It was impossible to transfer money to a paypal account in Sri Lanka or India, or transfer money that already exists in the paypal account to a local bank in Sri Lanka or India. Since now I am in Europe, it should be possible. I decided to update the address, and see how it goes.
I learned that changing the country in the paypal account is impossible, and we just have to create a new account with the new address, new credit/debit card, and new phone number, dropping the old account. So now I need Portugal credit card. The debit card I got from BPI for my current account was a temporary card, and it doesn't hold those three digit security code. That simply means, I can't use it online.
Then my friend Dipesh introduced me to the Virtual Debit Card. I was able to buy it from the near by ATM and activate it from the MB web site. The card will have a valid period of either a year, or till your card expires, whichever that comes first. Now, I can buy stuff online using this virtual card, and I also linked it to my paypal account.
I find these virtual cards interesting, just like the VMWare that runs on top of the host operating system, and is capable of running multiple guest operating systems on top of it.