Algerian economy, needs to reform vs political reality - Eaglesinvestors Eagles Investors

Algerian economy, reforms suspended in the 2019 presidential election. Once again, structural reforms have to wait, despite the will of institutions and experts, who are setting off the alarm.

In a very recent report, the International Monetary Fund (IMF) begins its analysis with a finding that experts have been making for some time now. “Algerian economy still faces significant problems that result from the fall in oil prices. Despite a significant consolidation of public finances in 2017, budget and current account deficits remain high. ”

The Bretton Woods institution advocates structural reforms. Regardless of the macroeconomic policy adopted, it is necessary to implement essential structural reforms as soon as possible. It will encourage a more diversified and private sector-led economy, as well as to strengthen the economic policy frameworks. Clearly, the IMF warns against the new strategy of the government that consists of using “printing money” method. The new strategy has serious risks.

In an environment where external risks may lead to a downward revision of the outlook, the new strategy for Algerian economy could further exacerbate macroeconomic imbalances and even social tensions.

Algerian fall in Oil prices since 2017

Algerian economy and Structural reforms

In the country, the urgency of structural reforms is unanimous. These concern, in particular, the revision of the oil and especially taxation, the improvement of the business climate and the overhaul of the subsidy structure. Subsidies of energy products, alone, would represent for the Algerian economy 11 billion dollars a year, or more than 6% of GDP.

This subsidy policy is as important and people have to understand it. Today, the subject is no longer a taboo. Members of the executive sensitize and evoke the need for effective targeting. In July, Mustapha Guitouni, current Minister of Energy, said the subsidies led the Sonelgaz group to a “huge debt” that reached 1.6 trillion dinars.

Decision and Action for the Algerian economy

However, no concrete decision has been taken yet to remedy the situation. Neither deadline, although necessary for the entry into force of a new policy in this area. Ministerial departments, supported by experts from the World Bank worked for almost a year on the recasting of the social action of the State in favor of a system of money transfer to benefit the poor.

The first results of this work had to be announced last February. Except that the communication sent back indefinitely for reasons – so far – unexplained. This is not the first time a reform is announced and then stored in a drawer. Nothing for the Algerian economy will be undertaken before the presidential election.

Political time is not economic time

Political time is not economic time. Some reforms for the Algerian economy, such as the revision of subsidies, can exacerbate tensions. “We do not launch [structural reforms] in this kind of context because they would cause discontent. Even if they are absolutely necessary for a country like ours. Authorities will return their implementation after the deadline if they are mandatory” noticed political scientist Rachid Grim.

If oil prices rebound, decision-makers will do absolutely nothing. “We do not have a power that has the courage to make unpopular decisions even for the benefit of the Algerian economy. They obviously do not want to have the population in the street” said the political scientist. Recalling the first manifestations of the Arab Spring in the area and its consequences. In August, the Central Bank of the country returned to the depreciation of the dinar. On the interbank foreign exchange market, 1 euro is now worth 135 dinars and 1 dollar 119 dinars.

Algerian Economy

Algerian economy and Instability of the oil market

This is the only adjustment variable that remains in our hands,” said economist Mustapha Mekideche. Depreciate the dinar to reduce the pressure on the balance of payments. “This is a structural reform that does not say its name,” says the international expert. The latter recalls the exhaustion of the Revenue Regulatory Fund (FRR) and the decline in foreign exchange reserves which amounted to $ 94.53 billion at the end of the first half of 2018. “We are postponing the reforms for the Algerian economy because we have the opportunity to do it”.

For the moment, Algeria still has dampers that allow it to launch its reforms without major difficulties and run great risks. They will have to make these reforms by taking advantage of this period where they still have dampers. They cannot put dust all the time under the rug. At one point, there will be a counter-shock and they will no longer have the necessary dampers to cope.

The instability of the oil market does not leave the choice for the Algerian economy. The energy and oil scene is still turned upside down with the issue of Iran. Consequently to the return of US sanctions. It is unclear whether the Iranian offer will come out of OPEC’s overall offer. This will create a situation of instability that will start elsewhere with the meeting of OPEC scheduled for September in Algiers, Capital of the country.

Acceleration of the pace after 2019?

Is there a second plan? The process of implementation of structural reforms of the Algerian economy should accelerate after the presidential election. Keeping in mind that the exportable quantities of hydrocarbons are decreasing. They are exporting less and less crude oil and gas because the consumption is increasing and the reserves are going down. They have room for maneuver that narrows as they go. ”

Algerian Economy

An Arabic idiom says: Why would the artisan of failure suddenly become rediscovered by the artisan of success? It seems that the only way to reform the economy in this country is mainly to reform politics.

And we wish for the Algerian folk all the best.

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