The release of July 2018 report of the International Monetary Fund calls on the highest authorities to analyse the prospects of the Algerian economy with lucidity according to internal and external constraints and no longer to sail on sight. In July 2018, the IMF’s alarming report on Algeria’s economy outlook, contrary to the views of gloom must be realistic. The country is in a situation that could take on another dimension and possibly worsen without any deep change in the system of governance, adapting it to new internal and global changes.
There is a unanimity of national and international experts on the Government that clearly shows lack of strategic vision, as if suffering from lack of foresight. We always said:
“The greatest ignorant is the one who does not listen; instead of beliefs everything to deepen the culture of tolerance and favour the interests of Algeria and not his interests.“
The IMF report of July 2018
For the IMF in its last report, the country remains faced with significant challenges, posed by the decline in oil prices four years ago. Economic choices are also likely to “complicate macroeconomic management”, undermining growth “and” aggravating risks to financial stability in the medium term. Despite a critical budget adjustment in 2017, budget deficits and the external current account remain high. Overall economic activity has slowed down, although growth outside the oil sector has remained stable. The current policies of the Government according to the IMF weaken the resilience of the economy rather than strengthen it. Therefore, without profound reforms, these measures may lead the country into a deadlock at horizon 2020/2022. In any case and despite these measures to pay off some of the liquidity injected through monetary financing, the Bank of Algeria which raised the minimum reserve rate from 4% to 8% in January whilst resuming its absorption operations by taking bank deposits at seven days and also envisaging a moderate increase in the price of management, the use of printing money to finance the budget deficit risks aggravating imbalances, increasing inflationary pressures and accelerating the loss of foreign exchange reserves, notably through the use of banknotes to finance the budget deficit which according to the Bank of Algeria, the amounts loaned to the Treasury was in the order of 5,723 Dinars (DZD) as at the end of March 2018.
The inflationary thrust has undoubtedly not (yet) taken place, and even growth is expected to have a net rebound this year to 3%, compared to 1.6% in 2017, but for the IMF, unconventional financing representing 23% of GDP which will have enabled the funding in the first quarter 2018, for nearly 50% of the credits to the public sector, the economy will also have reached its limits from 2020 with rates of inflation and unemployment record likely to exceed in 2020/2022, 15%.
Quoting the IMF report, the increase in liquidity will stimulate demand, which will result in short-term price increases due to insufficient domestic supply and savings opportunities. At the same time, the hardening of import barriers is likely to fuel inflationary pressures by reducing supply – even by leading to shortages for specific products. Wage and price expectations could quickly adjust and strengthen each other. The authorities could then be forced to resort to monetary financing in subsequent years, which could lead to an inflationary spiral in the economy.
The International Monetary Fund advises to “use a wide range of financing instruments, including the issuance of public debt securities at the market rate, public-private partnerships, asset sales and, ideally, borrowing to finance well-chosen investment projects. “No progressive depreciation of the Dinar combined with efforts to eliminate the parallel market in foreign exchange would also promote adjustment”.
Two factors: demographic pressure and changes in foreign reserves
The Algerian population evolution looks thus:
For that, 350.000/400,000 productive jobs per year will have to be created with a real growth rate of 9/10% over several years to avoid sharp social tensions. However, the blocking of investment in Algeria does not lie in changes in laws or the elaboration of utopian strategies, bureaucratic vision, as one does not fight the informal sphere by strict administrative measures, but by improving on the functioning of the society, with a focus on participatory and civil society.
Hence the urgency of a speech of truth for the foreign exchange reserves have evolved as follows:
According to the IMF, foreign exchange reserves will, in 2022, allow less than five months of estimated import and in 2023 assessed at $12 billion less than three months of import.
Growth is expected to slow very strongly as early as 2020, causing an increase in the unemployment rate. It will also result in a particular persistence of budgetary deficits and, above all, external deficits which will gradually eliminate all the leeway available to Algeria.
As per the IMF, Algeria needs a barrel at $87.6 to achieve a balanced budget by 2016 compared to $60 in 2007, $80 in 2009, $125 in 2010, $140 in 2012, $110 in 2015. As for 2017, under the year’s Finance Act, the level is close to $75.
As far as 2018 is concerned, the supplementary finance law of 2018, as approved on 5 June 2018, for an additional envelope of DZD500 billion (approximately $4.4 billion) to cover all current public and unproductive expenditure, generalized subsidies, other costs and mismanagement not to say bribery, will require a barrel exceeding $100, for not to draw off the foreign reserves that could then increase.
Conclusion: The return to confidence and growth within the framework of universal values as a condition of political, social and economic stability.
To meet future challenges, to project on the future, far from any devastating populism, new governance, a language of truth and morality of the leaders are necessary.
A certain budgetary rigour, better governance, a change of course in the current economic policy, with a barrel between $60/70, Algeria can sense out, possessing assets. Debt is low, 20% of GDP, external debt 2.5% of GDP. However, above all, Algeria needs a return to trust to secure its future, to move away from the vagaries of the rentier mentality, to rehabilitate work and intelligence, to bring together all its political, economic and social parties, avoiding division on secondary subjects, to learn to respect our different sensibilities. This is how eternal Algeria can realise as bound by its oath of November 1st, 1954, a sustainable development accommodating economic efficiency and profound social justice to which we are deeply attached.