Algeria economy rocked by one-two punch

Currency depreciation, inflation, negative growth, businesses closed: Algeria’s economy has been battered by the one-two punch of the coronavirus crisis and tumbling oil revenues.

And unless remedial action is taken on a massive scale, a slide into foreign debt will become inevitable, economists warn.

The National Office of Statistics (ONS) has reported a 3.9% fall in gross domestic product (GDP) in the 1st quarter alone, with unemployment nearing 15% – “alarming” figures, according to Mansour Kedidir, associate professor at the Higher School of Economics in Oran.

Excluding the energy sector, GDP fell by 1.5% year-on-year in the 1st quarter, against an increase of 3.6% last year compared to Q1 2018.

With confinement measures in place since March 19 to curb the spread of the novel coronavirus, sectors such as services and freight have come to a virtual standstill.

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

Finance Minister Aymen Benabderahmane estimates the losses of state-owned enterprises at nearly one billion euros ($1.17 billion).

Private sector losses have yet to be assessed, but many closed businesses, including restaurants, cafes, and travel agencies, risk 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% 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 privatizations.

‘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 railway 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 to 10 years, an exit from the economic crisis must be based on new national and decentralized 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.” – Rappler.com