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International Monetary Fund. Middle East and Central Asia Dept.

The oil price shock has hit Algeria's economy hard and exposed the longstanding vulnerabilities of a growth model dependent on hydrocarbon and public spending. The fiscal position-already weakened by a ramp-up in spending in the wake of the Arab Spring-has deteriorated further as oil revenues plummeted. Once-substantial fiscal savings have been nearly depleted to finance large budget deficits. Following several years of comfortable surpluses, the current account balance has swung sharply into deficit and official reserves, while still large, are diminishing. The banking system as a whole appears healthy, but financial stability risks are increasing. The policy response in 2015 was insufficient, but the 2016 budget calls for a sharp reduction in spending, and the authorities have initiated some reforms, including a much needed reform of the subsidy system.

International Monetary Fund. Middle East and Central Asia Dept.

This 2014 Article IV Consultation highlights that economic activity in Algeria has picked up in 2014, with real GDP growth projected to reach 4 percent following 2.8 percent growth in 2013. The hydrocarbon sector is expected to expand for the first time in eight years, while nonhydrocarbon growth remains supportive. Inflation has decelerated sharply to 2.1 percent, thanks in part to tighter monetary policy. The fiscal deficit is expected to widen to more than 7 percent owing to lower hydrocarbon revenue, a sharp increase in capital expenditure, and continued high current spending. Fiscal savings are expected to decline for the second consecutive year.

International Monetary Fund. Middle East and Central Asia Dept.

This 2013 Article IV Consultation highlights that Algeria’s economic performance in 2013 has been satisfactory. Inflation, which reached 8.9 percent last year, has decelerated significantly in 2013 thanks to fiscal consolidation and prudent monetary policy. Real GDP growth is expected to slow to 2.7 percent in 2013 from 3.3 percent in 2012, reflecting a continued decline in hydrocarbon sector output and lower public spending. The current account surplus is expected to narrow to 1.1 percent of GDP in 2013, as robust domestic hydrocarbon consumption, together with declining prices, weighs on hydrocarbon exports and import growth remains sizeable.

International Monetary Fund. Middle East and Central Asia Dept.

The economic condition of Algeria in 2012 is stable. Rising inflation, continued heavy reliance on the hydrocarbon sector and public spending, and vulnerability to a prolonged decline in the oil price, as well as high unemployment pose significant challenges. Explicitly considering an annual cap on drawdowns from the oil fund would strengthen the oil price fiscal rule. The importance of public financial management, shortcomings in the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework, restrictive FDI, and full-fledged budget framework has been stressed. Measures taken for increasing employment have been outlined.

International Monetary Fund

This 2005 Article IV Consultation highlights that the Algerian economy continues to benefit from abundant and increasing hydrocarbon revenues. Real GDP growth is expected to continue at about 5 percent in 2005, led by increased output in the hydrocarbon sector and sustained activity in the construction and services sectors. Executive Directors have welcomed the authorities’ resolve to maintain fiscal sustainability over the medium term. They have stressed the importance of preparing comprehensive medium-term budget projections, and limiting increases in real wages to increases in productivity in the nonhydrocarbon sector.

Poul Høst-Madsen

In the author’s view, public discussion too readily assumes that there has been a large and persistent capital flight from the developing countries. The article suggests that some widely publicized estimates of this flow may have tended to exaggerate its actual volume. The author believes that in the interest of the cause of development, greater caution should be shown in public discussion of this admittedly difficult problem.