Download the Country Brief (PDF) Overview After a period of solid growth at 4.5 % average per year between 2000 and 2005, Algeria experienced a slowdown in 2006 to 1.8 %, driven by a sharp decline in the hydrocarbon sector as a result of maintenance work and the decline in oil and gas demand in Europe, followed by a mild recovery to 3.5 % in 2007.  Following a sharp decline in oil prices in the last quarter of 2008, GDP growth slowed to an average of 3% in 2008. A surge in private sector credit gave hope for recovery in private sector activity, followed by protectionist measures introduced in January 2009, when a cap at 49% on ownership by international investors in the main ventures was introduced by Presidential decree, with an immediate impact on FDIs. Steps towards liberalizing external trade also slowed down in 2008, and the long-awaited WTO accession has been further delayed.  In 2008, overall GDP growth was about 3%, and non hydrocarbon GDP growth was 5.8%, reflecting poor cereal harvest as well as sluggish demand in Algeria’s export markets.  A surge in private sector credit gave hope for a recovering private sector activity, followed by protectionist measures introduced in January 2009, when a cap at 49% on ownership by international investors in the main ventures was introduced by Presidential decree, with an immediate impact on FDIs.  Steps towards liberalizing external trade also slowed down in 2008, and the long-awaited WTO accession has been further delayed. The unemployment rate was 11.3% in December 2008, well below that of June 2008 at 12.3%, as a result of the 2001-04 Economic Recovery Program (PSRE), and more recently, the 2005-09 Public Investment Program, the "Programme Complémentaire de Soutien à la Croissance" (PCSC). Additional budgetary allocations have also been provided for the inclusion of new programs in disadvantaged areas in the Southern and Haut Plateau regions. Youth unemployment remains persistently high however, with about 75 % of the unemployed younger than 30.  Women account for 25.8 % of the total of the unemployed active population, whereas the highest share of male unemployment concerns men with medium level education. The highest share of unemployed women concerns highly educated women. The temporary nature of employment is also a concern, as more workers now hold temporary jobs (37 %) than permanent ones (34 %), with the balance attributed to the self-employed. Economic Developments Sound policies allowed Algeria to withstand the severe shocks from the world markets.  Inflation increased but it remained among the lowest in the region, reflecting stable domestic energy prices, subsidies on wheat and milk, and prudent monetary policy. The average annual CPI inflation was 4.2 % at end October 2008 and 5.6 % in January 2009, from 3.9 % in 2007, due to increased government spending through the PIP.  According to Algerian data, CPI inflation reached 5.6 % in January 2009, with the overall annual increase mainly due to the price increase of foodstuffs. The overall fiscal position remains strong despite continued fiscal expansion, resulting from accelerated implementation of PIP 2005-09 and an increase in the wage bill due to an initial reform of public wages launched in 2007.  Higher hydrocarbon revenues brought the overall surplus to 8.2 % of GDP in 2008, up from 4.5 % in 2007.  However, the recent increase in current expenditure has further deteriorated the non hydrocarbon fiscal position.  The structure of revenues has not changed significantly despite an increase in tax revenues: about 80 % of total revenues were from hydrocarbon, while non-hydrocarbon tax revenue represented 18 % of total revenue in 2008.  Total expenditure was 36.7 % of GDP in 2008, up from 35.1 % in 2007, reflecting the decision to raise salaries and transfers to support domestic prices and social programs.  The country now has marginal external debt of US$4.5 billion, equivalent to 3 % of GDP in 2008. Benefiting from high oil prices and the resulting build-up of international reserves and savings in the hydrocarbon stabilization fund (FRR), prudent debt policy was maintained in 2008, with almost all external debt having been repaid.  As the official policy is not to rely on external financing, the overall debt reduction policy is now addressing the reduction of domestic debt.  Domestic debt decreased from 8.1 % of GDP in 2007 to 3.5 % of GDP in 2008. Algeria’s external position has continued to strengthen thanks to higher oil export volumes in 2008.  Boosted by high world oil prices, international reserves have now passed the $135 billion mark (from 110 in 2007), and the external current account balance is above 20 % of GDP in 2008 (22.6 % of GDP in 2007). The economic crisis has so far had limited impact in Algeria, due to the limited integration of its financial system, however the country is being affected by the slowdown in global energy demand and the reduction in remittances. World Bank Group Activities After the Government’s decision in 2005 to reduce drastically the foreign debt and not to rely on any external financing, including the World Bank, activities in Algeria have included only analytical work and Reimbursable Technical Assistance (RTA).  As RTAs have become the bulk of Bank activities in Algeria, they will form the basis of the new Country Partnership Strategy (CPS), currently under preparation for FY10, at the request of Ministry of Finance. The last IBRD financed project closed in February 2009. Since 2004, the Bank has signed seven RTA contracts for a total amount of $2.0 million, including a joint IBRD-IFC RTA agreement with the Central Bank for the preparation of the establishment of a credit bureau for individual debtors.  Recent analytical work includes a comprehensive Public Expenditure Review and policy notes on the labor market and external trade diversification, as well as an Investment Climate Assessment. The IFC has a major presence in a new office in Algiers with a series of activities in infrastructure, financial sector, including microfinance, and manufacturing.  IFC activities have been mainly focused on providing capital and technical assistance for the creation of financial institutions to address financial exclusion and introduce new financial instruments such as leasing, private equity, and factoring.  The IFC has been a founding shareholder in the Country’s first private bank (Arab Banking Corporation in 1997), the first leasing company (Arab Leasing Corporation in 2001), and the first private equity fund with an operational presence in Algeria (Maghreb Private Equity Fund in 2006).   In 2007, the IFC became a shareholder in Maghreb Leasing Algeria, which it has also helped access local currency funding through IFC guarantees and is now developing the first ever factoring products in Algeria. All dollar figures are in US dollar equivalents.  September 2009 For more information, please contact:
In Washington: Najat Yamouri , nyamouri@worldbank.org  |
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