IMF urges Algeria to ‘recalibrate’ economy

International Monetary Fund (IMF) experts urged Algeria on Monday to “recalibrate” its oil and gas-dependent economy and implement structural reforms.

“There is urgent need for a recalibration of economic policies to address macroeconomic imbalances while protecting and enhancing support to the most vulnerable,” the team said in a statement after a three-week virtual mission to the North African country.

They said the coronavirus pandemic and the shock it delivered to oil production and prices “seriously impacted the economy last year, leading to a sharp contraction in real GDP of 4.9 percent in 2020.”

And while crude prices have since bounced back to above pre-pandemic levels, they warned that the health crisis had “further exposed the vulnerabilities of the Algerian economy,” with widening fiscal deficits and dwindling international reserves.

The African continent’s fourth-biggest economy and its top gas exporter, Algeria is sensitive to swings in hydrocarbons prices which make up more than 90 percent of its foreign receipts.

The IMF experts said the country was experiencing “a gradual recovery… with economic growth expected to exceed 3 percent this year, supported by the increase in hydrocarbon prices and production.”

But they warned that inflation had accelerated to 4.1 percent in June 2021 on higher international food prices and a drought that has battered farmers across the Maghreb region.

“In the medium term, growth will likely remain subdued due to constraints on hydrocarbons production” as well as cuts to investment and a lack of credit facilities for the private sector, the statement said.

The experts warned against high fiscal deficits which could force the country to take “unprecedented” steps and deplete its foreign exchange reserves.

President Abdelmadjid Tebboune in April ruled out approaching the IMF for a bailout, contending that “accumulating debt harms national sovereignty” when it is owed to foreign institutions.

The IMF experts urged the country to “diversify… budget financing sources, including through external borrowing.”