IMF Executive Board Concludes 2022 Article IV Consultation with Algeria
IMF News, February 1, 2023
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- Published: February 1, 2023
Overview
- Executive Board concluded the Article IV consultation with Algeria on February 1, 2023, and endorsed the staff appraisal without a meeting.
- Upswing in hydrocarbon prices alleviated pressures on public and external finances; post-pandemic recovery likely gathered pace.
- In 2022:
- Current account balance is expected to post its first surplus since 2013.
- International reserves have risen, halting the steady downtrend in recent years.
- A fiscal surplus is expected reflecting hydrocarbon revenue windfall and large under-execution of budgeted spending.
- Non-hydrocarbon GDP growth projected to accelerate to 3.2 percent in 2022 from 2.1 percent in 2021.
- Inflation: headline inflation picked up to 7.2 percent in 2021 and is estimated at a 26-year high of 9.3 percent in 2022.
- Monetary policy: despite steps towards more active liquidity management by the central bank, monetary policy remains accommodative.
Outlook and projections
- Near-term prospects are favorable but growth projected to decelerate and inflation to remain high in the medium term.
- Nonhydrocarbon GDP growth forecasts:
- 3.4 percent in 2023 (on substantial rise in fiscal spending)
- around 2 percent in the medium term
- Current account:
- Projected to remain in surplus in 2023
- Projected to record a gradually widening deficit from 2024 onwards
- Inflation:
- Projected to moderate to 8.1 percent in 2023 but remain relatively high over the medium term
- Outlook highly contingent on hydrocarbon prices; upside risks from increased investment in hydrocarbon sector and mining projects under development.
Executive Board assessment and key risks
- Executive Directors noted the near-term outlook materially improved, buoyed by hydrocarbon price upswing.
- Algeria’s external position in 2022 was stronger than the level implied by fundamentals and desirable policy settings.
- Main risks:
- Highly contingent on hydrocarbon prices and faces risks from a weaker global backdrop and commodity price volatility.
- Broad-based acceleration in inflation is a major policy challenge.
Staff recommendations and policy priorities
- Monetary policy
- Staff urges the Bank of Algeria (BA) to tighten monetary policy immediately to forestall possible de-anchoring of expectations and persistent high inflation.
- Recent dinar appreciation cannot substitute for needed monetary policy tightening.
- Staff recommends that the BA increase its policy rate and resume well-calibrated liquidity management to enhance monetary policy transmission.
- Forthcoming revision of the Law on Money and Credit is a welcome opportunity to strengthen BA governance.
- Staff recommends a formal ban on monetary financing in the new law to enhance central bank independence and its ability to act in defense of price stability.
- Fiscal policy and public finances
- Announced sizeable rise in spending under the 2023 budget could reverse progress on narrowing the deficit since 2018, weaken resilience of public finances and add to inflation pressures.
- Financing constraints likely to forestall full execution of announced spending, but even continued low execution could lead to substantial deterioration of the fiscal deficit.
- Higher spending rigidity and rapid drawdown of fiscal savings would exacerbate vulnerability to hydrocarbon price gyrations and add to excess liquidity, complicating monetary policy.
- Continued wide fiscal deficits and increasing principal repayments due on past monetary financing would result in large fiscal financing needs through the medium term.
- Authorities have ruled out foreign borrowing; meeting medium-term financing needs would pressure the domestic banking system and pose risks to financial and macroeconomic stability.
- Fiscal rebalancing and structural reforms
- Staff recommends an adjustment to improve the non-hydrocarbon primary deficit excluding the BA’s dividends by 10 percent of NHGDP relative to its 2022 level and through 2027.
- Measures to achieve fiscal rebalancing: subsidy reform together with enhanced targeted social protection, parametric pension reform, lower capital spending, and continuation of tax reforms.
- Staff proposes adoption of a medium-term fiscal framework based on well-calibrated rules comprising a saving floor and a gross debt anchor to guide fiscal rebalancing, reduce policy procyclicality and protect priority spending.
- More diversified financing sources would afford space to stage fiscal adjustment over several years while limiting pressures on the banking system.
- Public finance management
- Staff welcomes progress on reforms of public finance management and calls for further efforts to strengthen the fiscal framework.
- Projected full implementation of the Organic Budget Law in 2023 would mark a major milestone for modernization efforts.
- Budgets should be in line with execution capacity and available fiscal space, incorporate comprehensive and transparent financing plans, and strengthen cash management and transparency on budget execution.
- Structural reforms and governance
- Acceleration of structural reforms needed to transition to a more diversified, resilient and job-intensive growth model and strengthen governance.
- Recent and forthcoming legislative reforms: new investment law; forthcoming laws on micro-entrepreneurship and renewable energies.
- Staff cautions against risks from tight import regulation measures (e.g., fueling inflation and incentivizing informality) and recommends further reforms to improve trade openness and competitiveness, including product and labor market reforms.
- Urges prioritization of actions to address weaknesses in macroeconomic data quality and availability.
- Ongoing efforts to strengthen governance and reduce corruption risks are welcome and should be intensified.
