PRISTINA: The International Monetary Fund agreed on Monday a new standby loan deal with Kosovo, vital to unlocking other foreign funds for the impoverished Balkan country that broke away from Serbia after years of ethnic conflict.
The 107 million euro ($141 million) deal restores IMF funding for Kosovo nine months after the lender cancelled a previous loan arrangement when the government of Prime Minister Hashim Thaci hiked public sector wages by up to 50 percent.
The head of a visiting IMF mission, Johannes Wiegand, said "staff-level agreement" had been reached with the government on an economic programme that the lender could support with the 20-month stand-by loan deal.
He warned of headwinds for the economy of the landlocked economy which, while growing, remains one of Europe's poorest four years after it declared independence from Serbia.
The IMF, he said, had revised its 2012 economic growth forecast for Kosovo down to 3.8 percent from around 5 percent, citing the effect of the economic crisis in Europe on Kosovo's diaspora, a key driver of growth back home.
The government had been targeting around 5 percent growth in gross domestic product (GDP), matching last year's performance but down from initial forecasts of 7-8 percent.
KOSOVO PLAYING CATCH-UP
"Going forward, a possible deterioration in labour market conditions in central European countries, where most of the Kosovar diaspora lives, could negatively effect FDI (foreign direct investment) and remittances," Wiegand said.
The IMF deal is important for securing funds from the European Union and other donors as Kosovo tries to finance its 1.5 billion euro budget.
After decades of neglect, a 1998-99 war and years of limbo as a ward of the United Nations, Kosovo is struggling to catch up with the rest of the former Yugoslavia and neighbouring Albania.
Endemic corruption, deep-rooted organised crime and bouts of tension between the Albanian majority and Serb minority have kept foreign investors away.
The country is dependent on foreign aid and remittances from Kosovo Albanians working abroad. The official unemployment rate stands at over 40 percent.
To plug budget holes, the government hopes to revive the on-off sale of the state Kosovo Post and Telecom (PTK) company and has sold 10 million euros in t-bills so far this year, with another 65 million euros planned.
The country of 1.7 million people has a public debt of 6 percent of GDP. More than 40 percent of the 2012 budget is earmarked for capital investment, mainly on the politically-popular highway that will link Kosovo with Albania.
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