## An Open and Diverse Economy To Benefit All Algerians

_IMF Blog, March 18, 2013_

## Source details

**Canonical URL:** [An Open and Diverse Economy To Benefit All Algerians](https://www.imf.org/en/blogs/articles/2013/03/18/an-open-and-diverse-economy-to-benefit-all-algerians)

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## Bibliographic details
- Authors: Christine Lagarde
- Published: March 18, 2013

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### Fiscal stabilization and partnership
- The IMF and Algeria reaffirmed a "special partnership" during the Managing Director's visit.
- Algeria pledged US $5 billion to the IMF's global firewall.
- Algeria’s capable management of its oil and gas windfall has resulted in high foreign exchange reserves and economic stability.
- Recent policy steps noted:
  - This year’s budget "keeps the rise of current spending and public wages in check."
  - Last year’s decision "to raise the required reserves rate as well as the liquidity absorption" will help contain demand pressures on prices.
  - "Still, further monetary tightening may be necessary."

### Ensuring economic stability — findings and risks
- Key macro outcomes over the past decade: "Steady growth, and low fiscal and external deficits and debt levels."
- Inflation:
  - "Inflation has been on the rise, reaching nearly 9 percent last year—a 15‑year high."
  - Causes identified: "wage hikes that exceeded productivity increases, and relatively accommodative monetary policies."
  - Risk highlighted: "Such pressures risk undermining growth and hurting the most vulnerable."
- Policy implication: Containing demand and monetary tightening are important to protect growth and vulnerable populations.

### Building a vibrant private sector — constraints and opportunities
- Hydrocarbon dependence:
  - "Accounts for around 40 percent of total GDP, 98 percent of exports, and two-thirds of budget revenues."
  - Employment in the sector: "only about 2 percent of the workforce is directly employed by the sector."
- Implication: Hydrocarbons alone "cannot provide a lasting basis for jobs or rising living standards for the wider population."
- Identified opportunity sectors: "agribusiness, industry and services such as tourism and trade."
- Policy recommendations to foster private sector-led growth:
  - "Open up to reach out to global markets and to also let some of the world in—for investment, trade, and expertise."
  - Improve the business environment by "reducing red tape" and "changing the rules for foreign ownership."
  - Acknowledge that "It will take time to fundamentally change the business climate, but a start can be made now."

### Reforming the labor market — priorities and measures
- Youth unemployment progress:
  - "A decade ago youth unemployment stood at more than 50 percent, it has since dropped to 20 percent."
  - Assessment: "still unacceptably high, with many more young adults soon to be looking for work."
- Core challenge: "too many people rely on the government as the employer of choice" and "Mindsets need to change."
- Suggested reforms and policies:
  - Change "laws and regulations that make it hard for private businesses to employ people."
  - Implement "more active labor market policies—such as jobs-based training for young graduates or job placement programs."
  - Focus on "better matching worker skills to the needs of the labor market."
- Clarification on IMF stance: Labor market reform is not equivalent to automatic pay cuts; the IMF's view "has changed."

### Protecting the most vulnerable — subsidy reform
- Current subsidy problem:
  - "Prices for certain goods and services in Algeria are subsidized by the government."
  - For gasoline and gas alone, "implicit subsidies provided by the government may be as much as 12 percent of GDP."
  - Distributional issue: "The main beneficiaries are the well-to-do who consume energy more heavily."
  - Budgetary trade-off: Subsidies "steal precious resources away from other government spending priorities, including on health, education, and infrastructure."
- Policy path recommended:
  - "Subsidies should be made explicit and better targeted to the people who really need them."
  - Acknowledge that "This problem cannot of course be tackled over night."

### Working together — implementation and outlook
- Transition to a more prosperous and inclusive Algeria "will take time" and "at times, the way forward may not be easy."
- Several priorities are emphasized as common across the region: "inclusion, jobs, a more flourishing private sector, subsidy reform to better help the truly needy."
- The existing constructive dialogue between the IMF and Algeria is presented as a foundation for addressing these challenges jointly.

*Source: Christine Lagarde, "An Open and Diverse Economy To Benefit All Algerians", March 18, 2013.*

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## References

- [عربي](http://blog-montada.imf.org/?p=2134)

_Source: https://www.imf.org/en/blogs/articles/2013/03/18/an-open-and-diverse-economy-to-benefit-all-algerians_