Algerian Economy Facing Significant Challenges – IMF Says

ALGIERS (Capital Markets in Africa) – The International Monetary Fund indicated that Algeria continues to face significant challenges because of the sharp decrease in global oil prices since 2014. It noted that Algerian authorities are facing wide fiscal and current account deficits, declining foreign currency reserves and a slowdown in economic activity, despite the considerable fiscal consolidation measures implemented in 2017. It projected real GDP growth to accelerate from 1.6% in 2017 to 3% in 2018 on the back of sustained fiscal consolidation, but to decelerate to 2.7% in 2019. Also, it expected non-hydrocarbon sector activity to grow by 3.4% in 2018 and 2.9% in 2019, compared to 2.6% in 2017.

The Fund noted that authorities have adopted a medium-term budget framework that includes higher fiscal spending in 2018, along with a resumption of fiscal consolidation over the medium term, the monetization of fiscal deficits, temporary restrictions on imports, as well as structural reforms that aim to diversify the economy. However, it anticipated such a policy mix to weaken Algeria’s medium-term growth prospects, weigh on fiscal and external imbalances, increase inflationary  pressure,  deplete  foreign  currency  reserves  and heighten financial stability risks.

In addition, the IMF forecast the fiscal deficit to slightly widen from 8.8% of GDP in 2017 to 9% of GDP in 2018, but to narrow to 4.8% of GDP in 2019 in case of higher non-hydrocarbon revenues, improved public spending efficiency, and sustained subsidy reforms. Also, it expected the government’s debt level to rise from 27% of GDP at the end of 2017 to 34.8% of GDP at end-2018 and 39.9% of GDP at end-2019. In parallel, it projected the current account deficit to narrow from 12.9% of GDP last year to 9.7% of GDP in 2018 in case of higher hydrocarbon production and prices. It anticipated foreign currency reserves to decrease from 19.1 months of imports at the end of 2017 to 16.2 months of import coverage at end-2018 and to 13.5 months of imports at the end of 2019.