Algeria: Staff Report for the 2009 Article IV Consultation Discussions—Informational Annex

This report reviews the Article IV Consultation with Algeria on economic developments and policies. Algeria has enjoyed several years of strong economic performance driven by public spending, but continues to face important challenges. Nonhydrocarbon (NH) growth and job creation are largely sustained by public spending, highlighting the pressing need to accelerate structural reforms to diversify the economy, letting a competitive and outward-oriented private sector emerge. Executive Directors welcomed Algeria’s strong economic performance in recent years, with solid NH growth and low inflation.

Abstract

This report reviews the Article IV Consultation with Algeria on economic developments and policies. Algeria has enjoyed several years of strong economic performance driven by public spending, but continues to face important challenges. Nonhydrocarbon (NH) growth and job creation are largely sustained by public spending, highlighting the pressing need to accelerate structural reforms to diversify the economy, letting a competitive and outward-oriented private sector emerge. Executive Directors welcomed Algeria’s strong economic performance in recent years, with solid NH growth and low inflation.

Annex I. Relations with the Fund

(As of October 31, 2009)

A. Financial Relations

Membership Status Joined 9/26/63; Article VIII

General Resources Account

article image

SDR Department

article image

Outstanding Purchases and Loans: None.

Financial Arrangements

article image

Projected Obligations to Fund

(SDR million; based on existing use of resources and present holdings of SDRs)

article image

Implementation of HIPC Initiative: Not Applicable.

B. Nonfinancial Relations

Exchange Rate Arrangement

1. From January 21, 1974 to October 1, 1994, the exchange rate of the dinar was determined on the basis of a fixed relationship with a basket of currencies, adjusted from time to time. On October 1, 1994, the Bank of Algeria introduced a managed float for the dinar through daily fixing sessions that included six commercial banks. This system has been replaced by an interbank foreign exchange market as of January 2, 1996. On December XX, 2009, the average of the buying and selling rates for the U.S. dollar was $1 = DA 71.2, equivalent to SDR 1 = DA 109.9. No margin limits are imposed on the buying and selling exchange rates in the interbank foreign exchange market, except for a margin of DA 0.017 between the buying and selling rates of the Bank of Algeria for the dinar against the U.S. dollar.

2. The exchange regime is a managed float with no preannounced path for the exchange rate. Full surrender requirements are in effect on hydrocarbon export proceeds. Limits on the making of payments for invisible transactions and current transfers, which have remained since Algeria accepted the obligations of Article VIII, sections 2(a), 3, and 4, in 1997, are indicative according to the authorities. Inward direct investment is generally free of restrictions; controls are maintained on other capital account payments and transfers.

Latest Article IV Consultation

The discussions for the 2008 Article IV consultation with Algeria were held in Algiers during November 4–15, 2008. The staff report (IMF Country Report No. 09/108) was discussed by the Executive Board on January 21, 2009 and published on April 02, 2009.

Technical Assistance

  • An MFD expert visited Algiers in January–February 2005 to advise on bank inspection.

  • An STA expert visited Algiers in June–July 2005 to advise on the development of quarterly national accounts statistics.

  • An MFD mission visited Algiers in July 2005 to advise on liquidity management and monetary operations.

  • An MFD/LEG mission visited Algiers in July 2005 to advise on the exchange regime and the development of the foreign exchange market.

  • An MFD expert visited Algiers in October 2005 to advise on foreign exchange reserve management.

  • An MFD mission visited Algiers in September 2005, December 2005, and in May 2006 to advise on bank restructuring.

  • An MFD expert visited Algiers several times from February through September 2006 to assist the Bank of Algeria to develop its bank supervision and regulation capability.

  • An MFD expert visited Algiers in January–February 2006 to advise on monetary and foreign exchange operations.

  • An MFD expert visited Algiers in February and May 2006 to advise on foreign exchange reserve management.

  • A STA mission visited Algiers in May 2006 to advise on monetary and financial statistics.

  • An MFD expert visited Algiers in May 2006 to advise on payment systems.

  • A STA mission visited Algiers in May 2006 to advise on consumer price statistics.

  • MFDs expert visited Algiers several times from February through October 2007 to assist the Bank of Algeria in banking supervision.

  • Two FAD missions visited Algiers in February 2007 to review tax policy and advise on customs administration.

