IMF Executive Board Article IV consultations with Algeria :

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An IMF mission headed by Erik de Vrijer has been in Algiers since October 4, 2006 to conduct the annual Article IV consultation discussions. These talks will result in the drafting of a report for discussion by the Fund's Executive Board.

The discussions focused on recent developments and current economic policies, as well as the medium-term economic outlook. The mission met, among others, with His Excellency the Minister of Finance, Mr. Medelci, and His Excellency the Governor of the Bank of Algeria, Mr. Laksaci. Economic growth continues in 2006, but remains fragile. Public investment is still the driving force behind the expansion of non hydrocarbon activity, while the production of hydrocarbons has slowed for technical reasons. As a result, the real growth rate of the economy would be about 3 percent (nonhydrocarbon sector: 4½ percent). The pursuit of an appropriate fiscal policy together with a prudent monetary policy helped keep inflation in check in the first part of the year. Favorable hydrocarbon prices on the international markets further strengthened Algeria's financial position vis-à-vis the rest of the world. The early repayment of external public debt reduced its level significantly. Structural reforms have also advanced. In the banking sector, the process of privatizing the majority share in a public bank and the modernization of the payments system are under way. In addition, banking supervision has been strengthened. Nevertheless, the nonperforming loans of public banks, particularly loans to the private sector, remain at a very high level. The rate of the corporate income tax was lowered from 30 percent to 25 percent, and the government has decided to streamline the taxation of small enterprises, particularly by introducing a unified lump-sum tax. Some progress was made in the enterprise privatization program. Algeria's increased political stability and favorable financial position afford an excellent opportunity to achieve stronger and more diversified growth, as well as to reduce unemployment while preserving macroeconomic stability. The government's economic program aims at these objectives, and it is crucial that the program be implemented decisively, efficiently, and coherently. The National Economic and Social Pact is an important step toward realizing the targeted objectives. The main challenges are the following:

• ensure the sound management of hydrocarbon resources, particularly the quality of the large public investment program; and

• avoid that the ample hydrocarbon revenues weaken the resolve to expedite the modernization of the financial sector and other structural reforms needed to complete the transition to an open market economy and improve the private investment climate.

• The ambitious fiscal policy requires a sustained effort to ensure the quality of public investments. Controlling inflation will continue to be a major challenge for monetary policy, in view of the planned fiscal expansion and the wage increase granted in 2006. Privatizing public banks and strengthening their governance are essential for improving financial intermediation. To maximize the benefits of Algeria's increased openness, it is important to ensure the free convertibility of the dinar for current international transactions and to modernize the customs administration. Enhanced regional integration would also allow to benefit more from the multilateral opening up of the economy and to attract more foreign investment.

Algeria's increased political stability, favorable financial position excellent growth opportunity - IMF

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On January 10, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria.

Background

Real GDP growth temporarily declined to about 3 percent in 2006, largely because of a drop in hydrocarbon output for technical reasons. Nonhydrocarbon GDP (NHGDP) growth would continue at 4½ percent, underpinned by sustained activity in the construction sector, resulting from the significant fiscal impulse, and agriculture. Inflation remained low through mid-year but is picking up, reflecting a rebound in food prices.

Favorable hydrocarbon prices on international markets further strengthened Algeria's external position. The current account surplus is projected to increase to 24½ percent of GDP from almost 21 percent in 2005. Gross external reserves reached $US70 billion at end-September 2006 (2 years of import cover). After early debt repayment, in particular to the Paris and London Clubs, the external debt-to-GDP ratio would decline from 17 percent in 2005 to below 4½ percent in 2006.

Buoyant hydrocarbon revenues have enabled a strong increase in public spending. The 2005-09 public investment program was increased considerably, and civil service wages were raised by about 15-16 percent on average. As a result, the nonhydrocarbon primary deficit is expected to widen from about 33½ percent of NHGDP in 2005 to almost 37½ percent in 2006, but the overall budget surplus would remain at about 12 percent of GDP in 2006.

Monetary policy remained prudent, in line with the authorities' objective of containing inflation. The Bank of Algeria continued to absorb most of the excess liquidity of the banking system through deposit auctions in 2006 and the expansion of credit to the economy slowed.

