A recent mission by the International Monetary Fund (IMF) led by Mr. Chris Geiregat to Algiers has concluded that Algeria is poised for robust economic growth in 2024. The mission, which conducted the 2023 Article IV consultations with Algeria from December 3 to 14, highlighted key economic indicators and potential challenges.
According to Mr. Geiregat, economic growth is expected to reach 4.2 percent in 2023, driven by strong activity in sectors such as hydrocarbons, industry, construction, and services. Notably, the current account is projected to maintain a surplus for the second consecutive year, despite lower hydrocarbon prices. International reserves are deemed comfortable, equivalent to about 14 months of imports as of the end of October.
However, the statement notes that average annual inflation is anticipated to remain elevated at 9.2 percent in 2023, primarily influenced by fresh food prices. Monetary policy has remained accommodative, and despite the central bank’s actions in April to increase reserve requirements and enhance liquidity absorption in the banking sector, inflation persists.
Looking ahead to 2024, the IMF projects continued robust growth, moderated inflation, and a small surplus in the current account. The fiscal deficit, however, is expected to widen due to increased public wage bill, transfers, and investment spending. Financing for the deficit is anticipated to involve a drawdown of accumulated hydrocarbon revenue in the Revenue Regulation Fund.
Despite these positive outlooks, the IMF highlights several risks, including the potential for persistent inflation, volatility in hydrocarbon prices affecting growth and budget revenues, and the vulnerability of the Algerian economy to climate change effects.
To address potential challenges, the IMF recommends a gradual rebalancing of fiscal policy to contain projected increases in financing needs and public debt over the medium term. The adoption of a medium-term budget framework is suggested to shield fiscal policy from revenue volatility. Additionally, preparing medium-term financing plans is advised to diversify funding sources and reduce dependence on the domestic banking sector. The mission applauds ongoing public finance reforms, such as program budgeting and performance contracts for managers, aiming to enhance transparency and accountability in budget execution.
