## IMF Staff Completes 2018 Article IV Visit to Algeria

_IMF News, March 12, 2018_

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## Bibliographic details
- Published: March 12, 2018

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### Mission context and purpose
- IMF staff team led by Jean-François Dauphin visited Algiers from February 27 to March 12 to hold discussions for the 2018 Article IV consultation.
- End-of-Mission press release conveying 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.

### Macroeconomic findings
- The fall in oil prices four years ago continues to pose important challenges for Algeria.
- Despite a sizeable fiscal consolidation in 2017, the fiscal and current account deficits remain large.
- Reserves fell by US$17 billion to US$96 billion (excluding SDRs).
- Overall economic activity slowed, although growth in the nonhydrocarbon sector was stable.
- Inflation decreased from 6.4 percent in 2016 to 5.6 percent in 2017.

### Authorities’ recent policy changes and IMF assessment
- Since the end of 2017, the authorities have changed their short-term macroeconomic strategy:
  - Adopted an expansionary 2018 budget, the deficit of which will be mainly financed by the central bank.
  - Hardened import barriers.
  - Intend to resume fiscal consolidation from 2019 onward, to restore the fiscal balance in 2022.
- IMF team view:
  - Shares the authorities’ dual objectives of macroeconomic stabilization and promotion of more sustainable and inclusive growth.
  - Considers the new short-term policy mix risky and may hinder reaching those objectives.
  - Warns the new policies risk exacerbating imbalances, increasing inflation, and accelerating the loss of international reserves.
  - Concludes the economic environment may not become conducive to reforms and private sector development under the new short-term mix.

### Policy recommendations for macroeconomic management
- Algeria still has a window to balance economic adjustment and growth due to relatively low public debt and little external debt.
- Fiscal consolidation is needed to adjust spending to the lower level of revenue but can proceed at a smooth pace without recourse to central bank monetary financing.
- Recommended financing options to avoid monetization:
  - Domestic debt issuance at market rates.
  - Public-private partnerships.
  - Sale of assets.
  - Ideally, external borrowing to finance well-chosen investment projects.
- Consolidation should be broad-based, including:
  - Raising more nonhydrocarbon revenues by widening the tax base (reducing exemptions and strengthening tax collection).
  - Gradually reducing current expenditure as a share of GDP.
  - Reducing investment while increasing its efficiency.
- Exchange rate and monetary policy recommendations:
  - A gradual exchange rate depreciation combined with efforts to eliminate the parallel foreign exchange market would support the adjustment.
  - The central bank should stand ready to tighten monetary policy if inflationary pressures do not abate.
- If monetary financing of the deficit continues, robust safeguards should be in place:
  - Strict quantitative and time limits to monetary financing.
  - Pricing of such financing at market rate.

### Structural reform priorities
- A critical mass of structural reforms is needed to promote a private-sector led, diversified economy and reduce dependence on oil and gas.
- Recommended actions:
  - Reduce red tape.
  - Improve access to finance.
  - Strengthen governance, transparency and competition.
  - Further open the economy to foreign investment.
  - Improve the functioning of the labor markets and job-skills matches.
  - Foster greater female labor force participation.
- Strengthen economic policy framework to increase policy effectiveness:
  - Continue to strengthen public financial management.
  - Improve the efficiency of public spending.
  - Strengthen the prudential and crisis preparedness framework.
- Trade policy recommendation:
  - Center trade policies on encouraging exports rather than imposing distorting nontariff import barriers.

### Engagement with authorities and stakeholders
- The IMF team met with:
  - Prime Minister Mr. Ouyahia.
  - Finance Minister, Mr. Raouia.
  - Training and Vocational Education Minister, Mr. Mebarki.
  - Industry and Mines Minister, Mr. Yousfi.
  - Trade Minister, Mr. Benmeradi.
  - Public Works and Transports Minister, Mr. Zaâlane.
  - Labor, Employment, and Social Security Minister, Mr. Zemali.
  - Governor of the Bank of Algeria, Mr. Loukal.
- The team also held discussions with other senior government and central bank officials as well as with representatives of the economic and financial sectors and trade union.
- The IMF team thanked the authorities and other interlocutors for their hospitality, cooperation, and candid exchange of views.

### Key statistics and dates
- February 27 to March 12 (mission dates).
- 2018 (fiscal year with expansionary budget).
- 2019 (authorities intend to resume fiscal consolidation).
- 2022 (authorities intend to restore fiscal balance).
- Reserves fell by US$17 billion to US$96 billion (excluding SDRs).
- Inflation: 6.4 percent in 2016; 5.6 percent in 2017.

*IMF Communications Department, Press Release No. 18/82, March 12, 2018*

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## References

- [Algeria and the IMF](http://www.imf.org/external/country/DZA/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2018/03/12/pr1882-imf-staff-completes-2018-article-iv-visit-to-algeria_