IMF Executive Board Concludes 2010 Article IV Consultation with Algeria

Public Information Notice (PIN) No. 11/10
January 26, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On January 14, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria.1


Despite the effects of the international crisis, real nonhydrocarbon gross domestic product (NHGDP) growth in 2009 exceeded the average of 6 percent seen over the past decade. The overall inflation rate rose in 2009 due to a surge in fresh food prices, but nonfood inflation remained low. Unemployment continued to fall, reaching 10.2 percent at end-2009, although youth unemployment remained high. The prudent macroeconomic management of the last ten years also enabled large external reserves to be accumulated and sizable budgetary savings to be built up in the oil stabilization fund, while maintaining a very low level of debt.

Algeria weathered the international crisis relatively well. The strong growth in NHGDP of 9.3 percent in 2009 was driven by an excellent cereal harvest and good performance in the Public Investment Program (PIP)-led service and construction sectors. However, the substantial drop in hydrocarbon output (-6.0 percent) lowered overall growth to about 2½ percent. The stabilization of the hydrocarbon sector and the dynamic performance of the PIP-related sectors should lead to an overall growth of 3–3½ percent in 2010.

Algeria has continued to maintain its expansionary fiscal stance, helping to support the nonhydrocarbon sector. The budget will remain in deficit despite the rise in hydrocarbon revenues and the country is expected to post its second consecutive budget deficit of the decade in 2010, which could reach 4 percent of GDP. The positive impact of the increase in total revenues will be offset by an increase in total expenditures, following a rise in civil service salaries due to the leveling of pay scales. Capital expenditure is expected to remain at the high levels of 2008 and 2009 with the continuation of the 2005–09 PIP.

The current account surplus deteriorated in 2009 but improved significantly in 2010 due to higher hydrocarbon exports, leading to an increase in external reserves. During the first nine months of 2010, hydrocarbon export revenues increased by about 32 percent from the previous year. Official reserves have risen by about US$8 billion since end-2009 to US$157 billion as of end-September 2010.

Algeria’s economy has continued to perform well but the main challenge remains to ensure sustainable, diversified and private investment-led growth to reduce unemployment further, especially among the young, and to improve the standard of living of its population.

Executive Board Assessment

Executive Directors welcomed Algeria’s good economic performance supported by the authorities’ prudent fiscal and monetary policies and the favorable external environment. Directors noted that notwithstanding the favorable developments, the country faces important challenges of preserving macroeconomic stability, restoring fiscal prudence and diversifying the economy. They encouraged the authorities to build on the progress thus far. A more assertive structural reform agenda would improve the business climate and boost private investment-led growth, creating job opportunities. Further reducing unemployment, especially among the young, remains a pressing need. Modernizing and strengthening the financial sector would be vital for supporting private investment.

Directors emphasized that the expansionary fiscal stance of recent years needs to be contained over the medium term to protect Algeria’s capacity to withstand negative and prolonged hydrocarbon revenue shocks. They welcomed the authorities’ commitment to undertake fiscal consolidation, starting with the 2011 budget. Continued fiscal reform will be critical for increasing nonhydrocarbon revenues and containing public spending, including greater control of the public sector wage bill, better targeting of transfers and subsidies, and prioritizing public investment projects. Directors also welcomed the efforts being made to improve the quality and efficiency of public expenditure as well as pursue budget system reforms.

Directors commended the Bank of Algeria for successfully containing inflationary pressures through sterilizing excess liquidity associated with high oil revenues and large public spending. They encouraged the authorities to tighten the stance of monetary policy in case these pressures were to increase.

Directors noted that the current exchange rate regime has served Algeria well. They welcomed the authorities’ policy to maintain the real effective exchange rate close to equilibrium, consistent with external stability. Containing government spending would contribute to reducing pressures for real exchange appreciation and potential “Dutch disease” effects.

Directors stressed that a more forceful implementation of structural reforms will be crucial for diversification of the economy, improving the business climate and competitiveness, as well as boosting growth and employment. Welcoming the authorities’ efforts to enhance the infrastructure, they emphasized that stronger measures will be necessary to improve the investment climate. Directors considered that the new rules on foreign direct investment could discourage foreign investors and hamper growth. They encouraged the authorities to continue to seek a better integration of Algeria in the regional and global economy.

