples buyers it fell from 14 per cent to 6 per cent between 2020 and the latest survey, while consideration of two or three brands rose.

Shiran Fernando, Secretary General and CEO of the Ceylon Chamber of Commerce, summarised the challenge for business: demand has returned in a different shape. Companies must understand where spending power now sits and how households prioritise it.

Implications Beyond Sri Lanka’s Shores

The BCG findings offer a cautionary note. Sri Lanka’s experience shows that rapid macroeconomic stabilisation after a deep crisis does not automatically restore the middle class that previously underpinned social mobility and domestic demand. GDP growth has moderated in recent quarters, and external risks – from global energy markets to climate events – remain elevated.

The thickening of the lower end of the income distribution, the geographic concentration of affluence, and the deliberate shift toward essentials all suggest that consumption recovery rests on a narrower and more uneven base than the headline numbers imply. BCG says that policymakers and businesses alike will need strategies that address both the scale of the rural middle class and the constraints facing households that have slipped downward if the gains of recovery are to become more widely shared.