## Public Information Notice: IMF Concludes Article IV Consultation with Algeria

_IMF News, August 4, 2000_

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## Bibliographic details
- Published: August 4, 2000

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### Background
- Between 1994 and 1998, Algeria restored macroeconomic stability and implemented structural reform, aided by IMF-supported programs: growth resumed, inflation declined, and the balance of payments strengthened.
- Structural reforms implemented included establishment of institutional and market mechanisms for transition to a diversified market economy, realignment of relative prices, abolition of numerous external trade and payment restrictions, and restructuring of inefficient public enterprises (with massive layoffs and a rise in unemployment).
- In 1998 and the first half of 1999, low world oil prices caused a sharp fall in hydrocarbon export receipts and a large capital account deficit, limiting access to new external borrowing and reducing gross official reserves from about 9.5 months of imports at end-1997 to slightly above 4 months in summer 1999.
- Policy response in 1998–99: tightened fiscal stance, maintained high real interest rates, and allowed the Algerian dinar to depreciate vis-à-vis the U.S. dollar.
- Resulting developments:
  - Improvement in the current account from a deficit of 1.9 percent of GDP in 1998 to a balanced position in 1999.
  - Foreign exchange reserves stabilized in the second part of 1999.
  - Stock of external debt declined by US$2 billion to US$28.3 billion (or 59 percent of GDP).
  - Debt service ratio remained high at about 40 percent of exports of goods and nonfactor services in 1999.
- Fiscal developments:
  - Fiscal position deteriorated sharply in early 1999 due to low oil prices and accelerated current expenditure; authorities tightened expenditure management and froze expenditure on new investment projects.
  - Preliminary data for 1999 indicate an overall budget deficit of about 0.5 percent of GDP compared to 3.9 percent in 1998.
- Real economy and labor market:
  - Real growth decreased to 3.3 percent in 1999 from 5.1 percent in 1998; hydrocarbon sector growth was 6.2 percent in 1999.
  - Nonhydrocarbon GDP increased by about 2.5 percent in 1999 versus 5.5 percent in 1998.
  - Unemployment rate has probably continued to increase to about 30 percent, given labor force growth of about 3 percent per annum.
- Inflation:
  - CPI rose by 2.6 percent on average in 1999 following a 5.0 percent increase in 1998; part of 1999 disinflation attributable to lower food prices.
- Structural reform progress:
  - No new major reforms introduced between end-May 1998 and end-1999, but ongoing reforms included overhaul of housing policies, opening the banking system to new domestic and foreign banks, and listing minority stakes in three public sector companies on the newly-created Algiers Stock Exchange.
  - Changes in tariff positions and minimum dutiable values since 1997 increased effective protection.

### Executive Board Assessment (major findings and policy recommendations)
- Commendation and overall assessment:
  - Directors commended authorities for restoring macroeconomic balance and implementing wide-ranging structural reforms in difficult circumstances, yielding improved growth, lower inflation, stronger fiscal and external positions, increased market role, and more liberal trade and exchange system.
- Policy response to 1998–99 oil shock:
  - Directors praised demand management: cutting budget expenditure, allowing exchange rate depreciation vis-à-vis the U.S. dollar, and maintaining high real interest rates, which helped limit reserve depletion and consolidate fiscal position.
- Key medium-term challenges identified:
  - Reduce dependence on the hydrocarbon sector.
  - Raise living standards and reduce unemployment from its very high level.
  - Absorb large numbers of new labor force entrants without sacrificing macroeconomic stability.
  - Achieve a substantial increase in the growth rate through accelerated structural reforms to complete the transition to a market-based economy.
- Support for 2000 reform program:
  - Directors broadly supported the reform program announced in early 2000, welcoming emphasis on banking sector and public sector enterprise reform, but stressed need for detailed implementation plans.
  - Emphasized critical role of the private sector; improve economic environment and government regulations to promote domestic and foreign investment.
- Fiscal policy recommendations:
  - Welcomed supplementary budget for 2000 and authorities’ intention to save any hydrocarbon revenue in excess of budgeted amounts in a stabilization fund.
  - Strong endorsement for transparent management of the stabilization fund and appropriate integration with other fiscal activities.
  - To ensure strong medium-term fiscal position, Directors emphasized reducing dependence on hydrocarbon revenue, broadening the tax base, and strengthening tax and customs administration.
  - Recognized need for a strong safety net and improved basic social services (health and education), and advised orienting expenditure to highest priorities.
- Monetary and exchange rate policy:
  - Endorsed prudent monetary policy geared toward keeping inflation low and further development of indirect monetary policy instruments.
  - Considered Algeria’s exchange rate policy appropriate in balancing competitiveness and price stabilization gains.
  - Recommended deepening the interbank foreign exchange market through further liberalization of the exchange system.
  - Supported more active management of external liabilities and the authorities’ intention to request a rating of Algeria’s sovereign risk to facilitate capital market integration and attract foreign investment.
- Banking and enterprise reform:
  - Urged early and comprehensive improvement in efficiency and financial health of government-owned banks, coordinated with thorough restructuring of public enterprises (claims on which account for a substantial share of banks’ assets).
  - Stressed strengthening banking supervision and welcomed efforts to improve compliance with Basel Core Principles and establishment of the National Council for Banking Reform.
  - Emphasized accelerated and steadfast implementation of privatization within a fair and transparent framework; welcomed plans to liberalize energy, transport, and telecommunication sectors.
- Housing, land, and agriculture:
  - Noted critical need for improved housing and role of housing construction in boosting employment and growth; encouraged formulation of a comprehensive strategy to reduce housing shortages and promote private sector investment.
  - Saw urgency in improving availability of land for housing and business construction and clarifying agricultural land ownership.
- Trade and governance:
  - Considered high protection would impede growth and urged acceleration of trade liberalization regionally and multilaterally.
  - Welcomed emphasis on improving governance and transparency, including reduction in government intervention and judicial reform; welcomed participation in pilot project on publication of Article IV staff report and publication of a Report on the Observance of Standards and Codes module on banking supervision.
- Statistics and technical assistance:
  - Welcomed authorities’ interest in the General Data Dissemination System to address significant weaknesses in Algeria’s economic statistics and advised allocating additional resources to upgrade the statistical apparatus.
  - Welcomed authorities’ intention to maintain close policy dialogue with the Fund and to seek IMF technical assistance in key areas.

