Albania sees rising public debt as economy disappoints

Tue Feb 5, 2013 1:43pm EST

Related Topics

* Albania cuts 2013 GDP growth forecast to 3.1 pct

* Public debt seen up at 63.8 pct from 62.6 pct

* Economy seen operating below potential

* PM says debt at 67 pct of GDP healthy for economy

By Benet Koleka

TIRANA, Feb 5 (Reuters) - Albania's economy will grow more slowly than planned this year and its public debt will rise further above the country's self-imposed ceiling, according to Finance Ministry forecasts on Tuesday.

Facing criticism from the World Bank for breaching its self-imposed public debt cap of 60 percent of gross domestic product (GDP), the government said it needed to breathe life into the sluggish economy.

It forecast the economy would grow 3.1 percent this year - more slowly than an earlier 4 per cent forecast - and public debt would rise to 63.8 from 62.6 percent.

Albania is one of Europe's poorest countries. It enjoyed a growth spurt averaging 6 percent a year in the decade to 2008 but has been hard hit by the crisis in the euro zone, particularly in Italy and Greece, its main trade partners, bankers and investors.

Albania plans to finance its deficit this year by borrowing domestically both in leks and euros. Prime Minister Sali Berisha said on Monday that even at 67 percent of GDP, debt was healthy.

The sale of the Albpetrol oil company was expected to bring an unprecedented privatisation bonanza of 850 million euros ($1.15 billion), but winner Vetro Energy has not paid its contract guarantee two months after a second deadline expired.

The ministry predicted the economy would grow 3.1 percent in 2013, 3.9 percent in 2014 and 4.1 percent in 2015, after an estimated 1.5 percent last year.

The government has raised this year's budget deficit target to 3.5 percent from 3.4 approved in the budget, "attempting to stimulate economic activity", the ministry's programme said.

However, it said "a sustainable decline in the fiscal deficit is key and unavoidable in the medium to long term future in order to stabilise and then gradually reduce the public debt and ensure public finance sustainability".

It said slow growth would help hold down inflation. "Within this context the Bank of Albania will continue to provide an anchor of stability and confidence and to stimulate the economy," it added. ($1 = 0.7376 euros) (Reporting by Benet Koleka; Editing by Ruth Pitchford)

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