Statement by IMF Mission on 2007 Article IV Consultation with Algeria

Press Release No. 07/271
November 21, 2007

An International Monetary Fund mission issued the following statement today in Algiers:

"An International Monetary Fund (IMF) mission led by Domenico Fanizza, Mission Chief for Algeria was in Algiers during November 4 -21, 2007 to conduct the annual Article IV consultation discussions. A report on the consultation will be prepared by staff for discussion by the IMF's Executive Board in early 2008.

"The discussions focused on recent developments and current economic policies, as well as the medium-term economic outlook. The mission met with Mr. Djoudi, Minister of Finance; Mr. Khelil, Minister of Energy; Mr. Temmar, Minister of Industry and Investment Promotion; Mr. Djaaboub, Minister of Commerce; Ms. Mentouri, Junior Minister for Financial Reform; Mr. Laksaci, Governor of the Bank of Algeria; Mr. Babes, Chairman of the National Economic and Social Council; as well as other senior government officials and members of the Senate (Conseil de la Nation). The mission also met with representatives of the private sector.

"Economic developments show that the ongoing reforms are starting to bear fruit. Nonhydrocarbon growth is likely to reach 6 percent in 2007. However, overall growth is projected at slightly below 5 percent, because of a decline in hydrocarbon production. Continued prudent monetary policy is likely to keep inflation at around 4 percent despite the impact of rising prices for fresh and imported food products. The external position continues to strengthen, with a high level of official reserves. The nonhydrocarbon budget deficit is expected to widen as a result of the public investment program—Programme Complémentaire de Soutien à la Croissance. Nonetheless, the fiscal position remains strong thanks to the high level of hydrocarbon revenues, which have boosted the Hydrocarbon Stabilization Fund (Fonds de Régulation des Recettes).

"These favorable developments should continue in 2008. Growth in the hydrocarbon sector is likely to resume, while growth in the nonhydrocarbon sector should accelerate thanks to the strength of services and construction, and the revival of industrial activity. Algeria's external position is projected to strengthen, with a current account surplus reaching 25 percent of GDP. "Increasing hydrocarbon revenues are likely to keep the overall budget surplus at high levels, despite the expected surge in government spending in 2008.

The main policy objective is to sustain this favorable performance in the years ahead in order to: (a) reduce Algeria's reliance on hydrocarbon production and diversify its economy;
(b) further lower unemployment, which despite its recent drop, remains high particularly among the youth; and (c) improve Algerians' standards of living by transforming the country into a dynamic emerging economy.

"To achieve these goals, the main challenge is to sustain nonhydrocarbon growth. This requires generating a long-lasting domestic supply response to the public investment program by:

  • • Ensuring that the expansionary fiscal policy does not trigger a rise in inflation. Indeed low inflation is key to promoting private sector activity, safeguarding the purchasing power of the population, and protecting its weakest segments, which are hit most by inflation.

    • Ensuring the quality of government spending. The public investment program will succeed in producing a lasting impact on growth only if it actually improves Algeria's infrastructure and human capital, without expanding the government's role in the economy.

    • Continuing economic reforms to promote private sector activity and boost productivity, which remains low. High hydrocarbon prices allow Algeria to afford the costs of these reforms, which include: (a) reinvigorating the financial system;
    (b) modernizing the tax system; and (c) deepening Algeria's integration into the global and regional economies."



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