Some progress was made in structural reforms. The privatization of one public bank and the modernization of the payments system are underway. The governance of the remaining public banks is being strengthened and supervision has become more active, mainly through on-site inspections. However, nonperforming loans of public banks remained high. The corporate profit tax rate was reduced from 30 percent to 25 percent, and the taxation of small enterprises was streamlined by introducing a single presumptive tax. Privatization of public enterprises is proceeding and an anticorruption law was adopted in January 2006.

Executive Board Assessment

Executive Directors commended the authorities for their prudent macroeconomic policies and welcomed Algeria's encouraging economic performance in recent years, noting the decline in the unemployment rate, sustained economic growth, low inflation, and comfortable external and fiscal positions in the wake of high world energy prices.

Looking forward, Directors agreed that the country's increased political stability and favorable financial situation present an invaluable window of opportunity for achieving high growth and further reducing unemployment, while maintaining macroeconomic stability. They underscored the importance of ensuring sound management of hydrocarbon resources and pressing ahead vigorously with structural reforms to increase productivity and improve the business climate.

Directors welcomed the authorities' ongoing reassessment of projects included in the public investment program and the commitment to take into account the recommendations of the public expenditure review conducted in cooperation with the World Bank. They cautioned that, given the limited absorptive capacity, a slower pace of project implementation may be desirable to ensure a high quality of the public investment program and avoid undue strain on monetary policy. In addition, they encouraged the authorities to focus on the execution and monitoring of existing projects, accelerate budget modernization, and strengthen fiscal governance by implementing the recommendations of the 2004 fiscal Reports on the Observance of Standards and Codes.

Directors noted the authorities' intention to maintain fiscal sustainability over the medium term. In this context, they welcomed the new rules governing the hydrocarbon stabilization fund and recommended aiming at a higher investment return. They were also encouraged by the recently concluded National Economic and Social Pact, which supports linking real wage increases to productivity growth and economic performance in the nonhydrocarbon sector, noting that it would help preserve Algeria's competitiveness as the economy opens up further.

Directors commended the authorities for the prudent conduct of monetary policy that has kept inflation under control. In light of the expected external inflows, the planned increase in public investment, and the wage increases, Directors welcomed the authorities' intention to pursue a tight monetary policy stance. In this respect, they supported the authorities' intentions to maintain the Bank of Algeria's policy interest rate positive in real terms and to continue managing the exchange rate in a flexible manner.

Directors were of the view that financial sector reform and a significant deepening of financial intermediation will be necessary to foster private sector activity. In this respect, they pointed to the need to push ahead decisively with the privatization of public banks, strengthen the governance of the remaining public banks, and promote competition in the banking sector, while avoiding bank lending to nonviable public enterprises. Directors also looked forward to the update of the 2003 Financial Sector Assessment Program.

Directors welcomed the authorities' pursuit of WTO accession and their intention to implement the action plan to reduce obstacles to regional trade following the 2005 conference on trade facilitation in the Maghreb. They welcomed the recent promulgation of the new exchange regulation that is aimed at removing the remaining ambiguities regarding the current convertibility of the dinar.

Directors urged the authorities to accelerate other structural reforms, in particular streamlining the tax system, completing the ongoing reform of the tax administration, and modernizing the customs administration. They also welcomed the authorities' intention to gradually increase the pass-through of world oil prices to domestic energy prices.

Directors praised the authorities' policy to prepay external debt and encouraged Algeria to participate as a creditor in the enhanced Heavily Indebted Poor Countries Initiative, and obtain a sovereign rating.

Directors encouraged the authorities to intensify their efforts to upgrade the production and dissemination of economic and financial statistics, including by benefiting from technical assistance under the General Data Dissemination System.

Read on for......Algeria: Selected Economic Indicators

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samedi 10 fevrier 2007 - - La croissance économique réelle de l’Algérie (hors inflation) a ralenti à moins de 3 %, selon le Fonds monétaire international (FMI). «Cette baisse est due au recul de la production d’hydrocarbures de 1 à 1,4 % pour des raisons techniques liées à la maintenance des installations», a précisé le Fonds dans sa revue annuelle de l’économie algérienne.

