IMF to release next loan tranche to Kosovo, sees 3 pct GDP growth

Mon Oct 29, 2012 8:52am EDT

* Fund sees GDP growth of 3 pct in 2012 and 2013

* Remittances, FDI driving growth

PRISTINA Oct 29 (Reuters) - The IMF said on Monday it would release the next installment of a 107 million euro loan to Kosovo agreed in March, saying the Balkan economy was on track and should grow 3 percent this year.

The International Monetary Fund said Kosovo, which declared independence from Serbia in 2008, should also grow by 3 percent next year as its economy is being supported by remittances from Kosovars living in western Europe.

Other countries in the region face stagnation or contraction due to falling exports and foreign investment, but Kosovo's small economy continues to count on remittances and diaspora investment in the real estate sector.

"The important component for growth in Kosovo is foreign direct investment and remittances that are financed from Kosovars living abroad and these Kosovars tend to live in countries which are less affected by the European crisis than others," Johannes Wiegand, head of an IMF mission to Kosovo, told a press conference.

Much of the Kosovo diaspora lives in Germany and Switzerland.

The IMF executive board will meet on Dec. 21 to approve releasing a 41 million euro tranche of the 107 million euro loan, Wiegand said.

The Fund has been supporting Kosovo since independence in order to try and boost its confidence among investors. However, it cancelled a previous loan deal last year after the government of Prime Minister Hashim Thaci increased public sector wages by up to 50 percent.

This year it agreed to a new programme and the country of 1.7 million received 5 million euros when it signed the new 107 million euro deal in March and another 48 million euros in July.

Kosovo also expects to reap several hundred million euros from the sale of 75 percent of state telecom firm PTK, the country's most profitable company, by the end of the year.

"We don't see a crisis at this junction in Kosovo but it is important and good to be prepared in case developments turn more negatively than we currently anticipate," Wiegand said.

While its economy is growing, Kosovo is struggling after decades of neglect, a 1998-99 war and years of limbo as a ward of the United Nations, to catch up with the rest of the former Yugoslavia and neighbouring Albania in terms of development and integration with the European Union.

Kosovo become an IMF member in June 2009. ($1 = 0.7733 euros) (Reporting by Fatos Bytyci; Editing by Matt Robinson, Patrick Graham and Susan Fenton)

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