Algerian economy: the IMF expresses its concern

The International Monetary Fund (IMF) has expressed concerns about the situation of the Algerian economy, warning of the consequences of the “persistence” of high budget deficits in the medium term.

“The persistence of high budget deficits in the medium term would generate unprecedented financing needs”, warns the Bretton Woods institution in a press release issued at the end of its mission in this country under Article IV of its statutes.

While noting that this situation should also deplete foreign exchange reserves and present risks to inflation, financial stability and the central bank’s balance sheet, the IMF adds that “overall, the ability of banks to lend to the rest of the world The economy would be severely hampered, which would have negative consequences for growth. “

The IMF called on Algeria to “urgently recalibrate” its economic policy to “correct macroeconomic imbalances, deploring the deterioration of Algeria’s macroeconomic situation in 2020, under the combined effects of the Covid-19 pandemic and the concomitant decline in oil production and prices which had serious repercussions on the economy.

According to the same source, these repercussions materialized in a “contraction of growth of 4.9%”, the widening of the budgetary and external deficits and the fall of the foreign exchange reserves, estimated at 48.2 billion dollars at the end. in 2020, up from $ 62.8 billion in 2019.

The Fund also reports an acceleration in inflation, which reached 4.1% on an annual average in June 2021, partly as a result of an increase in international food costs and an episode of drought. in Algeria.

According to the same document, the IMF mission remains “pessimistic” about the maintenance of this economic growth in the medium term, because of “the probable erosion of production capacity in the hydrocarbon sector in a context of reduced investment projects decided in 2020, and current policies that would limit credit to the private sector. “

She underlines that despite the “rebound in economic activity” and the “marked improvement in the external balance in 2021”, it remains “urgent to restore” macroeconomic stability and “room for maneuver”, while protecting groups. most vulnerable and supporting the recovery. “

After drawing up its report and warning against the consequences of the persistence of vulnerabilities in the Algerian economy, the IMF called on the Algerian authorities to act on budgetary and monetary policies as well as on the exchange rate of the Algerian dinar.

In detail, he advocates a “general budgetary adjustment, which at the same time gives priority to measures to protect the most vulnerable”.

According to the IMF, this adjustment “should be started in 2022” and “take place over several years to maintain debt sustainability”.

To achieve this adjustment, the IMF recommends improving “revenue collection”, “reducing expenditures” and “increasing their efficiency”.

He also recommends “banning” monetary financing altogether in order to “stem the increase in inflation” and “the rapid depletion of foreign exchange reserves”.

Instead, the IMF pleads for the “diversification” of sources of budget financing “including through recourse to external borrowing”.

Finally, the IMF recommends that the Algerian authorities “greater flexibility in the exchange rate” of the dinar, which “will help strengthen the resilience of the economy to external shocks and a tightening of monetary policy will make it possible to stem inflationary pressures. “

SL (with MAP)

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