* Albanian PM says to pay debts to private sector
* Cycle of debt has created a financial deadlock
TIRANA, Sept 19 Albania's government will pay
debts and un-reimbursed VAT totalling 400 million dollars to the
private sector to break a deadlock hurting the economy, new
Prime Minister Edi Rama said on Thursday.
Both the World Bank and the International Monetary Fund have
advised the previous government to pay the money because it was
hurting businesses and linked it to rising bad loans.
"We cannot continue to tolerate the deadlock created by the
debt to the private sector," Rama told a conference of the
Central Bank of Albania and Oxford University. "We are working
to re-pay this debt as soon as possible."
He said the debt had pinned down the economy, choked
businesses and practically paralysed to a considerable degree
the power of banks because of the whole chain of debt.
"We cannot ask the banks to be more active if we do not
re-pay the debt and we shall repay it at any cost," Rama said.
Lending to the economy increased by just 0.9 percent in the
second quarter of this year compared to the same period of 2012.
A weak economy and perception of insecurity by businesses is
holding back demand for credits in addition to more stringent
conditions by banks.
Albania's gross domestic product grew 1.7 percent last year.
However, this marked a slowdown in rates of annual growth of 6
percent over a decade until 2009 when the recession in
neighbours Italy and Greece hurt one of Europe's poorest states.
Rama, whose government was installed on Sunday, did not say
where he would find the money to make the payments, which will
help businesses to re-invest and repay their loans.
Albania's public debt at the end of the first quarter of
this year stood at 63.3 percent of GDP, exceeding a maximum 60
percent recommended by the International Monetary Fund.
The budget deficit for the first eight months of 2013 was 54
billion leks ($513 million), higher than a target of 47 billion
leks for that period, according to finance ministry figures.
(Reporting By Benet Koleka; Editing by Stephen Nisbet)