Sri Lanka is a small market for them, they wouldn't bother setting it up here
It doesn't make any sense. Payoneer supports SL, so why paypal can't? It's not a matter of the market size. I am sure they might have a political or an economic reason for not giving paypal to SL. Paypal means a significant amount of western money is flowing into SL market, meaning it damages the western economy somewhat. US doesn't like when money is going out, they always try to retain a significant portion of money within the country.
Notice that most of the countries that paypal supports have significant amount of US business, and investments, so the conclusion is, as I feel like the withdrawing support is only given to countries where there are US business whereby they can make profit. So they can recover the money flowed out of the country through their businesses. Malaysia, Vietnam, Philippines all have significant amount of US business, but we don't have zero to little as I am aware. with this mind, it's not profitable of the US economy to grant paypal withdraw support to SL. The only reason we have Payoneer,because it's still small compared to Paypal.