### Algeria: Selected Economic Indicators (as presented)
- Domestic economy (in percent)
  - Real GDP: 1995: 3.9; 1996: 3.8; 1997: 1.1; 1998: 5.1; 1999: 3.3
  - GDP deflator: 1995: 28.7; 1996: 25.7; 1997: 6.5; 1998: -4.2; 1999: 10.9
  - Consumer price index (CPI), period average: 1995: 29.8; 1996: 18.7; 1997: 5.7; 1998: 5.0; 1999: 2.6
- External sector (in billions of U.S. dollars 1/)
  - Exports of goods, f.o.b.: 1995: 10.3; 1996: 13.2; 1997: 13.8; 1998: 10.1; 1999: 12.3
  - Imports of goods, f.o.b.: 1995: -10.1; 1996: -9.1; 1997: -8.1; 1998: -8.6; 1999: -9.0
  - Current account, excluding capital grants (in percent of GDP): 1995: -5.4; 1996: 2.7; 1997: 7.2; 1998: -1.9; 1999: 0.0
  - Capital account balance: 1995: -4.1; 1996: -3.3; 1997: -2.3; 1998: -0.8; 1999: -2.4
  - Gross official reserves: 1995: 2.1; 1996: 4.2; 1997: 8.0; 1998: 6.8; 1999: 4.4
  - External debt (in percent of GDP): 1995: 76.4; 1996: 71.9; 1997: 65.2; 1998: 64.3; 1999: 59.1
  - Debt service ratio (in percent of current external receipts): 1995: 40.5; 1996: 29.3; 1997: 44.8; 1998: 39.6; 1999: (value not provided in table body but discussed in text as about 40 percent)
  - Real effective exchange rate (percentage change, depreciation): 1995: -16.2; 1996: 2.5; 1997: 9.9; 1998: 4.8; 1999: -8.0
- Financial variables (in percent of GDP 1/)
  - Overall budget balance: 1995: -1.4; 1996: 3.0; 1997: 2.4; 1998: -3.9; 1999: -0.5
  - National savings: 1995: 25.9; 1996: 30.4; 1997: 25.8; 1998: 25.1; 1999: 29.1
  - Gross domestic investment: 1995: 32.2; 1996: 23.8; 1997: 27.7; 1998: 27.4; 1999: (value not shown in table)
  - Change in broad money (M3) (in percent): 1995: 10.5; 1996: 14.4; 1997: 18.2; 1998: 19.1; 1999: 14.0
  - Interest rate (central bank repurchase rate, in percent): 1995: 13.0; 1996: 11.0; 1997: 9.5; 1998: 8.5; 1999: (value not shown in table)
- Sources as stated in the notice: Data provided by the Algerian authorities; and IMF staff estimates.
- Notes:
  - 1/ Unless otherwise noted.
  - Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. Summary description of Article IV consultation process provided in the notice.

*Source: Public Information Notice: IMF Concludes Article IV Consultation with Algeria, August 4, 2000.*

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## References

- [Algeria and the IMF](http://www.imf.org/external/country/DZA/index.htm)
- [Public Information Notices](https://www.imf.org/en/news/searchnews)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0054_