The International Monetary Fund (FMI) has acknowledged Algeria's progress in developing non-hydrocarbon activities, but emphasizes that sustaining this momentum requires a more competitive private sector, better selection of investment projects, and strengthened public finances. This will enable the country to reduce its dependence on hydrocarbons and support sustainable growth, exports, and employment. Algeria, a major energy exporter in Africa, has long relied on hydrocarbons for its exports and public revenue.
The FMI notes that Algeria's economic strategy focuses on large investment projects, production, and non-hydrocarbon exports, covering sectors such as mining, food and water security, and large-scale transportation and trade infrastructure modernization. To facilitate implementation, authorities have simplified procedures, strengthened governance, and facilitated trade, including recent reforms in investment, land, and mining, as well as a digital one-stop shop for investment.
The FMI observes that efforts to promote non-hydrocarbon exports have shown encouraging signs, with the share of non-hydrocarbon sectors in real GDP and goods exports increasing gradually, and non-hydrocarbon export revenues growing over the past decade. However, hydrocarbons continue to dominate exports, and the rest of exports are concentrated on a few products. The FMI suggests that the export base is broadening, but slowly.
Large projects can enhance productive capacities, improve connectivity, and create new opportunities, but they also require significant financing. In recent years, increased investment has contributed to higher import demand and exacerbated budgetary and external pressures. The FMI recommends rigorous planning, prioritization, and implementation of projects to maximize their benefits, stressing that project selection is as important as expenditure amounts.
The FMI emphasizes that a competitive private sector would increase exports, including in less carbon-intensive activities, and enhance resilience as global demand shifts towards low-carbon products. To achieve this, Algerian businesses need efficient infrastructure, access to financing, adapted skills, and effective institutions. Creating a more favorable business environment is crucial, with predictable rules and fair competition conditions between public and private enterprises.
The FMI advises that maintaining growth on a favorable trajectory requires strengthening public finances and external margins, as well as alleviating financial pressures. A gradual budgetary rebalancing can contribute to this, based on more efficient spending and stronger non-hydrocarbon revenues. Prudent management can preserve priority investments and protect vulnerable households.
The FMI also suggests that hydrocarbon prices fluctuate, and so do budget revenues. Building larger reserves and adopting a more predictable approach to saving excess revenues would allow for a stable level of public investment when hydrocarbon prices decline. Implementing these reforms jointly would sustainably support private sector investment and activity.
Key points
- The FMI recommends strengthening Algeria's private sector and public finances to sustain economic growth and reduce dependence on hydrocarbons.
- A competitive private sector would increase exports and enhance resilience to global demand shifts.
- Careful project selection and rigorous implementation are crucial to maximizing the benefits of large investment projects.
