IMF tells Albania to cut deficit, sees 2010 growth

*IMF sees Albania growing 2 to 2.5 pct in 2010

*Says government should cut budget deficit, debt

*Efforts to place Eurobond appropriate

By Benet Koleka

TIRANA, March 9 (Reuters) - The International Monetary Fund (IMF) urged Albania on Tuesday to use its recent and expected economic to cut its budget deficit and public debt in order to safeguard macroeconomic stability.

Praising Albania for having weathered the global crisis quite well by growing an estimated 3 percent in 2009, Gerwin Bell, the International Monetary Fund mission chief, warned about policy-related vulnerabilities.

"We still estimate that Albania has grown by some 3 percent in 2009. It is quite a high level if you compare it with other European economies," Bell told a news conference.

Bell said the IMF saw increasingly moderated GDP growth during 2009 up to a decline in the fourth quarter of 2009 which is to be followed by increasing in activity over 2010.

"Compared to projections for other countries, this is a fairly benign economic development. Based on this fairly benign story, we project growth between 2 and 2.5 percent in 2010," Bell added.

But he warned that despite the good outlook there were many risks, including external ones, developments in other countries, including Albania's neighbour Greece, and financial markets.

"There are especially policy-related vulnerabilities. Especially fiscal policy needs to be pulled back in order to safeguard macroeconomic stability," Bell said.

The budget-supported demand had resulted in a large decline in revenue and also a major expenditure increase, he said.

"As a result of this, the budget deficit swung from 3 percent of GDP in 2007 to 7 percent of GPD in 2009. That was one fact that was driving public debt now up to almost 60 percent of GDP and current accounts balance of up to 15 percent," Bell said.

Albania's Democratic Party government of Prime Minister Sali Berisha stimulated growth by focusing on public projects, mainly road building and has spent more than billion euros in a road linking Albania to Kosovo that is now finished.

"These trends and levels are fairly high and they risk, if not corrected, to crowd out private investment, but also to undermine future debt and macroeconomic stability," Bell said.

"It is time to effect a significant turnaround in the budget, in particular we think there should be a budget review in the near future to bring down the deficit to 3 percent of GDP this year," he added.

Finance Minister Ridvan Bode generally agreed with the IMF advice and told the same news conference that Albania planned to cut spending by 30 billion leks (200 million euros).

The IMF saw as appropriate the efforts of the Albanian government to place a Eurobond in excess of 300 million euros.

"That would have major benefits in terms of reducing debt management vulnerabilities. But they should keep other options in the debt management strategy and area of foreign financing in addition to the Eurobond in mind," Bell said. (Editing by Ron Askew)