## IMF Staff Completes 2017 Article IV Mission to Algeria

_IMF News, March 20, 2017_

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## Bibliographic details
- Published: March 20, 2017

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### Economic context and key indicators
- Algeria faces important challenges posed by lower oil prices.
- Overall economic activity was resilient, but growth in the nonhydrocarbon sector slowed and is estimated at 3.4 percent in 2016.
- Inflation increased from 4.8 percent in 2015 to 6.4 percent in 2016 and stood at 8.1 percent year-on-year in January 2017.
- Unemployment increased to 10.5 percent in September 2016; unemployment remains particularly high among the youth (26.7 percent) and women (20.1 percent).
- Fiscal and current account deficits remained large in 2016; public debt increased.
- International reserves fell by US$30 billion to US$113 billion (excluding SDRs).

### Fiscal position and policy recommendations
- Authorities achieved a notable reduction in the fiscal deficit in 2016 and have adopted an ambitious fiscal consolidation plan for 2017-19.
- Sustained fiscal consolidation is needed as oil prices are expected to remain low and hydrocarbon reserves are exhaustible.
- Recommended measures for consolidation:
  - Broadening the tax base, including through better tax enforcement and the rationalization of tax exemptions.
  - Containing current spending.
  - Gradually replacing costly energy subsidies, which mostly benefit the well-off, by direct support to the population most in need.
  - Improving the efficiency of capital spending and reducing its cost.
  - Preserving investment in health, education, and well-targeted social safety nets.
  - Further strengthening the budget framework and closely monitoring growing fiscal risks.
- Cautionary guidance:
  - Avoid too abrupt a fiscal deficit reduction to reduce the risk of a sharp slowdown in growth.
  - Given the relatively low level of public debt, Algeria could afford a somewhat more gradual fiscal consolidation than entailed in the current medium-term budget framework if it considers a broader range of financing options, including external borrowing and the sale of state assets.

### Structural reforms and diversification strategy
- Mission strongly supports the authorities’ objective to decrease the economy’s dependence on hydrocarbons and unleash the potential of the private sector.
- Rationale: needed to adjust to lower oil prices and to ensure a sustainable source of job creation beyond proven oil and gas reserves.
- Required wide-ranging structural reforms:
  - Improve the business environment and access to finance.
  - Strengthen governance and transparency.
  - Make the labor market more effective.
  - Ensure skills produced by the education system match employer needs.
  - Foster greater female participation in the labor market.
  - Further open the economy to foreign investment.
- Reform sequencing: design so reforms reinforce each other and the burden of adjustment is shared equitably; act timely as structural reforms take time to bear fruit.

### Monetary, exchange rate, and financial sector recommendations
- Exchange rate and monetary policies should support adjustment.
  - Further efforts to bring the dinar in line with fundamentals, combined with steps toward the elimination of the parallel foreign exchange market, would support fiscal and external adjustment.
- Bank of Algeria actions:
  - Appropriately introducing open market operations, which should become its main monetary policy tool.
  - Will need to stand ready to tighten monetary policy in light of growing inflationary pressures.
- Banking sector assessment and recommendations:
  - Based on preliminary data, the banking sector as a whole remains adequately capitalized and profitable, but the oil price shock has increased liquidity, interest rate, and credit risks.
  - Important actions: accelerate transition to a risk-based supervisory framework; enhance the role of macro-prudential policy; strengthen governance of public banks; develop a crisis resolution framework.

### Mission, consultations, and next steps
- An IMF staff team led by Jean-François Dauphin visited Algiers from March 7 to 20 for the 2017 Article IV consultation; discussions focused on the appropriate mix of policies to adjust to lower oil prices.
- The mission met with Finance Minister Hadji Baba Ammi; Industry and Mines Minister Abdessalem Bouchouareb; Acting Trade Minister and Housing and Urban Development Minister Abdelmadjid Tebboune; Education Minister Nouria Benghebrit; Labor, Employment, and Social Security Minister Mohamed El Ghazi; and the Governor of the Bank of Algeria, Mohamed Loukal, among others.
- Next procedural step: Based on preliminary findings, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

*Press Release No. 17/90 — March 20, 2017*

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## References

- [Algeria and the IMF](http://www.imf.org/external/country/DZA/index.htm)
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_Source: https://www.imf.org/en/news/articles/2017/03/20/pr1790-algeria-imf-staff-completes-2017-article-iv-mission_