Kosovo approves 2013 budget, IMF to release loan tranche

PRISTINA (Reuters) - Kosovo's government adopted a draft budget for 2013 on Monday targeting economic growth of 4.5 percent and secured the next instalment of a loan from the IMF.

The International Monetary Fund, announcing the disbursement of the 41 million euro (33 million pounds) loan tranche, part of a 107 million euro loan agreed in March, said it expected the Balkan economy to grow in excess of 3 percent this year and next year.

Growth would be driven largely by remittances from Kosovars living in western Europe, it said.

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 1.58 billion euro budget adopted by the government foresees a deficit of 3.5 percent of gross domestic product (GDP), slightly higher than the 3 percent projected for 2012. Growth is projected at 4.5 percent and inflation at 1.5 percent.

"The preparation of this budget proposal ... takes into account the uncertainty arising from the euro zone crisis but it also contains elements that will allow the country to react if necessary," Finance Minister Bedri Hamza told a session of the government.

While its economy is growing, the country of 1.7 million people is struggling to catch up with the rest of the former Yugoslavia and neighbouring Albania in terms of development and integration with the European Union after decades of neglect, a 1998-99 war and years of limbo as a ward of the United Nations.

Kosovo declared independence from Serbia in 2008.

The IMF said its executive board would meet on December 21 to approve releasing the latest tranche of the loan deal.

The Fund has been supporting Kosovo since independence in order to try and boost 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 Kosovo received 5 million euros when it signed the 107 million euro deal in March and another 48 million euros in July.

"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.

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.

Recognised by more than 90 countries, Kosovo become a member of the IMF in June 2009.

(Reporting by Fatos Bytyci; Editing by Matt Robinson and Susan Fenton)

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