Sri Lanka advised to boost reserves as IMF quits the country

February 02 (LBO) –Sri Lanka should have a higher target for foreign exchange reserves in 2007 the World Bank said, days before its Bretton Woods twin, the International Monetary Fund closed its office in Sri Lanka. Analysts say the tight monetary policy that started in December is helping the rupee, as is the current petroleum pricing policy, though an overvaluation of the rupee may still be hurting exporters.

But the 1.5 percent jump in consumer inflation in January, which pushed 12-month inflation to 20.5 percent also indicates that demand pressure remains in the economy.

The World Bank in a report released in time for week's donor forum said Sri Lanka's reserves at around 2.5 month of imports, were not enough to protect against external shocks.

"It will also be desirable that the target for gross foreign reserves be revised upwards so as to reduce the country's vulnerability to external shocks," the World Bank said.

The report came as the International Monetary Fund closed its office in Sri Lanka after nearly three decades of operations.

The IMF came to Sri Lanka in 1979 as the country opened its economy and underwent a series of structural reforms.

In 2004 Sri Lanka jettisoned a re