Algeria Economy Rocked by One-Two Punch

Currency depreciation, inflation, negative growth, businesses closed: the Algerian economy was struck by a one-two blow to the coronavirus crisis and oil sales were declining.

However, as analysts note, a plunge into international debt would become imminent unless remedial action is taken on a large scale, reports AFP.

The National Office of Statistics (ONS) recorded a 3.9% decrease in Gross Domestic Product ( GDP) alone in the first quarter, with unemployment rising to 15%—"alarming "statistics, according to Mansour Kedidir, associate professor at the Oran Higher School of Economics.

Except the oil market, GDP dropped by 1.5 percent year-on-year in the first year, equivalent to 3.6 percent in the last year prior to Q1 2018.

With prevention steps in effect since 19 March to curtail the spread of the novel coronavirus, industries such as utilities and freight have come to a complete standstill.

The construction sector, a major provider of jobs, has been paralysed for months.

Finance Minister Aymen Benabderahmane puts the losses of state-owned companies at almost EUR 1 billion ($1.17 billion).

Private sector liabilities are yet to be measured, although many closing companies, including bars, cafes and travel agencies, are at risk of bankruptcy.

Algeria faces an “unprecedented economic situation”, said Prime Minister Abdelaziz Djerad, who has also blamed mismanagement under the rule of ousted longtime president Abdelaziz Bouteflika.

– Recession –

Due to a lack of diversification, the Maghreb region’s largest economy is highly dependent on oil revenues and exposed to fluctuations in crude prices.

The International Monetary Fund (IMF) forecast that Algeria’s economy will shrink 5.2 percent this year.

Kedidir predicts that unless reforms are brought in, “a Pandora’s box will be opened… riots, irredentism, religious extremism”.

President Abdelmadjid Tebboune has already ruled out seeking loans from the IMF or other international financial agencies, in the name of “national sovereignty”.

Algeria has painful memories of its 1994 recourse to the IMF and a structural adjustment plan that resulted in massive job cuts, shutdowns and privatisations.

– ‘New governance’ –

The government is about to launch an economic recovery plan and decided at the start of May to halve the state’s operating budget.

A 2020 complementary finance act is based on a decrease in revenues to around 38 billion euros, against the 44 billion euros initially forecast.

Experts say any solution will require drastic reforms.

Kedidir urged authorities to introduce lower interest rates, accounting for the informal sector and tax cuts based on the number of new jobs created.

He called for major projects such as agro-industrial zones in the country’s vast desert south, with processing infrastructure, extended railways lines and new towns to service them — all built with local manpower.

While acknowledging that hydrocarbons will remain the main revenue source for the next 5-10 years, an exit from the economic crisis must be based on new national and decentralised governance, says economist Abderahmane Mebtoul.

Algeria must “bring together all political, economic and social forces… (and) avoid division on secondary issues”, he said.

Mebtoul appealed for “a state-citizen symbiosis involving elected officials, companies, banks, universities and civil society in order to fight against a paralysing bureaucracy”.