The International Monetary Fund (IMF) has issued a warning about the erosion of Algeria's foreign exchange reserves and the decline of its financial safety margins in the coming years. According to the IMF, the country's foreign exchange reserves are projected to decrease from $51 billion in 2023 to $19.8 billion by 2031, representing a decline of over 61%. This decrease is expected to lead to a reduction in import coverage from 8.6 months to 3.3 months.
The IMF's report, released after the conclusion of the 2026 Article IV consultations, highlights that Algeria's fiscal deficit remains at high levels. The country's budget deficit is expected to reach 9.6% of GDP this year and increase to 10.2% in 2027. Additionally, the IMF warns of a rising government debt trajectory, which is projected to reach 53.2% of GDP this year and 60.4% in 2027.
The IMF attributes the decline in Algeria's financial safety margins to increased financing pressures and a growing reliance on central bank financing, also known as cash financing. This is expected to reach 5.5% of GDP, posing a threat to price stability and the credibility of monetary policies. The IMF emphasizes the need to reduce reliance on this option and restrict it to exceptional circumstances while strengthening the independence of the Banque d'Algérie.
The IMF's report also notes that Algeria's economic growth is facing significant challenges, including a decline in hydrocarbon prices. To mitigate these risks, the IMF recommends accelerating the pace of economic diversification and reforming the business climate to stimulate the private sector and ensure sustainable growth.
To address these challenges, the IMF's Executive Directors call for a gradual and credible approach to fiscal consolidation. This can be achieved through increasing non-hydrocarbon revenue, rationalizing spending, and reforming energy subsidies to target vulnerable households.
The IMF's report highlights the need for Algeria to implement structural reforms to promote economic diversification and improve the business environment. This includes measures to enhance the competitiveness of the private sector, promote investment, and improve the efficiency of state-owned enterprises.
The decline in Algeria's foreign exchange reserves and the rising government debt trajectory pose significant challenges to the country's economic stability. The IMF's recommendations aim to support Algeria in addressing these challenges and promoting sustainable economic growth.
Key points
- Algeria's foreign exchange reserves are expected to decline to $19.8 billion by 2031.
- The country's fiscal deficit is expected to reach 9.6% of GDP this year and increase to 10.2% in 2027.
- The IMF recommends a gradual and credible approach to fiscal consolidation to address Algeria's economic challenges.
