IMF advises Albania to keep debt in check

By Benet Koleka

TIRANA, Oct 2 (Reuters) - The International Monetary Fund has told Albania to use the proceeds from a planned sale of oil and gas rights to reduce its government debt, which it said has risen to levels that could pose risks to economic stability.

Albania, which meets the IMF on a consultation-only basis, has been keeping its public debt just below 60 percent of gross domestic produce, a limit set by Albanian law, although it has continued to raise public sector wages and pensions.

"Albania's high public debt carries macroeconomic and fiscal risks. Tackling it requires a credible commitment to a medium- term fiscal consolidation path," Nadeem Ilahi, the IMF's mission chief to Albania, told a news conference on Tuesday.

Unlike other Balkan countries, Albania has avoided a recession, but the aftershocks of the financial crisis are slowing growth "and exacerbating domestic and external vulnerabilities", the IMF said.

Ilahi said the 2013 budget should target an unchanged debt to GDP ratio, which "would require raising revenues and reducing current spending, while supporting capital and targeted social spending".

Albania has received an offer of 850 million euros ($1.1 billion) from Vetro Energy, a little known U.S.-based firm, to buy its state-owned oil firm and the rights to oil and gas reserves for 25 years.

"Receipts from privatisation of natural resource wealth should be utilized primarily to lower debt but also to clear unpaid government bills," Ilahi said.

While admitting that Albania's public debt was the highest in the Balkans at 801 billion Albanian leks ($7.4 billion), Albanian Finance Minister Ridvan Bode said it was the least "damaging and dangerous", because it was funded by domestic instruments and development loans with low interest rates.

Since the onset of the global financial and economic crisis in 2008, Albania's public debt has grown by just 3 to 4 percent while neighbouring economies have doubled their debt, Bode said at the news conference.

While the government needs to be alert to the danger posed by government debt, "the risk should be taken with some reserve to give ourselves the chance to support the agenda of economic growth", Bode said.

The IMF kept its forecast for Albania's economic growth unchanged for 2012 at 0.5 percent but revised its estimate for 2013 down to 1.3 percent from 1.7 percent.

"Risks to the outlook are mostly on the downside, as the economy remains vulnerable to external risks, particularly from the euro area crisis," Ilahi said.

He said the IMF's forecast did not include the use of privatisation proceeds. "It is our belief that the way these receipts are spent will influence how the economy recovers."

Bode revised the government target of 4.3 percent growth for this year down to 3 percent. The economy contracted 0.2 percent in the first quarter. ($1 = 0.7749 euros) ($1 = 107.9250 Albanian leks) (Editing by Jane Baird)

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Keywords: ALBANIA IMF/