Le FMI a, toutefois, précisé que la hausse des prix du pétrole sur les marchés mondiaux a permis au pays d’augmenter les dépenses publiques et de réduire la dette extérieure qui, exprimée en pourcentage du PIB, est passée de 17 % en 2005 à 4,5 % en 2006.

L’inflation est restée basse jusqu’à la seconde moitié de l’année, avant de rebondir, reflétant une hausse des prix des produits alimentaires, a-t-on souligné. Cette institution mondiale note «quelques progrès» dans les réformes structurelles avec la privatisation de la banque publique CPA, et la modernisation du système des paiements ainsi que la réduction de 30 à 25 % de l’impôt sur les entreprises.

L’institution financière s’est toutefois déclarée «encouragée par la récente conclusion du pacte national économique et social qui soutient le principe de lier la croissance réelle des salaires à celle de la productivité et aux performances économiques du secteur non pétrolier».

Cependant, elle a appelé les autorités algériennes à poursuivre la réforme du système fiscal et la modernisation de celui des douanes, et de répercuter au niveau national l’augmentation des prix du pétrole sur les marchés mondiaux.

Le conseil d’administration du Fonds a estimé que «la stabilité politique accrue et la situation financière favorable offrent une occasion d’augmenter la croissance et de réduire encore davantage le chômage tout en préservant la stabilité macroéconomique».

Le FMI avait déjà estimé dans son rapport publié en janvier que le taux de chômage en Algérie restait élevé en dépit d’une croissance économique en progrès au cours des dernières années. «Même si le taux a diminué, selon les chiffres officiels, il reste encore nettement supérieur à celui constaté dans d’autres pays d’Afrique du Nord et du Moyen-Orient et dans les pays en transition en général», avaient noté les auteurs du rapport.

Le FMI s’était interrogé, toutefois, sur la pérennité de l’amélioration constatée, dans la mesure où une part significative des nouveaux emplois créés correspond à un travail à domicile (plus du quart des emplois existants) ou sont des emplois temporaires.

La dépense publique reste le principal moteur de la création d’emplois. Les grands travaux d’infrastructures qui ont été lancés vont continuer de créer des emplois, mais une part importante sera constituée d’emplois temporaires. Toutefois, le Fonds a jugé possible de ramener le taux de chômage en dessous de 10 %, d’ici à 2015, si la croissance moyenne est de 5 %, même avec l’hypothèse d’un renforcement de la productivité du travail accompagnant les réformes structurelles et une augmentation moyenne de la population active de 2,5 %.

«Le passage sous les 10 % pourrait intervenir plus tôt si les réformes en mesure de stimuler la croissance sont mises en place», avait-on affirmé.

En raison de la baisse de production des hydrocarbures en 2006 :
Le FMI situe le taux de croissance réelle de l’Algérie à moins de 3 %

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International Monetary Fund:

Published: February 14, 2007

Electronic Access: Free full text (.pdf file size is 620kb)

Series: Country Report No. 07/61

Algeria: Selected issues

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International Monetary Fund:

Published: February 22, 2007

Electronic Access: Free Full Text (.pdf file size is 495kb)

Series: Country Report No. 07/72

Algeria: 2006 Article IV Consultation - Staff report; Public information notice on the Executive Board discussion; and statement by the Executive Director for Algeria

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International Monetary Fund:

Published: March 5, 2007

Electronic Access: Free full text (.pdf file size is 566kb)

Series: Country Report No. 07/95

Algeria: Statistical Appendix

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IMF Executive Board concludes 2007 Article IV consultation with Algeria

February 19, 2008 -- On February 11, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria.

Background

Algeria’s market-oriented economic reforms over recent years started to bear fruits, with higher growth, low inflation, and strong fiscal and external positions. Real GDP growth peaked at 4.6 percent in 2007 from 2 percent in 2006 reflecting strong growth in the nonhydrocarbon sector (6 percent) driven by services and construction and public works. Inflation remained low despite rising food prices. Unemployment declined further in 2007, but remains high particularly among the youth.

Algeria’s external position has continued to strengthen. Boosted by high world oil prices, international reserves have now passed the US$100 billion mark, and the external current account surplus remained above 20 percent of GDP in 2007.

