COFACE: Algeria’s Purchasing Power To Stabilize, Exchange Reserves To Erode In 2019

French Company for Foreign Trade Assurance (COFACE) predicted a rise in social transfers on the back of the presidential elections and a relative stability of inflation at high rates, in parallel with the continuation of the policy of printing money in the context of what is known as non-traditional financing, and the erosion in the exchange reserve, despite the improved revenues of exports of fuel, which will allow to reduce the pressure on the revenues of the Algerian budget, and placed Algeria in the box “C”, which symbolizes a high degree of risk in relation to the countries in danger and the business climate.

As usual, the French COFACE company shows, in its new report, a set of indicators that are shocking and pessimistic regarding the situation of Algeria as it is placed within the “C” ranking, which a high degree of risk, expecting Algeria’s economy to grow at 2.3% this year, as the C level is the pre-final rating of the risk ratings at a time when Morocco was classified within the “A” ranking and Tunisia in grade (C) in assessing country risk and (B) in assessing climate and business environment.

The French Company estimates that the improvement in the level of oil prices will allow the Algerian economy to restore a relative balance, with improved revenues of exports of hydrocarbons, which represent 93% of the volume of exports, and this will allow for a reduction in the pressure on Algeria’s budget revenues and thus would allow the state to continue supporting economic activity.

In contrast, the volume of fuel exports has declined as a result of the contraction of production due to the decline in the level and pace of investment with the Algerian fields reaching advanced maturity stage.

COFACE said that Algeria will not benefit from the advantages of price improvements much like the rest of the oil-exporting countries this year, despite expecting positive price levels. Indeed, it expects a slowdown in Algeria’s commercial activity in 2019, but its report did not justify the reasons why Algeria does not benefit from the advantages of the improving oil prices in the international market.

In the context, COFACE expects an increase in social transfers on the back of the presidential elections’ date and a relatively stable inflation rate at high rates,in parallel with the continuation of the money-printing policy under the so-called the non-traditional financing that was adopted since September 2017.

In its estimates of social transfers or social support funds, COFACE seems to have relied on the current year’s fiscal law, which has recorded a relatively high allocation of social transfers of over DZD 1700 billion, or more than $ 17 billion, at the time the total printing of money reached DZD 4005 billion, or about $40 billion, not to mention the recent request that was received by the Bank of Algeria and the printing of DZD 1187 billion.

COFACE expects inflation to reach 6.7% in 2019, compared with 6.5% in 2018, and the GDP at -5.8%, compared to -6.9% in 2018, and the current output at -7.2% compared to -8.8% in 2018 and a public debt equivalent to 34.9% of GDP in 2019 compared to 31.3% in 2018.

Meanwhile, COFACE predicted a trade deficit and a rise in imports in 2019, with a 16-month erosion in the exchange reserve at the end of 2018, even if it will be at a slower pace.