IMF urges Algeria to curb salary hikes and to revamp subsidy scheme

Algeria must control its public spending and reduce its dependence on hydrocarbons or risk runaway debt levels in the long run, the International Monetary Fund warned on Monday.

The OPEC country needs to “strengthen its non-hydrocarbon revenues, control its current expenditure and maintain its public investments,” the IMF noted in its latest assessment report devoted to Algeria’s macro-economic performance.

“If it maintains the same level of spending in the long term, debt levels could reach 100 percent of GDP,” said the IMF while urging greater control in particular of “social and wage policies.”

Describing the results for 2013 as “satisfactory,” notably because of fiscal consolidation, the International Monetary Fund urged Algeria to continue along the same path, adopting tighter rules, including an average retrospective oil price.

Inflation has fallen, to 4.5 percent in October, from historic highs of nearly 9.0 percent in 2012, according to the IMF. 

But it said the economy was forecast to grow by 2.7 percent this year, down from 3.3 percent last year.

The IMF report called for public investment to stimulate the non-hydrocarbons sector, warning of the dangers of failing to diversify.

“Hydrocarbons production continues to decline while domestic consumption is growing rapidly, which weighs on exports,” it said.

Energy export earnings actually fell by around seven percent in the first half of 2013 from a year earlier.

To help reduce its hydrocarbons dependency, the IMF said Algeria must also boost private sector activity, by pushing through reforms to improve the business climate and lifting tight restrictions on foreign investment.

“Algeria’s external position, though still very strong, has started to weaken. The current account surplus is expected to narrow to 1.1 percent of GDP as a result of lower hydrocarbon exports and continued strong growth in imports”, it added.

“Hydrocarbon production continues to decline while domestic consumption of hydrocarbons remains strong, weighing on exports. Reversing the decline in exports will require more investment to increase hydrocarbon production, measures to reduce domestic hydrocarbon consumption, and efforts to diversify the export base. In addition, the authorities should continue to follow an exchange rate policy that avoids any misalignment of the dinar”, the IMF report finally underscored.