  • A multisector STA mission visited Algiers in February 2007 to prepare Algeria’s participation in the GDDS.

  • An FAD mission visited Algiers in April 2007 to continue the program of assistance in tax administration.

  • An FAD mission visited Algiers in May 2008 to continue the program of assistance in tax administration.

  • An MCM mission visited Algiers in May 2009 to prepare the program for harmonizing financial sector infrastructure in the Maghreb

Financial Sector Assessment Program

Algeria participated in the FSAP in 2003. The Executive Board discussed the Financial System Stability Assessment on January 14, 2004, (see IMF Country Report No. 04/138). The FSAP was updated in 2007.

Resident Representative/Advisor

None.

Annex II. Relations with the World Bank

(As of December 1, 2009)

The World Bank is preparing a new Country Partnership Strategy for Algeria, following a request for closer engagement by the Government. This is an important step after a period of low activity since the end of the previous Country Assistance Strategy in 2006. The Bank addressed several strategic objectives and development challenges through its previous CAS launched in FY2004, including: (i) building a political, social and economic environment that would enable growth, employment, social cohesion and poverty reduction; (ii) reducing the economy’s high dependence on oil exports and vulnerability to oil price volatility; (iii) building a conducive investment climate to encourage private investment; and (iv) improving the effectiveness of public service delivery.

However, in 2004, as a result of the change in Government’s orientation related to foreign borrowing (the Government decided against any further official foreign borrowing and, by 2006, started repaying back all its foreign obligations), no new lending activities could be engaged during the previous CAS period. The Bank’s role evolved from that of financing partner to one of advisor, and, starting in 2006, the authorities expressed interest in Reimbursable Technical Assistance (RTA) from the Bank. IBRD Portfolio decreased from 11 projects (net commitment of US$515.3 million) in FY04 to no lending after the last loan, Budget Modernizations Systems, closed in February 2009. The drastic changes altered the initial relevance and alignment of the CAS with the Country strategy, reducing the scope overall and shifting from private sector development and privatization to supporting the modernization of selected areas of state activities with AAA, RTA and a few remaining operations. Today, no Bank lending operation is under implementation, the bulk of the support is provided through RTAs and Bank-funded advisory and analytical work.

Analytical work completed over the past five years includes an update of the FSAP carried out jointly with the IMF, a Public Expenditure Review (PER) also done in collaboration with the IMF in 2006; a Labor Markets and Social Protection policy note; a second Investment Climate Assessment; and a policy note on Trade in Services. Technical assistance (TA) has supported social insurance, specifically in the area of pensions; macroeconomic modeling to the Ministry of Finance and the Central Bank; improvement of the doing business indicators; training in analytical tools for poverty, governance and private sector development issues with the Conseil National Economique et Social (CNES); training in rural development topics; training in skills development and technical, vocational and educational. RTA activities have been agreed and implemented in the water sector, with the Ministry of Urban Planning and Environment (MATET) in the area of solid waste management and the rehabilitation of open dumps and the clean development mechanism; advisory services on procurement to SONATRACH; two technical assistance activities were completed recently: preparation of management contracts in water supply for three of the largest cities; and capacity building for the Caisse Nationale d’Equipement et de Développement (CNED); and assistance to the Central Bank for the creation of a credit bureau and on the regulatory framework of credit cooperatives. The World Bank Treasury has an ongoing Reserves Advisory management Program with Banque d’Algérie.

The new CPS is scheduled for delivery in FY10, covering FY10–13. The thrust of the CPS remains that of supporting the country towards a transition to a new, sustainable growth model and economic diversification. The CPS program is under discussion with the Authorities, and it is expected that it will be organized around the following three pillars:

The main instruments of cooperation under the new CAS will remain that of reimbursable technical assistance, and will be complemented by the use of trust funds to selectively support TA or studies, and of Bank budget to support the identification of RTAs, policy dialogues in the priority areas, and technical assistance for capacity building.

Algeria: Financial Relations with the World Bank

(As of December 1, 2009)

article image

IDA has no operations in Algeria.

Less cancellations, includes adjustment lending.

Fiscal years start July 1 and end June 30.

Includes charges.

Equal to disbursements minus debt service.

Algeria—Statistical Issues Appendix

article image

Algeria: Table of Common Indicators Required for Surveillance

As of December 7, 2009

article image

Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents. Data are partial, because of shortcomings in the compilation of FDI.