Algeria: External debt is not on the agenda

By Dr. Arslan CHIKHAOUI, Chairman, www.nordsudventures.com

The latest World Bank report from July 2021, which advocates an acceleration of the pace of reforms to protect the Algerian economy considers that Algeria’s economic outlook is in fragile recovery mode for 2021. It highlights, in particular, that in 2020, a double shock was added to the country’s economic difficulties caused both by the Covid-19 pandemic and a sharp drop in revenues from hydrocarbons.

This report insists that the temporary drop in international oil prices has deteriorated the budget balance, the availability of bank liquidity and the external balance, despite the depreciation of the Algerian Dinar.
Moreover, the World Bank asses that: “The overall budget deficit widened considerably in 2020, in a context of sharp decline in oil and tax revenues and increase in budgetary expenditure. Bank liquidity has declined, and credit growth has slowed despite strong monetary easing policies on the part of the Algerian Authorities, under the effect of the fall in external revenues, the mobilization of bank deposits to finance the deficit overall budget and withdrawal of bank savings by individuals. External financing needs have increased as a result of the widening current account deficit. Imports of equipment and inputs into domestic production have declined considerably with the continuation of import reduction policies aimed at protecting foreign exchange reserves, which fell by the end of 2020 to around 12.8 months of imports of goods and services. The authors of the World Bank report stress that the sustainability of the “fragile recovery” expected in 2021 will depend on the acceleration of reforms to promote private sector growth and restore macroeconomic balances.

The World Bank considers that the main sources of risk for the economic outlook are the deterioration of the health situation, the resumption of large-scale social mobilization, less than expected foreign exchange earnings and an insufficient response of the private sector to the program. reforms. However, it advises through its report that: “As the increase in public spending in 2021 should be short-lived, and that foreign currency reserves now cover less than a year of imports, the acceleration of reforms aimed at Encouraging the development of the private sector will be essential to drive Algeria’s structural transformation towards its independence from hydrocarbon revenues, and for it to embark on the path of sustainable and inclusive economic growth.”According to observers, faced with the major challenge of gradually recovering global stability (economic and political) and shifting the country into a new Era, President Abdelmadjid Tebboune, elected by universal suffrage on December 12, 2019, unrolled a road map which is based on four concomitant work axes, namely:

• Engage in inclusive dialogue to achieve political and social concord;
• Consolidate institutional stability and avoid structural collapse;
• Moralize politico-economic life through a relentless fight against bribes and corruption;
• Relaunching economic development and growth which has been suffering since the fall in the price of a barrel of oil (97% of the country’s income).

The socio-political situation, the contraction of oil revenues, the high expectations of the population mean that the Executive has the obligation to succeed in the postCovid-19 economic recovery without moving towards external debt to the harsh conditionalities of the International Monetary Fund (IMF) as was clearly stated by the President of the Republic. Consequently, it is the management of an ad hoc crisis situation with three components: financial, health, water / food which will be presented in the Government Action Plan to the Upper House and the Lower House in September.

According to many observers, the current Executive is primarily economic and resembles in its component of crisis management to those of the years 1992 to 1996 qualified, at that time, of “government of war” because of a multidimensional crisis that the country lived during which the barrel of oil (only source of income) oscillated between 7 and 9 US Dollars. At that time, Algeria was in default OFC payment and under drastic conditions from the IMF applying its Structural Adjustment Program (SAP) and going through a systemic crisis against a backdrop of extremist violence. A situation that no one would like to see again.
Even if the World Bank report unquestionably advocates external debt, undoubtedly, nor the questioning of the fundamental principles linked to support for housing and the most deprived social categories as well as to the structure of subsidies of the State or debt will not be the order of the day. Indeed, the Prime Minister relaying the statements of the President of the Republic had clearly mentioned publicly once he was appointed.

Dr Arslan CHIKHAOUI / 6.8.2021