Economic Analysis
Algeria

Algeria

Population 39.9 million
GDP per capita 4174 US$
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Synthesis

major macro economic indicators

  2014  2015 2016(f) 2017(f)
GDP growth (%) 3.8 3.8 4.2 1.4
Inflation (yearly average) (%) 2.9 4.8 5.9 4.8
Budget balance (% GDP) -7.3 -16.1 -12.9 -9.3
Current account balance (% GDP) -4.4 -16.4 -15.0 -13.7
Public debt (% GDP) 7.9 9.0 13.0 17.1

 

(f) Forecast

STRENGTHS

  • Significant reserves of oil and gas.
  • Potential in the fields of renewable energies and tourism.
  • Solid external financial situation (very low external indebtedness, significant foreign exchange reserves).

WEAKNESSES

  • High dependency on hydrocarbons and problems with the utilisation of this income.
  • Fracture lines between the government and the population.
  • High unemployment rates amongst the young.
  • Excessive weight of the public sector.
  • Heavyweight bureaucracy, weaknesses in the financial sector and problematic business environment.

RIsk AssessmenT

Slowdown of activity in 2017

The Algerian growth rate slowed down only slightly in 2016. Despite the fall in the nominal oil GDP, the oil sector produced good performances compared with 2015, maintaining a positive growth rate. The non-oil economy certainly showed signs of a slowdown, but they mainly concern the manufacturing and public sectors. For their part, services and the sectors related to consumption remain dynamic. Household expenditures continue to be sustained, partly thanks to the maintenance of non-energy subsidies. In the face of the risk of an extended slowdown following a fall in capital investments, the Algerian authorities maintained social spending and a reform of business taxation for the private sector. The austerity measures announced in 2017 should however lead to a sharp deceleration in activity, but the government is planning at the same time to launch an economic diversification plan over the 2016-2019 period. The 2016-2019 five-year program will have the objective of favouring 18 industrial sectors and triggering the relaunch and integration of industries as well as the creation of employment. A plan for recapitalisation of the state-owned banks and refinancing of the banking system should allow the generation of additional liquidity and stimulate lending. The government also intends to gradually substitute private investment for public investment. The response by the private sector could however be less than forecast. The slight increase in the price of oil expected in 2017 would not suffice to lower the pressure on the government finances and exports and would continue to weigh on the national macroeconomic environment. The increase in taxes and the high level of inflation would constrain household consumption. As in 2016, business and household confidence is likely to remain marked by gloom. Inflation increased sharply in 2016. This increase in prices is explained on the one hand by imported inflation arising from the depreciation of the exchange rate against the US dollar and by the removal of subsidies on the price of energy. In 2017, the prices will decelerate but remain high, particularly following the expected increase in the prices of regulated products.

 

Slight fall in the twin deficits

The public deficit fell in 2016 under the combined effects of a smaller contraction in receipt and the maintenance of budgeted expenditure. The reduction in oil receipts was however not compensated by the measures undertaken in 2016, which include the increase in the price of energy products and the reduction in the budgets of certain ministries. The rebalancing of the oil market expected in 2017 and the increase in prices which will derive therefrom should favour an increase in oil receipts, easing the pressure on the public finances.  The deficit in the public finances should therefore be reduced given that the authorities are likely to pursue austerity measures - amongst them an increase in VAT of two points, better collection of the tax and a surcharge on petrol prices at the pump. The public debt will also increase but it will remain mainly domestic. Between April and October 2016, the government launched a government bond on the domestic market, which enabled it to raise more than $5 billion which will be used to finance the 2017 budget. Similarly, in November Algeria contracted a $1 billion loan from the African Bank.

The fall in the volume of hydrocarbon exports, coupled with the price of a barrel of oil at its lowest since 2009, have led to a significant unbalancing of the current account in 2016, which is likely to continue in 2017. The Algerian trade balance is likely to remain in deficit in 2017 despite attempts on the part of the authorities to restrict the invoice for imports. In addition, Algeria remains largely dependent on the health of its European partner. For its part, the balance of services is likely to remain in deficit.

 

Legislative election in 2017

During 2016, faced with the deterioration in the economic situation, President Bouteflika carried out the third ministerial reshuffle since the appointment of Abdelmalek Sellal to the position of Prime Minister. This change of government targeted around 30 portfolios, including the key posts of energy and the economy.  The fragile health of President Bouteflika is relaunching rumours about his probable succession, given that Algerians are preparing to organise legislative elections in April 2017. If the security situation seems to have relatively improved, the activism of radical Islamist groups and instability have intensified on the Tunisian and Malian borders. 

 

Last update: January 2017

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