Algeria can survive the oil price shock with reforms

Concern has grown about Algeria as its political future has grown more uncertain with sudden change in personnel among top administration ranks, growing social discontent and weakening economic conditions. In its latest staff report, the IMF confirmed “the oil price shock has hit Algeria’s economy hard”, and that the “insufficient” policy response may have accelerated the shift of Algeria’s finances from “substantial savings (…) to large budget deficits” which doubled in 2015.

Despite difficult circumstances, Algeria’s economic growth remained stable in 2015 at 3.9% according to the IMF, and is expected to slow at 3.4% in 2016 according to the World Bank. Algeria must take the dramatic drop in oil prices as a reminder – and an opportunity – to diversity its economy and build a growth model that will be less dependent on hydrocarbons of which exports amount to 95 % of total exports and around two-thirds of government revenues.

For that purpose, the government must undertake structural reforms, said IMF Mission Chief Jean-François Dauphin who considered the start of fiscal consolidation as a first positive step. Algerian correspondents sounded more pessimistic commenting that considering the large decrease in financial reserves, the IMF could someday be “taking control” of Algeria which “cannot afford such reforms.”