Directors emphasized the importance of accelerating financial sector reform. Effective implementation of the recommendations of the 2007 Financial Sector Assessment Program Update would strengthen financial supervision and monitoring. Noting the recent decline in Non-Performing Loans (NPLs), Directors stressed that efforts were also needed to further reduce the high level of NPLs in public banks. Improving the governance of public banks and further modernizing their operational framework would help enhance financial intermediation. Efforts should also be made to bring these banks to the highest international standards, including through partnerships with foreign institutions.

Algeria: Selected Macroeconomic Indicators, 2006–11
(Quota: SDR 1,254.7 million)
(Population: 35.6 million; 2009)
(Per capita GDP: US$ 3,926; 2009)
(Poverty rate: 12.1; 2000)
  2006 2007 2008 2009 2010 2011
          Proj. Proj.

Oil and gas sector


   Total exports of oil and gas products (in billions of U.S. dollars)

53.6 59.6 77.2 44.4 56.4 61.3

   Average crude oil export price (in U.S. dollar/barrel)

65.7 74.7 99.0 61.8 76.2 78.8

   Crude oil production (in millions of barrels/day)

1.4 1.4 1.3 1.3 1.2 1.3

Output and prices


   Real GDP

2.0 3.0 2.4 2.4 3.3 3.7

      Nonhydrocarbon real GDP

5.6 6.3 6.1 9.3 5.3 5.3

   Consumer prices (end of period)

3.8 4.8 4.9 5.8 4.5 4.5

   Consumer prices (period average)

2.3 3.6 4.9 5.7 4.3 5.0
  ( In percent of GDP)

Investment and Saving


   Gross capital formation

30.0 34.4 38.3 50.0 44.5 44.4

      Of which: Nongovernment

18.0 18.9 20.4 31.0 28.0 28.4

   Gross national savings

54.7 57.2 58.6 50.3 53.0 53.7

      Of which: Nongovernment

29.2 37.3 32.9 38.1 40.3 41.0
  (In percent of GDP)

Public finances



42.7 39.6 47.2 36.3 38.4 38.4


32.8 30.1 37.2 23.8 25.6 26.0

   Expenditure and net lending

29.2 35.2 39.5 43.1 42.2 41.8


16.8 18.0 20.2 22.7 25.7 25.8


12.0 15.5 17.9 19.0 16.6 16.0

   Budget balance

13.5 4.4 7.7 -6.8 -3.9 -3.3

   Nonhydrocarbon primary balance (in percent of nonhydrocarbon GDP)

-34.1 -44.1 -53.1 -44.9 -45.3 -45.8

   Total government debt

23.6 12.5 8.2 10.4 10.3 11.4
  (Annual percentage change, unless otherwise indicated)

Monetary sector


   Credit to the economy 1/

7.1 17.2 20.4 18.5 12.5 12.0

   Broad money

18.6 24.1 16.1 3.1 14.1 14.6

   Velocity of broad money (level)

1.8 1.6 1.6 1.4 1.4 1.4

   Three-month treasury bill rate (end of period, in percent)

2.1 0.2 0.2 0.3 ... ...
  (In percent of GDP, unless otherwise indicated)

External sector


   Hydrocarbon exports of goods (in US$, percentage change)

43.0 11.2 29.5 -42.5 27.0 8.6

   Hydrocarbon exports of goods (in percent of total exports of goods)

97.9 98.4 98.2 98.3 98.0 98.0

   Imports of goods (in US$, percentage change)

4.1 27.4 44.2 -1.6 1.3 4.7

   Merchandise trade balance

29.0 25.5 23.9 5.6 12.4 13.5

   Current account including official transfers

24.7 22.8 20.2 0.3 8.5 9.3

   Foreign direct investment

1.5 1.0 1.4 1.8 1.5 1.0

   Total external debt

4.8 4.2 3.3 3.8 2.8 2.2

   Gross reserves (in billions of U.S. dollars)

77.8 110.2 143.1 148.9 161.0 171.4

      In months of next year's imports of goods and services

28.0 26.9 35.4 35.6 36.7 37.9

Memorandum Items:


   Nominal GDP (in billions of U.S. dollars)

117.3 134.3 170.2 139.8 158.6 168.8

   Unemployment rate (in percent)

12.3 11.8 11.3 10.2 ... ...

   Local currency per U.S. dollar (period average)

72.6 69.3 64.6 72.5 ... ...

   Real effective exchange rate (2005 = 100)

100.0 99.0 102.1 100.0 ... ...

Sources: Algerian authorities; and IMF staff estimates and projections.

1/ credit to the private sector and public enterprises.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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