A window of opportunity not to be missed

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. But macroeconomic stability remains fragile as prospects for recovery are modest and public finances are structurally in deficit. The implementation of reforms is a priority to prevent economic troubles in the event of a new oil shock.

After several years of low economic growth and macroeconomic imbalances (budgetary and current account deficits, inflation partly due to monetary factors), the outlook improves somewhat. The country benefits from high global oil prices and the strong demand for gas in Europe. Algeria is effectively seen as an obvious alternative to Europe's waning dependence on Russian supply of fossil fuels thanks to its proximity to the continent and its vast untapped reserves. Hydrocarbon exports (which account for almost the totality of the country’s exports) are forecasted to reach more than USD50bn over the next two years, up from USD32bn in 2021 and just USD20bn in 2020 (chart 1).

The last time oil & gas exports reached such a high level was in 2014. Fiscal pressure will also ease since hydrocarbon receipts account for more than 40% of government revenues. However, Algeria is expected to perform modestly compared with other hydrocarbon producers in the MENA region. Above all, the IMF still sees a bearish MLT outlook, underlining once again the necessity to launch structural reforms. But the ease in macroeconomic pressure could make them less urgent to implement.

A modest economic rebound in the short term