* Deal targets Albania's debt weaknesses
* Albania to clear arrears to businesses
By Benet Koleka
TIRANA, Dec 17 (Reuters) - The International Monetary Fund will lend Albania 300 million euros ($411.91 million) to help its sluggish economy recover and gradually reduce its rising debt and deficit.
"The IMF staff and the authorities reached an agreement on the IMF supporting their economic programme with financial assistance which could be delivered over a period of three years under an extended fund facility with access of about 300 million euros," the IMF's mission chief, Nadeem Ilahi, told reporters.
The agreement needs to be approved by the IMF's Executive Board early next year. It would be Albania's seventh programme with the IMF since the Balkan state toppled communism in 1990.
"More specifically, the programme targets to reduce the debt vulnerabilities that Albania has at this time while supporting economic growth," Ilahi said.
Albania's public debt would be 936 billion leks ($9.15 billion), or 69.1 percent of the gross domestic product, this year and would rise to 74.8 percent of GDP next year.
"The objective of reducing the debt vulnerabilities is the idea of fiscal consolidation ... and the intensity of that consolidation should not be so strong as to affect the economy which is weak," Ilahi said.
The three-month-old Socialist government will scrap a flat tax of 10 percent in the next fiscal year in January and raise the corporate tax to 15 percent from 10 percent. Also, the income tax for high-earners will rise to rates of 13 percent and 23 percent from 10 percent currently.
Albania's gross domestic product, which grew at around 6 percent a year for a decade since 2000, fell to 1.7 percent last year. Finance Minister Shkelqim Cani said the economy will grow just 1.3 percent this year and 2.1 percent next year.
The IMF programme, Ilahi said, is very flexible about Albania's economic cycle so targets would be loosened if the economy was not recovering or tightened if it was doing well.
The IMF loan and promised funding in the range of $100 million to $200 million from the World Bank will be used to repay identified arrears to business for public works amounting to 24.6 billion leks ($240.18 million) so far.
On top of fiscal measures underpinning the programme, Ilahi said structural reforms in the business environment, including the tax administration and the electricity and pension sectors, needed addressing in the 2015 budget.
"The package of economic policies ... supported by the IMF programme should make Albania an economy that is reforming, is open to foreign investors. ... A lot of the reforms the authorities are planning are consistent with what the European Union has been asking for," Ilahi said. ($1 = 102.4250 Albanian leks) (Reporting by Benet Koleka; Editing by Leslie Adler)