Germany says unfreezing Rwandan aid but to watch progress on Congo

KIGALI (Reuters) - Germany said on Friday it will unblock 7 million euros in frozen aid to Rwanda, which the U.N. accuses of helping arm rebels in neighboring Congo, but warned the African state will be under continued international pressure over its links with M23 rebels.

Germany joined the United States and several other European states in partially suspending aid to Rwanda after U.N. experts said senior Rwandan military officials have equipped, trained and directly commanded M23 rebels who in November briefly seized the city of Goma in eastern Democratic Republic of Congo.

Rwanda, which relies on donors for about 40 percent of its budget, has repeatedly denied the charges.

A spokesman for the German Federal Ministry for Economic Cooperation and Development said by telephone from Berlin Germany had decided to unfreeze around 7 million euros in aid because Rwanda was taking steps "in the right direction" on the issue.

The M23 rebels announced a unilateral ceasefire last month and the group is currently engaged in peace talks with the Congolese government in neighboring Uganda.

"We recognize the steps that Rwanda is taking and these steps are going in the right direction but things are not getting back to normality yet - we still need to discuss issues and we will continue to put pressure on Rwanda," the spokesman told Reuters.

Rwandan Foreign Minister Louise Mushikiwabo and German Economic Cooperation and Development Minister Dirk Niebel met in Berlin on Thursday and agreed to use the unfrozen aid for economic development and vocational training rather than direct budget support, Mushikiwabo said.

Rwanda is "delighted this support is back on track," Mushikiwabo said in an email on Friday.

Rwanda has been badly hit by the aid suspensions. Finance Minister John Rwangombwa said in December that the country might have to cut its 2013 economic growth forecast down to 6 percent from 7.6 percent if the aid remained suspended.

(Additional reporting by Michelle Martin; Editing by Drazen Jorgic and Sonya Hepinstall)