Press Release: IMF Approves CCFF Credit for Algeria
May 26, 1999
The International Monetary Fund (IMF) has approved a credit for Algeria totaling SDR 223.5 million (about US$300 million) for Algeria under the Compensatory and Contingency Financing Facility (CCFF)1 to help offset a temporary shortfall in exports of goods and services.
The Algerian economy remains heavily dependent on the petroleum sector, which accounts for about one quarter of GDP, and contributes slightly more than half of government revenues, and virtually all of the country's export receipts. As a result, fluctuations in the oil prices over the last year have had a major impact on the overall macroeconomic situation.
In 1998, the external environment worsened as the average oil export price fell by 33 percent. Consequently, the fiscal balance moved from a surplus of 2.4 percent of GDP in 1997 to a deficit in 1998 of 3.9 percent of GDP and the external current account deteriorated sharply from a surplus of 7 percent of GDP to a deficit of about 2 percent of GDP. Nevertheless, thanks to a recovery in agricultural output (11.5 percent growth over the previous year) and a turnaround in industrial activity, estimated real GDP grew by 4 percent.
Prospects and Policies
Despite a modest recovery in world oil and gas prices, Algeria's external position has continued to be adversely affected. For the year ending 30 June 1999, the shortfall period, receipts from oil and gas sales are expected to be lower by $1.9 billion compared to the previous 12-month period. Against this background, the Algerian authorities remain committed to build on the stabilization achievements of the last three years, and it is expected that the direction of economic policymaking will be maintained by the new government toward ensuring macroeconomic stability and accelerating structural reforms.
The authorities have taken several steps in the past year to curb domestic demand and to improve the external current account and fiscal deficits. The central bank has allowed the dinar to depreciate by around 15 percent (in nominal terms) against the U.S. dollar since September 1998. In addition to the positive budgetary impact of this measure the government took steps to reduce public expenditures and to pursue a tight wage policy. On the monetary front, the central bank is determined however not to allow any further acceleration in inflation and to further tightenmonetary policy if needed. On the structural front, the government is committed to further liberalizing the economy and creating an environment conducive to private sector development.
1The CCFF assists IMF members experiencing temporary shortfalls in export earnings. The loans are repayable between 3 ¼ and 5 years, and carry a standard annual interest charge, which is currently 3.52 percent.