Statement of the IMF Mission on the 2009 Article IV Consultation Discussion with AlgeriaPress Release No. 09/388
November 4, 2009
A mission of the International Monetary Fund, headed by Joël Toujas-Bernaté, visited Algiers from October 21 to November 3, 2009 for discussions in the context of the 2009 Article IV consultations. This consultation will conclude with the preparation of a report to be discussed by the IMF Executive Board in early 2010, and published on the IMF website at the following address www.imf.org/external/country/DZA/index.htm.
At the conclusion of the mission Joël Toujas-Bernaté made the following statement:
“The discussions concerned short- and medium-term economic policies and prospects within the current context of uncertainty regarding the global economic outlook. The mission benefitted from discussions with the Minister of Finance, Mr. Karim Djoudi; the Minister of Trade, Mr. El Hachemi Djaaboub; and the Governor of the Bank of Algeria, Mr. Mohammed Laksaci. The mission also met with representatives of economic and financial sectors and with representatives of civil society.
“Despite a deteriorated international environment, Algeria has continued to post good economic performance, consistent with its trend in recent years, and characterized by solid nonhydrocarbon growth, control of inflation, and reduction of unemployment, which however remains high, especially among the youth. Thanks to prudent financial policies, comfortable external reserves and fiscal savings have been built up, and external debt has been kept at a very low level. Macroeconomic performance remains robust in 2009:
• Nonhydrocarbon growth is expected to reach 9 percent, thanks to exceptional grain harvests and good performance by sectors driven by the public investment program (PIP). However, the marked reduction in hydrocarbon output is expected to reduce overall GDP growth to about 2 percent.
• Inflation is on the rise (5.8 percent) due to a spike in the prices of fresh food. Inflation excluding fresh food remains low (1.4 percent), thanks to prudent monetary policy, subsidies for some basic food products, and the high content of imports in public expenditures.
• Algeria’s external position remains comfortable, with international reserves at about US$146 billion at end-September 2009. The current account surplus has declined substantially as the result of the drop in the price of hydrocarbons and the high level of imports.
• The fiscal position has been strongly impacted by the decline in hydrocarbon receipts, while expenditures remain at a high level. Consequently, this year Algeria will post its first budget deficit in a decade, which could reach 8.4 percent of GDP, compared with a surplus of 8.1 percent of GDP in 2008.
“Algeria has not been directly affected by the global financial crisis, but has been impacted by the fall in hydrocarbon prices. The hydrocarbon sector is expected to experience improved activity in 2010 with the recovery of world growth, and may make a positive contribution to overall growth for the first time in several years. Medium-term prospects remain favorable, even if nonhydrocarbon sector activity slows somewhat, with stabilization of public investment outlays and a private sector that does not appear to be entirely in a position as yet to take over the role of engine of growth. Medium-term financial prospects improved significantly with the increase in oil prices, but they are still strongly dependent on fluctuations in hydrocarbon prices. The current international economic crisis underscores the need to diversify the economy, including a reduction in the fiscal dependence on hydrocarbon resources.
“The main objective of Algeria’s 2010 fiscal policy should be to sustain the effort to improve infrastructure while continuing to enhance its control over expenses and their targeting. After a phase of accumulation of resources in the Revenue Stabilization Fund (FRR) in recent years, the time has come to use these resources to finance the PIP, thereby driving growth in the nonhydrocarbon sector and preserving employment. Meanwhile, the sector’s infrastructure component will potentially contribute to improve the productive capacity of the Algerian economy in the medium and long terms. Nevertheless, with a view to reorienting fiscal policy to a path of long-term fiscal sustainability, it would be appropriate to refine the rules governing the financing of budgetary expenditures by hydrocarbon resources, and further streamline fiscal expenditures as well as mobilize larger nonhydrocarbon revenues. The main objective of monetary policy in 2010 should be to control excess liquidity and inflationary pressures, while communicating more widely the objectives and instruments of that policy. In addition, the Bank of Algeria is continuing to maintain the real effective exchange rate close to its equilibrium level.
“In this period of moderate world economic recovery, it is important to frame a concerted, well orchestrated strategy implementing policies that foster the emergence of a dynamic and competitive private sector. The authorities have adopted measures to improve bank intermediation so as to better channel the very substantial national savings toward development of nonhydrocarbon investments, in particular in the private sector. These efforts should be sustained. It is also essential to monitor closely the impact of certain measures in the Supplementary Budget Law of 2009 regarding the economy’s diversification prospects. Diversification of the economy should be based on noticeable improvement in the business climate. Finally, the mission encourages the authorities to pursue their efforts to integrate Algeria into the regional and world economies.”