Selected economic and financial indicators (highlights from the 2017–27 table)
- Output and prices (annual percentage change)
- Real GDP: 1.4 (2017), 1.2 (2018), 1.0 (2019), -5.1 (2020), 3.4 (2021), 2.9 (2022), 3.0 (2023), 2.6 (2024), 2.2 (2025), 2.1 (2026), 1.6 (2027)
- Hydrocarbon sector growth: -2.4 (2017), -6.4 (2018), -4.9 (2019), -10.2 (2020), 10.5 (2021), 1.7 (2022), 0.7 (2023), 0.8 (2024), 1.8 (2025), 0.0 (2026)
- Nonhydrocarbon sector growth: 2.3 (2017), -4.1 (2018), 3.2 (2019), 2.8 (2020), 2.4 (2021), 1.9 (2022)
- Consumer price index (period average): 5.6 (2017), 4.3 (2018), 7.2 (2021), 9.3 (2022), 8.1 (2023), 7.6 (2024), 6.6 (2025), 6.0 (2026)
- Investment and savings (percent of GDP)
- Savings-investment balance: -13.1 (2017), -9.6 (2018), -9.9 (2019), -12.8 (2020), -2.8 (2021), 2.7 (2022), -1.4 (2023), -3.1 (2024), -4.4 (2025)
- National savings: 30.3 (2017), 31.7 (2018), 29.5 (2019), 27.0 (2020), 35.1 (2021), 39.6 (2022), 39.2 (2023), 36.6 (2024)
- Investment: 43.5 (2017), 41.3 (2018), 39.3 (2019), 39.9 (2020), 37.9 (2021), 32.0 (2022), 36.5 (2023), 38.0 (2024)
- Central government finances (percent of GDP)
- Revenue: 32.2 (2017), 30.5 (2018), 29.8 (2019), 33.2 (2020), 31.4 (2021), 27.5 (2022), 26.9 (2023)
- Expenditure (including net lending): 40.5 (2017), 40.2 (2018), 41.8 (2019), 42.4 (2020), 37.0 (2021), 38.1 (2022), 36.1 (2023), 35.2 (2024), 34.4 (2025), 34.1 (2026)
- Overall budget balance: -8.4 (2017), -6.8 (2018), -11.9 (2019), -7.2 (2020), -6.6 (2021), -6.7 (2022), -7.0 (2023)
- Gross government debt (excluding guarantees): 26.8 (2017), 38.3 (2018), 46.0 (2019), 52.0 (2020), 62.8 (2021), 52.4 (2022), 49.4 (2023), 51.9 (2024), 54.6 (2025), 57.5 (2026), 60.8 (2027)
- Nonhydrocarbon primary balance excluding central bank dividends (percent of nonhydrocarbon GDP): -29.8 (2017), -32.6 (2018), -32.2 (2019), -29.9 (2020), -28.9 (2021), -25.5 (2022), -31.4 (2023), -26.4 (2024), -24.4 (2025), -22.6 (2026), -21.6 (2027)
- External sector and reserves
- Current account balance (percent of GDP): 19.0 (2017), 19.1 (2018), -14.2 (2019), -37.9 (2020), 75.9 (2021), 58.0 (2022)
- Crude oil export unit value (US$/bbl): 54.1 (2017), 71.2 (2018), 64.5 (2019), 72.3 (2020), 101.7 (2021), 87.0 (2022), 80.9 (2023), 77.4 (2024), 75.0 (2025), 73.2 (2026)
- Gross official reserves (In US$ billions): 97.3 (2017), 79.9 (2018), 48.2 (2019), 46.7 (2020), 62.0 (2021), 69.5 (2022), 68.1 (2023), 63.1 (2024), 54.9 (2025), 45.4 (2026)
- Reserves in months of next year's imports of goods and services: 19.4 (2017), 17.7 (2018), 17.6 (2019), 13.0 (2020), 14.1 (2021), 13.3 (2022), 12.0 (2023), 10.4 (2024)
- Money and credit (annual percentage change)
- Net foreign assets: -11.1 (2017), -15.8 (2018), -20.3 (2019), -14.9 (2020), 36.2 (2021), 18.8 (2022), -9.4 (2023), -14.4 (2024)
- Credit to the economy: 12.3 (2017), -12.1 (2018), 13.2 (2019), 2.5 (2020)
- Money and quasi-money: 11.1 (2017), 7.4 (2018), 8.6 (2019), 7.5 (2020), 6.9 (2021)
- Memorandum items
- GDP (in billions of dinars at current prices): 18,876 (2017), 20,452 (2018), 20,500 (2019), 18,477 (2020), 22,079 (2021), 27,863 (2022), 30,062 (2023), 32,097 (2024), 34,753 (2025), 37,461 (2026), 40,126 (2027)
- NHGDP (in billions of dinars at current prices): 15,177 (2017), 15,904 (2018), 16,509 (2019), 15,902 (2020), 17,167 (2021), 19,709 (2022), 22,367 (2023), 24,998 (2024), 27,608 (2025), 30,109 (2026), 32,610 (2027)
- GDP per capita (in US$): 4,080 (2017), 4,119 (2018), 3,953 (2019), 3,322 (2020), 3,669 (2021)
- Exchange rate (DA per US$): 110.9 (2017), 116.6 (2018), 119.4 (2019), 126.9 (2020), 135.3 (2021)
Source: IMF Communications Department — Press Release No. 23/27 (February 1, 2023).