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IMF Country Report No. 18/168
ALGERIA
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ALGERIA
June 2018
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with Algeria, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its May 30, 2018 consideration of the staff report that concluded the Article IV consultation with Algeria.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 30, 2018, following discussions that ended on March 12, 2018, with the officials of Algeria on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 15, 2018
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Algeria.
The document listed below has been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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ALGERIA
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION
May 15, 2018
Key Issues
Context. To adjust to lower oil prices since 2014, Algeria initially relied solely on exchange rate policy before putting most of the burden on fiscal consolidation. In parallel, the government initiated several structural reforms and started designing a long-term plan to reshape the country’s growth model, while the central bank was modernizing its monetary policy framework. However, confronted with slowing growth, increasing unemployment, and financing difficulties, the authorities recently chose to boost activity through increased spending in 2018, to be followed by a steep fiscal consolidation from 2019 onward. With fiscal savings depleted and reluctant to borrow externally, they turned to monetary financing. To reduce the trade deficit and foster import substitution, they hardened import barriers.
Outlook and risks. In the short term, the authorities’ new strategy will likely improve growth but also exacerbate fiscal and external imbalances. In the medium term, it risks increasing inflation, accelerating the loss of international reserves, and lowering growth. Hence, the environment may become less conducive to reforms and private sector development. Importantly, the new policies are likely to reduce the economy’s resilience to shocks, externally (e.g., lower oil prices) or domestically (e.g., from higher-than-planned fiscal spending or contingent liabilities).
Policy recommendations. Staff shares the authorities’ dual objectives of economic stabilization and promotion of more inclusive growth. However, staff considers that there still is some space to pursue a less risky strategy that would achieve better outcomes. Fiscal consolidation should continue in 2018. It should be sustained in the medium term, but implemented at a gradual pace made possible by tapping a broad range of financing options excluding monetary financing. A gradual exchange rate depreciation combined with efforts to eliminate the parallel foreign exchange market would support the adjustment. The central bank should mop up enough of the liquidity already injected through monetary financing operations, and stand ready to tighten the monetary policy stance if inflationary pressures emerge. If the choice is to continue monetizing the deficit, robust safeguards to contain associated risks should include strict quantitative and time limits to monetary financing, and the pricing of such financing at market rates. Irrespective of the policy mix pursued, key structural reforms should be implemented in a timely manner to foster a more diversified, private-sector led economy, and the policy framework should be strengthened.
Approved By
Adnan Mazarei and Kevin Fletcher
The discussions took place in Algiers from February 27 to March 12. The staff team comprised Jean-François Dauphin (head), Gaëlle Pierre, and Moez Souissi (all MCD), and Joelle El Gemayel and Jad Khallouf (both MCM). Greg Auclair, Ramzy Al Amine, Ravaka Prevost, and Geraldine Cruz (all MCD) assisted in the preparation of this report.
The team met with the Governor of Bank of Algeria, Mohamed Loukal; Prime Minister Mr. Ouyahia, Finance Minister, Mr. Raouia; Training and Vocational Education Minister, Mr. Mebarki; Industry and Mines Minister, Mr. Yousfi; Trade Minister, Mr. Benmeradi; Public Works and Transports Minister, Mr. Zaâlane; Labor, Employment, and Social Security Minister, Mr. Zemali. The mission also held discussions with other senior government and central bank officials as well as with representatives of the economic and financial sectors and trade union. Mr. Badsi (OED) participated in most of the meetings.
Contents
INTRODUCTION
RECENT MACRO-FINANCIAL DEVELOPMENTS
POLICY DISCUSSIONS
A. Risks from the New Economic Strategy
B. Alternative Policy Mix
C. Reforms for Sustainable and Inclusive Growth
STAFF APPRAISAL
BOXES
1. Risk Assessment Matrix
2. Macro-Financial Linkages from Within the Public Sector
3. The Parallel Exchange Market
FIGURES
1. Selected Macroeconomic Indicators
2. Fiscal Indicators
3. Monetary Indicators
TABLES
1. Selected Economic and Financial Indicators 2014–23
2. Balance of Payments, 2014–23
3. Summary of Central Government Operations, 2014–23 (In billions of Algerian dinars)
4. Summary of Central Government Operations, 2014–23 (In percent of GDP unless otherwise indicated)
5. Monetary Survey, 2014–23
6. Financial Soundness Indicators, 2009–17
ANNEXES
I. Authorities’ Response to Past IMF Recommendations
II. Alternative Scenario
III. Downside Risks Scenarios
IV. Public Debt Sustainability Analysis
V. External Sector Assessment
VI. Implementation of 2014 FSAP Recommendations
VII. Promoting Greater Female Participation in the Labor Market
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ALGERIA
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
May 15, 2018
Prepared By
The Middle East and Central Asia Department (In collaboration with other departments)
Contents
RELATIONS WITH THE FUND
RELATIONS WITH THE WORLD BANK GROUP
STATISTICAL ISSUES
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Press Release No. 18/207
FOR IMMEDIATE RELEASE
June 1, 2018
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