IMF Staff Completes 2022 Article IV Mission to Algeria

IMF News, November 21, 2022

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End-of-Mission press release conveying preliminary findings after a staff visit for the 2022 Article IV consultations.
Views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Staff will prepare a report, subject to management approval, for the IMF's Executive Board.

The rally in hydrocarbon prices is contributing to the recovery from the pandemic shock.
Large windfall hydrocarbon revenue has alleviated pressures on external and public finances.
Current account balance is forecast to record its first surplus since 2013 in 2022.
International reserves rose to USD 53.5 billion in September from USD 46.7 billion in 2021.
The significant rise in non-hydrocarbon exports contributed to the improvement.
A fiscal surplus is expected in 2022 on higher revenue and lower-than-expected spending execution.
Non-hydrocarbon GDP growth projected to accelerate to 3.2 percent in 2022 from 2.1 percent in 2021.
Real GDP growth is projected at 2.9 percent (2022).
The near-term outlook is favorable but highly contingent on hydrocarbon prices.
The current account is projected in surplus in 2023 with high hydrocarbon revenue offsetting a recovery in imports.
Growth is projected to accelerate and inflation to slowdown but remain above 8 percent on average amid easing in fiscal policy in 2023.

Inflation has accelerated significantly and is a major concern.
The annual average inflation rate has hovered around 9.4 percent in recent months, a level not seen in 25 years.
The central bank has taken actions to control price pressures, but monetary policy remained accommodative.
The mission recommends tightening monetary policy to contain inflation and gradual normalization of monetary policy to avoid entrenchment of high inflation.
The upcoming revision of the Law on Money and Credit is a timely opportunity to strengthen the governance framework of the Bank of Algeria and bolster its independence.
The mission welcomes the government’s commitment not to resort to monetary financing.

Continued high reliance on hydrocarbon revenue and the projected sizeable rise in spending in 2023 raise significant risks to public finances amid high commodity price volatility and exceptional global uncertainty.
A well-balanced budget adjustment is needed to:
- Curb inflationary pressures.
- Rebuild policy space.
- Stabilize government debt.
A medium-term fiscal framework could guide consolidation efforts, reduce policy procyclicality, and protect priority spending.
Well-targeted measures should be used as needed to support low-income households.
The mission commends progress on fiscal reforms, particularly in taxation and public finance management.
The mission recommends stronger integration between spending plans and the government’s financing strategy as part of the budget elaboration process and diversifying financing sources to allow for gradual implementation of fiscal consolidation.

The banking system withstood repeated shocks in recent years, but its financial health merits attention.
Tightening interlinkages between the balance sheets of the government, state-owned enterprises and public banks could pose risks to financial stability and debt sustainability.
Broad financial sector reforms are called for to:
- Strengthen the governance and business models of public banks.
- Enhance supervisory capacity.
- Unlock lending to the private sector.
- Foster financial inclusion.
The mission welcomes the timely expiry of regulatory easing measures taken at the outset of the pandemic.

Continued efforts to reform the business climate will help foster transition to a more inclusive and diversified growth model and spur job creation.
The new investment law and attendant decrees could offer a more conducive environment to private investment.
Plans to roll out a new legislative framework for investment in renewable energies could facilitate the transition to a low-carbon economy.
The mission commends authorities’ plans to improve data quality and availability and calls to prioritize actions in this area to better inform policymaking and private sector decisions.

Mission led by Ms. Geneviève Verdier; visited Algiers during November 6-21 for the 2022 Article IV consultations.
The mission met with:
- Governor of the Bank of Algeria, Mr. Taleb;
- Finance Minister, Mr. Kessali;
- Energy and Mines Minister, Mr. Arkab;
- Agriculture and Rural Development Minister, Mr. Henni;
- Public Works, Hydropower, and Basic Infrastructure Minister, Mr. Rakhroukh;
- Commerce Minister, Mr. Rezig;
- Industry Minister, Mr. Zeghdar.
The team also held discussions with other senior government and central bank officials, members of the parliamentary Finance and Budget Commission, and representatives of the economic and financial sectors.
The mission expressed gratitude and appreciation to the authorities and interlocutors for constructive discussions and warm hospitality.

IMF Communications Department — Press Release No. 22/396, November 21, 2022