Algeria: IMF Welcomes Algeria’s Economic Momentum, but Notices Weaknesses

Washington — The International Monetary Fund (IMF) said that the Algerian economy is picking up momentum, but it noted weaknesses due to falling oil prices.

This is one of the main conclusions of the Bretton Woods institution published Thursday in its information note following the meeting of its Board of Directors held on December 1 as part of its annual assessment of the Algerian economy in accordance with Article IV of its statutes.

The IMF has projected Algeria’s real GDP growth to reach 4.0% in 2014, following the 2.8% growth in 2013.

The hydrocarbon sector is expected to expand for the first time in eight years, while in the other sectors, the growth remains “supportive.”

The Fund said that the inflation was down sharply to stand at 2.1%.

For the IMF, Algeria “has substantial external and fiscal buffers, but threats to macroeconomic stability are growing,” saying for the first time in nearly 15 years, the current account is expected to record a deficit.

Deficits are projected to widen over the medium term, as strong domestic hydrocarbon consumption and lower oil prices weigh on exports, while imports continue to grow, driven by public spending, the IMF warned.

The Fund said it expects Algeria’s fiscal deficit to widen to over 7% due to lower hydrocarbon revenue, a sharp increase in capital expenditure, and continued high current spending.

“Non-hydrocarbon revenues are below their potential, the wage bill is high, and subsidies and transfers are costly, amounting to about 26% of GDP,” the International Monetary Fund said, adding that the “fiscal savings are expected to decline for the second consecutive year.”

“Algeria has enjoyed macroeconomic stability but faster and more inclusive growth is necessary to create adequate jobs for its youthful population,” the IMF said.

Based on all these data, the IMF B commended, first, “the revival of economic activity, the further decline in inflation and the extent of buffers but notes in the same time, increasing vulnerabilities in a context of falling oil prices: deteriorating fiscal situation and the current account balance and the reduction of budget savings and foreign exchange reserves.”

Accordingly, it recommends rapid measures to preserve macroeconomic stability, complementing them with far-reaching reforms to diversify the economy, improve competitiveness and promote inclusive growth and job creation.