Sri Lanka’s foreign reserves have risen to a record $5.8 billion due to higher aid and investment flows, according to the Head of the Central Bank’s Economic Research Department, K.D. Ranasinghe.

“We have recently been buying dollars in the market amid inflows to government projects and portfolio investments,” Ranasinghe said in an interview with Bloomberg.

“There will be a further build up in reserves with exports continuing to recover,” he said.

Remittances by Sri Lankans working abroad are forecast to rise by as much as 14 percent in 2010 from a year earlier, helping boost reserves, Ranasinghe said. Sri Lanka’s exports rose 15.1 percent to $620 million in May, the fourth straight month of gains.

The end of almost three decades of war in May 2009 has restored investor confidence and attracted foreign funds, helping make Colombo’s benchmark stock index the world’s best performer this year after Mongolia.

The International Monetary Fund on June 28 approved the release of about $408 million to Sri Lanka under a $2.45 billion aid package that’s also boosted the country’s reserves.

Ranasinghe said an IMF mission is currently in Sri Lanka to review its loan program and for annual Article 4 consultations.

“We have met our end-June targets,” Ranasinghe said, referring to goals set by the IMF for its aid package that include the level of reserves, Bloomberg reported.