May 14, 2014 / 10:15 AM / 3 years ago

IMF says Albania hit targets, but electricity still a risk

TIRANA, May 14 (Reuters) - Albania's economy has hit all the targets the International Monetary Fund set for a multi-million-euro loan programme, an IMF team said, but the country's electricity sector still poses a threat to the economy.

After Albania met all the end-March targets, it reached a staff-level agreement with the IMF team on policies needed to complete a first review of the 36-month, 330.9 million-euro programme before the IMF board's June meeting, Nadeem Ilahi, the team's leader, said late on Tuesday.

"After slowing in 2013, economic growth is projected to increase to 2 percent this year, boosted by continued growth in exports and a modest recovery in domestic demand," Ilahi said.

Confirming the IMF's and the government's predictions for growth this year, Ilahi said output remained "below its potential" and inflation was expected to remain low.

The government expects the economy to pick up in the second half of this year after it pays arrears to businesses. The IMF estimates Albania grew just 0.7 percent in 2013.

Ilahi said the "fiscal performance was in line with programme targets in the first quarter of 2014". Albania raised corporate and income tax for high earners but cut taxes for low earners and small businesses.

"The authorities remain committed to further fiscal consolidation in 2015 in order to begin to reduce public debt as envisaged under their economic program," he said.

Rains in April and May have only temporarily decreased the need for electricity imports, ranging from 90 to 200 million euros ($274.13 million) outside the budget. Albania relies fully on water to produce electricity.

"The electricity sector poses a large fiscal risk. Reforms are urgently needed to improve collections, curb high distribution losses and reduce theft in order to end the current reliance on fiscal support to finance the sector," Ilahi said.($1 = 0.7296 Euros) (Reporting By Benet Koleka; Editing by Larry King)

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