The Central Bank said yesterday that official reserves have exceeded US$ 5 billion but as the IMF points out, although reserves are at comfortable levels, it may not be sustainable in the long run.

"Gross official reserves whic amounted to US$ 4.8 billion by end October 2009. This includes short-term net inflows to Government Treasury bills amounting to US$ 247 million and bonds amounting to US$ 1 billion," the Central Bank announced yesterday.

"By 20 November 2009, gross official reserves are provisionally estimated to have further improved to US$ 5.2 billion," it said.

"The significant growth in reserves was mainly due to the continuous absorption of foreign exchange by the Central Bank, whereby from end March 2009 to 23 November, US$ 2.8 billion from the foreign exchange market, on a net basis, followed by the receipt of US dollars 331 million as the second tranche of IMF standby facility," the Central Bank said.

The IMF says the reserves position is at comfortable levels but needed to be sustained by exports rather than short-term, ‘luke-warm’ investments into government securities, IMF Resident Representative in Sri Lanka Dr. Koshy Mathai said recently.

A significant proportion of the reserves are made up of borrowed money—investments into government securities—and Dr. Mathai said there is a risk because investors could easily withdraw their investments.

He said there was a difference between these short-term borrowed funds and reserves built up through a boom in exports and remittances.

"We will not look at the headline reserves that are published in the newspapers but at the core of how the reserves are built. The IMF programme is structured to adjust the reserve targets upwards to account for these borrowed funds," he said.

He said it was important for Sri Lanka to build its reserves through a boom in exports and remittances.