The fiscal policy stance remained expansionary. The non-hydrocarbon fiscal deficit reached about 37.5 percent of GDP in 2007 from 36 percent in 2006, as a result of the public investment program and higher wage bill. Nevertheless, higher hydrocarbon revenues kept the overall fiscal surplus at 12 percent in 2007, further increasing savings in the hydrocarbon stabilization fund (FRR).

Progress continued in structural reforms to strengthen financial intermediation and improve the business environment to spur further private investment and growth in the medium term.

Executive Board assessment

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Algeria’s encouraging economic performance in recent years, reflecting market-oriented reforms and prudent macroeconomic policies in a favorable external environment. Nonhydrocarbon growth is accelerating, employment is on the rise, and inflationary pressures are in check. The external and fiscal positions remain strong and the authorities’ ambitious investment program has started to improve infrastructure and living conditions.

Directors agreed that the main challenges facing Algeria are to ensure sustained high productivity and nonhydrocarbon growth and to lower further the still high unemployment. They welcomed the authorities’ commitment to continued macroeconomic stability and deepened market-oriented reforms as providing the basis for meeting these challenges, and highlighted, in particular, the role to be played by improving financial intermediation.

Directors viewed that the tightening of monetary policy had absorbed the excess liquidity in the banking system and helped keep inflation under control, despite rising food prices. They observed that, as ongoing fiscal stimulus will further boost liquidity and domestic demand, continued central bank vigilance is warranted. They also encouraged further exploration of measures to absorb excess liquidity permanently. In this context, they welcomed the recent increase in the reserve requirement rate.

Directors considered that Algeria’s exchange rate policy is consistent with external stability. They noted the assessment that the real effective exchange rate remains close to its equilibrium level, while acknowledging the estimation difficulties for oil exporting countries. Directors encouraged the authorities to continue managing the exchange rate in a flexible manner, while implementing policies to enhance productivity and economic diversification.

Directors agreed that the current fiscal stance remains consistent with long-term fiscal sustainability. They observed, however, that if inflationary pressures intensify, the burden should not fall solely on monetary policy, and the withdrawal of some of the fiscal stimulus envisaged in the 2008 budget might be called for. In this context, Directors noted that careful prioritization of projects in the public investment program in line with absorptive capacity could help reduce demand pressures. They welcomed the initiation of the National Fund for Investment and Development and underscored its important role in ensuring the quality of spending under the public investment program. Directors also commended the substantial improvements in budget management and fiscal governance.

Directors noted that the sizable increase in the wage bill envisaged in the 2008 budget aims at improving efficiency in the public administration. They encouraged the authorities to keep real public sector wage increases in line with productivity gains in the nonhydrocarbon sector, as intended in line with the principles set out in the National Economic and Social Pact, in order to preserve competitiveness and long-term fiscal sustainability.

Directors were encouraged by progress towards strengthening tax administration and simplifying the tax system. They considered that gradual steps to reduce exemptions, improve VAT design, and eliminate the turnover tax would contribute importantly to improving the business climate.

Directors stressed that sustained further implementation of financial sector reforms will be key to improving the business climate and enhancing private-sector led growth. They encouraged the authorities to implement the recommendations of the 2007 Financial Sector Assessment Program update, including through strengthening the role of private banks. Directors assigned a high priority to improving bank governance and risk management, given the current strong growth in private sector credit. They also pointed out that guarantee schemes on credit to small and medium enterprises should not distract banks from careful assessment of credit risk.

Directors welcomed the authorities’ decision to list large corporate and government bonds on the Algiers Bourse, and recommended the prompt finalization of the regulatory framework for the commercial paper market. Further developing the local corporate debt securities markets would contribute to financial stability and growth.

Directors welcomed the progress achieved in the area of bilateral and regional trade liberalization. They looked forward to Algeria’s impending accession to the World Trade Organization (WTO), which will be an important step to ensure access to international markets.

Directors encouraged Algeria to continue to work towards participation as a creditor in the Enhanced Heavily Indebted Poor Countries Initiative.

It is expected that the next Article IV consultation with Algeria will take place on the standard 12-month cycle.