The economy of Algeria was already in a precarious position in 2020 when it had to cope with the double shock of the Covid-19 pandemic and lower hydrocarbon prices. Since then, the situation has improved thanks to the rise in global oil prices and strong demand for gas in Europe. For the first time since 2014, the country should be able to post current account surpluses in 2022-2023, and then accumulate FX reserves. The risk of a balance of payments crisis in the short term is receding [...]
Algeria has not pulled out of the crisis yet, but it is no longer in the danger zone. Real GDP growth swung back into positive territory in Q1 2021, and external pressures have eased considerably. The factors behind these improvements are essentially cyclical, however, starting with the upturn in oil prices and strong European demand for natural gas. But this will not be enough to balance public finances [...]
With anaemic growth, strong pressure on hydrocarbon revenue and substantial twin deficits, the macroeconomic situation is worrying. For the time being, forex reserves remain at comfortable levels but the speed and scale of their contraction is a major source of vulnerability over the short to medium term. Meanwhile, although certain decisions suggest a change of tack in the government’s position after years of economic protectionism, this progress is still too hesitant given the challenges [...]
In late 2017, the authorities decided to resort to direct financing of the Treasury by the central bank to stabilise a dangerously deteriorating macroeconomic situation. The injection of funds helped rebuild bank liquidity via the reimbursement of the debt of state-owned companies. In the absence of a real fiscal impulse, and thanks to prudent monetary policy, inflation remains under control. Without structural adjustments, however, the situation could become very risky.
Global oil prices have rebounded since the beginning of the year, averaging USD 70 per barrel, up from USD 54 in 2017. If it is difficult to say if the current dynamic will last, it is necessarily good news for the Algerian economy as hydrocarbon sector accounts for almost the totality of exports and provides 40% of budgetary revenues. However, the oil price increase remains insufficient. The 2018 budget marks a shift in the government’s policy stance [...]
With a population of 46 million, vast hydrocarbon reserves and its proximity to Europe, Algeria has significant economic development potential, but its future outlook is subject to great uncertainties. Algeria will have to deal with large macroeconomic imbalances. Algeria is fundamentally a state-driven economy that runs large twin deficits. The rebound in global oil prices will not be sufficient to restore macroeconomic stability. The ability of the economy to recover is undermined by the need to consolidate public finances and external accounts. The fragile socio-political context compounds these difficulties. Furthermore, macroeconomic challenges have pushed the authorities to change their attitude towards foreign investors. Several reforms have been introduced since the beginning of 2020 with a view to improve the country’s attractiveness, in particular in the oil and gas sector as many years of under-investment and robust domestic energy consumption have affected the country’s ability to export hydrocarbon products. Algeria is a member of the Organisation of Petroleum Exporting Countries (OPEC).
