# IMF Executive Board Concludes 2018 Article IV Consultation with Algeria
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2018-06-05
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Algeria Faces Economic Challenges: IMF Report
Meta Description: Explore the challenges and progress of Algeria's economy post oil crisis, with detailed insights on fiscal consolidation, external debt, and growth
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URL: https://financedigest.com/imf-executive-board-concludes-2018-article-iv-consultation-with-algeriahtml

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On May 30, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation\[1\] with Algeria.

Algeria continues to face important challenges posed by the fall in oil prices four years ago. Despite a sizeable fiscal consolidation in 2017, the fiscal and [current account](https://www.financedigest.com/euro-zone-current-account-swings-back-to-a-surplus-in-june.html "Euro zone current account swings back to a surplus in June") deficits remain large. Real [GDP growth](https://www.financedigest.com/spain-q2-quarterly-gdp-growth-revised-to-1-5-from-1-1.html "Spain Q2 quarterly GDP growth revised to 1.5% from 1.1%") slowed sharply, mainly driven by a contraction in hydrocarbon production, although growth in the nonhydrocarbon sector was stable. Unemployment increased to 11.7 percent in September 2017 from 10.5 in September 2016 and [remains particularly high among](https://www.financedigest.com/skin-lightening-products-remain-sought-after-among-women-who-continue-to-account-for-80-of-sales-study.html "Skin Lightening Products Remain Sought-after among Women, who Continue to Account for 80% of Sales: Study") the youth (28.3 percent) and women (20.7 percent). Average inflation declined from 6.4 percent in 2016 to 5.6 percent due to [slowing](https://www.financedigest.com/spains-12-month-inflation-slows-down-again-in-december-to-5-8.html "Spain’s 12-month inflation slows down again in December to 5.8%") inflation for manufactured goods and services, and stood at 3.4 percent year-on-year in April 2018. Reserves, while still ample, fell by US$17 billion to US$96 billion (excluding SDRs). External debt remains negligible, while domestic public debt has increased significantly since 2016 but remains moderate.

**Executive Board Assessment\[2\]**

Executive Directors noted that Algeria has faced significant challenges related to lower [oil prices since 2014 and slower economic](https://www.financedigest.com/oil-prices-hold-firm-amid-hopes-for-economic-growth.html "Oil prices hold firm amid hopes for economic growth") activity. While welcoming the authorities’ efforts to manage the adjustment process, Directors encouraged sustained fiscal consolidation and wide-ranging structural reforms to facilitate a more diversified [growth model](https://www.financedigest.com/polypropylene-fibre-market-witness-a-spike-in-growth-pace-recent-improvements-in-pricing-models-fmi.html "Polypropylene Fibre Market Witness a Spike in Growth Pace Recent Improvements in Pricing Models: FMI") and support private sector development.

Directors noted that the authorities’ policy mix includes increased fiscal spending in 2018 followed by a resumption of fiscal consolidation over the [medium term](https://www.financedigest.com/ab-inbev-aims-for-core-profit-growth-of-4-to-8-over-medium-term.html "AB InBev aims for core profit growth of 4% to 8% over medium term"), monetary financing of fiscal deficits, and temporary restrictions on imports as well as structural reforms aimed at diversifying the economy. While a few Directors were sympathetic to the authorities’ approach, most Directors considered that it may bring short-term respite for the economy, but may entail significant risks to the [economic outlook](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says"). These Directors emphasized that it will likely exacerbate fiscal and external imbalances, raise inflation, accelerate the loss of international reserves, heighten financial stability [risks](https://www.financedigest.com/is-2022-the-year-green-finance-incorporates-climate-risk.html "Is 2022 the year green finance incorporates climate risk?") and, eventually, lower growth.

Directors recommended an approach that would likely achieve better outcomes while being more sustainable. They generally agreed that a gradual fiscal consolidation starting in 2018 could be achieved without [central bank](https://www.financedigest.com/climate-change-fight-a-core-duty-for-central-banks-ecbs-villeroy.html "Climate change fight a ‘core duty’ for central banks – ECB’s Villeroy") financing, relying on a broader range of financing options, including external borrowing to finance well-chosen investment projects. A gradual [exchange rate depreciation, combined with efforts to eliminate the parallel foreign exchange market](https://www.financedigest.com/the-health-information-exchange-market-to-grow-on-a-satisfactory-note.html "The Health Information Exchange Market to grow on a satisfactory note") would support the adjustment efforts.

