IMF Executive Board Concludes 2023 Article IV Consultation with Algeria
IMF News, March 29, 2024
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- Published: March 29, 2024
Economic overview and near-term outlook
- Algerian economy estimated to have grown by 4.2 percent in 2023, driven by a rebound in hydrocarbon production and strong performance in industry, construction, and service sectors.
- Near-term growth forecast: 3.8 percent in 2024, supported in part by large fiscal spending.
- Inflation: period average consumer price index 6.1 in 2023; forecast 5.5 percent in 2024, 5.2 percent in 2025, and 5.0 percent subsequently. Inflation pressures persisted in 2023, primarily due to high food prices; easing fresh food prices expected to help decelerate inflation, though entrenchment at a relatively elevated level is a concern.
- External position: current account surplus for the second year in a row in 2023; surplus projected to narrow in 2024 as hydrocarbon prices decline.
- Public finances: fiscal deficit estimated to have widened in 2023, but less than foreseen in the 2023 revised budget due to relatively slow execution rates.
Risks and medium-term prospects
- Downside risks highlighted:
- Stubborn inflation.
- Volatility in international hydrocarbon prices.
- Fiscal risks from contingent liabilities and large budgetary financing needs.
- Rising public debt.
- Extreme climate events affecting the economy and budget.
- Disorderly energy transition as a longer-term risk.
- Upside scenario:
- Sustained, bold, and deep structural reforms to diversify the economy, improve the business climate, attract investment, and tap new export markets could spur growth and job creation.
Executive Board assessment and policy recommendations
- General assessment:
- Directors welcomed Algeria’s sustained solid growth and external position despite multiple economic headwinds.
- Emphasized that a sound policy mix and sustained implementation of reforms are necessary to ensure macroeconomic stability and promote inclusive and sustainable growth.
- Fiscal policy recommendations:
- Authorities encouraged to gradually rebalance fiscal policy to preserve buffers and improve fiscal and debt sustainability, while ensuring targeted support for the most vulnerable.
- Emphasized fiscal role in climate mitigation and adaptation, including reforming the energy subsidies and undertaking a C-PIMA.
- Recommended improving public financial management and establishing a rules-based medium-term fiscal framework.
- Monetary and exchange rate policy recommendations:
- Proactive tightening of monetary policy through raising the policy rate and reserve ratio, combined with continued liquidity absorption, to support disinflationary efforts.
- Strengthen the monetary transmission mechanism and specify price stability as the primary objective of monetary policy.
- Greater exchange rate flexibility recommended to enhance the exchange rate’s role as a shock absorber.
- Directors welcomed adoption of the Monetary and Banking Law aimed at modernizing financial markets and central bank operations and governance.
- Financial sector and structural reforms:
- Reinforce bank supervision, monitor NPLs, and strengthen governance of state-owned banks and other SOEs to reduce systemic risks from links between government, public enterprises, and state-owned banks.
- Further improvements in financial inclusion.
- Continue reforms to boost investment, improve fiscal transparency, strengthen the AML/CFT framework, and address governance and corruption risks.
- Prioritize structural reforms to improve the business environment, support youth and women labor force participation, and promote diversified, green, and private sector–led growth.
- Improve the coverage and timeliness of statistics, supported by Fund capacity development.
Key macroeconomic figures (selected)
- Output and prices (annual percentage change):
- Real GDP: 4.2 percent (2023); 3.8 percent (2024); 3.1 percent (2025); 2.5 percent (2026); 2.1 percent (2027).
- Hydrocarbon sector growth: 4.5 percent (2023); 2.7 percent (2024); 1.5 percent (2025); 1.0 percent (2026); 0.5 percent (2027).
- Nonhydrocarbon sector growth: 4.0 percent (2023); 3.3 percent (2024); 2.3 percent (2025).
- Consumer price index (period average): 6.1 (2023); 5.5 (2024); 5.2 (2025); 5.0 (2026).
- Public finances:
- Overall budget balance: -7.8 (2023); -6.7 (2024).
- Gross government debt (excluding guarantees): 46.4 (2023); 49.7 (2024); 51.9 (2025); 54.5 (2026); 57.0 (2027); 59.5 (2029).
- External sector and commodities:
- Savings-investment balance: 2.2 (percent of GDP, 2023); 0.1 (2024).
- Exports, f.o.b. (percent change): -16.4 (2023).
- Crude oil export unit value (US$/bbl): 84.0 (2023); 81.2 (2024); 77.1 (2025); 74.2 (2026); 72.4 (2027); 71.4 (2028); 70.9 (2029).
- Gross official reserves: US$ 68.9 billion (2023); US$ 71.3 billion (2024); US$ 69.3 billion (2025); US$ 64.2 billion (2026); US$ 57.7 billion (2027); US$ 49.8 billion (2028); US$ 40.5 billion (2029).
- Money and credit:
- Net foreign assets: -15.8 (2023).
- Credit to the economy: 5.6 (2022).
- Memorandum:
- GDP (in billions of dinars at current prices): 33,225 (2023); 36,764 (2024); 40,152 (2025); 43,634 (2026); 46,947 (2027); 50,347 (2028); 53,855 (2029).
- GDP per capita (in US$): 4,982 (2022).
IMF press release, March 29, 2024.