Algeria: Economic activity is picking up!

Algeria: Economic activity is picking up!

IMF Staff Concludes 2014 Article IV Mission to Algeria Press Release No. 14/452 October, 2014

An International Monetary Fund (IMF) mission, led by Mr. Zeine Zeidane, visited Algeria September 17-October 1, 2014, for the annual Article IV discussions. The consultation will conclude with the preparation of a report that, subject to management approval, could be discussed by the IMF Executive Board in December 2014.

At the end of the visit, Mr. Zeidane issued the following statement:

“Economic activity has picked up in 2014, with real GDP growth projected to reach 4.0 percent following 2.8 percent growth in 2013. The hydrocarbon sector is expected to expand for the first time in eight years, while nonhydrocarbon growth remains supportive—particularly the construction and services sectors. Inflation has decelerated sharply to below 2.0 percent, thanks in part to tighter monetary policy, but bears watching closely given the potential for new inflationary pressures to emerge.

“Algeria is in the enviable position of having built up substantial external and fiscal buffers over the years thanks to its hydrocarbon wealth, but threats to macroeconomic stability are growing. For the first time in nearly 15 years, the current account is expected to record a deficit. Slumping hydrocarbon production, strong domestic hydrocarbon consumption, and lower oil prices are weighing on exports, while imports continue to grow. Reversing these trends will require more investment in the hydrocarbon sector, higher domestic energy prices, a more competitive exchange rate, and a significant increase and diversification of nonhydrocarbon exports.

“The fiscal deficit is expected to widen to over 6 percent due to lower hydrocarbon revenue, a sharp increase in capital expenditure, and continued high current spending. The oil savings fund remains large but is expected to decline for the second consecutive year. Ambitious and sustained fiscal consolidation is necessary to place fiscal policy on a sustainable path and ensure that hydrocarbon wealth is saved for future generations. Fiscal consolidation should entail mobilizing more nonhydrocarbon revenue and containing current spending—particularly wages. The mission reiterated its recommendation that the authorities adopt a fiscal rule to help manage hydrocarbon revenue and impose spending discipline.

“The financial sector is generally healthy but underdeveloped. Reforms are needed to improve access to finance, especially for small- and medium-sized enterprises and households. In addition, listing well-performing public companies would help to develop the stock exchange. The mission welcomed the steps taken by the authorities to begin implementing the recommendations of the 2013 Financial Sector Assessment Program mission.

“Although Algeria has enjoyed macroeconomic stability, faster and more inclusive growth is necessary to provide enough jobs for the country’s youthful population. Meeting this challenge will require a comprehensive set of structural reforms that will allow the private sector to thrive. Reforms are needed to improve the business climate, remove constraints to foreign investment, promote international trade integration, and reduce labor market rigidities.

“The team met with Finance Minister Mohamed Djellab; Industry and Mines Minister Abdessalem Bouchouareb; Agriculture and Rural Development Minister Abdelwahab Nouri; Trade Minister Amara Benyounes; Housing, Urban Development, and Cities Minister Abdelmadjid Tebboune; Labor, Employment, and Social Security Minister Mohamed El Ghazi; and the Governor of the Bank of Algeria, Mohammed Laksaci. The mission also held discussions with other senior government and central bank officials as well as with representatives of the economic and financial sectors and civil society.

“The IMF team expresses appreciation for the authorities’ cooperation and candid discussions.”

Note: End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

IMF COMMUNICATIONS DEPARTMENT