Directors concurred that [monetary policy](https://www.financedigest.com/asian-economic-powers-warn-of-risks-from-war-monetary-policy-normalisation.html "Asian economic powers warn of risks from war, monetary policy normalisation") should be independent and aimed at containing inflation. In this regard, they encouraged the authorities to stand ready to tighten the monetary stance if inflationary pressures arise. While discouraging monetary financing of the deficit, Directors underlined the need to put in place safeguards, including time and quantity limits, to [contain its negative impact](https://www.financedigest.com/factbox-what-impact-will-strike-at-britains-busiest-container-port-have.html "Factbox-What impact will strike at Britain’s busiest container port have?") should such financing continue. In this context, they welcomed the [central bank’s](https://www.financedigest.com/marketmind-rba-shock-hike-starts-huge-week-for-central-banks.html "Marketmind: RBA shock hike starts huge week for central banks") commitment to sterilizing liquidity resulting from monetary financing as needed.

Directors supported the efforts to raise more nonhydrocarbon revenue, [improve public](https://www.financedigest.com/italy-slashes-2023-growth-forecast-but-sees-public-finances-improving.html "Italy slashes 2023 growth forecast but sees public finances improving") spending efficiency and management, and expand the subsidy reform while protecting the poor. They welcomed the authorities’ intention to advance reforms to foster private sector [development by improving the business](https://www.financedigest.com/impact-com-appoints-a-raft-of-new-business-development-representatives-as-the-technology-companys-client-roster-grows-by-more-than-50.html "impact.com appoints a raft of new Business Development Representatives as the technology company’s client roster grows by more than 50%") environment, enhancing access to finance, and strengthening governance, transparency, and competition. Directors also saw merit in taking steps to reduce skills mismatches, improve the functioning of the [labor market](https://www.financedigest.com/u-s-labor-market-powers-ahead-as-weekly-jobless-claims-fall-layoffs-hit-24-year-low.html "U.S. labor market powers ahead as weekly jobless claims fall, layoffs hit 24-year low"), foster greater labor market participation of women, and further open the economy to trade and foreign direct investment.

Directors noted that the [banking sector](https://www.financedigest.com/is-automation-key-to-esg-success-in-the-banking-and-finance-sector.html "Is automation key to ESG success in the banking and finance sector?") continues to perform relatively well. They highlighted that, given macroeconomic risks and financial linkages in the public sector, the macroprudential framework should be strengthened, including through more frequent [stress tests](https://www.financedigest.com/stress-test-backs-extending-lifespan-of-two-german-nuclear-plants-sources.html "Stress test backs extending lifespan of two German nuclear plants: sources"), and development of a crisis management framework.

**Algeria: Selected Macroeconomic Indicators, 2016–19**Population: 40.4 million; 2016Per capita GDP: US$ 4,102 (2017)Quota: SDR 1,959.9 million Gini coefficient: 0.28 (2015)[Key export markets:](https://www.financedigest.com/automotive-radar-market-key-players-industry-overview-applications-and-analysis-2026.html "Automotive Radar Market Key Players, Industry Overview, Applications and Analysis 2026") EUMain exports: [oil and gas](https://www.financedigest.com/bhp-in-talks-to-sell-global-oil-gas-business-to-australias-woodside.html "BHP in talks to sell global oil, gas business to Australia’s Woodside")2016201720182019Prel.**Output**Real GDP growth (percent)3.31.63.02.7Nonhydrocarbon GDP growth (percent)2.32.63.42.9**Employment**Unemployment (percent, [end of period)](https://www.financedigest.com/global-tool-holders-market-is-anticipated-to-reach-over-us-1604-5-mn-by-the-end-of-the-projected-period-growing-at-a-cagr-of-5-1-fmi.html "Global Tool Holders Market is anticipated to reach over US$ 1,604.5 Mn by the end of the projected period, growing at a CAGR of 5.1%: FMI")10.512.3……**Prices**Inflation (percent, average)6.45.67.47.6**Central [government finances](https://www.financedigest.com/government-assisted-financing-schemes-for-small-businesses.html "Government Assisted Financing Schemes For Small Businesses") (percent of GDP)**Total revenue28.832.730.628.2_Of which, hydrocarbon_9.712.512.411.2Total expenditure42.341.539.533.0Overall budget balance (deficit-)-13.5-8.8-9.0-4.8Gross government debt20.627.034.839.9[**Money and credit**](https://www.financedigest.com/how-to-buy-income-producing-real-estate-without-your-own-money-or-credit.html "How to Buy Income-Producing Real Estate Without Your Own Money or Credit")Broad money (percent change)0.88.311.4


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