Overview

Amid political upheavals in other Arab countries, Algeria's government maintained stability through a combination of minimal political reforms and public sector expenditure. But the long term challenges facing the economy remain unchanged, namely reducing subsidies, improving the business environment, diversifying the economy and creating private sector jobs. While the government talks about the need for reforms, the steps it has taken have been modest. The government formed following the April 2014 presidential elections promised more action but has yet to deliver on promises.

A business climate marked by difficult access to credit, a complex regulatory environment, and time-consuming procedures to set up a business, holds back the private sector. Unemployment has remained at about 10% since 2010, and is significantly higher for youth (24.8%) and women (16.3%). Trade integration has also proceeded very slowly, and negotiations to join the WTO have not made much progress. On the fiscal front, expansionary budgets have propped up the economy but led to widening deficits, which peaked at -6.8% of GDP in 2014 and are expected to remain high in 2015. Hydrocarbon production has been on a downward path since 2006 due to a lack of investment in upgrading existing fields and exploiting new discoveries, while the rise in domestic energy consumption has come at the expense of declining oil exports. Investment in the oil and gas sectors has been held up by uninviting licensing rounds and concerns over security risks. Hydrocarbon exports typically generate around 62-66 percent of total government revenue. Hence, as hydrocarbon exports have fallen from a peak 35.9 percent of GDP in 2011 to 27.2 percent of GDP in 2014. Subsidies in particular, projected to reach close to 13 percent of GDP in 2014, continue to weigh on government finances, underscoring the urgent need for subsidy reform.

To bolster the economy, the government is seeking to further develop its hydrocarbon resources and has also explicitly embraced private sector development by opening research centers and launching major transport and housing projects. Regarding the business climate, the government has established a committee to come up with an action plan to help reform it. In the absence of these much-needed reforms, however, the Algerian economy is likely to continue to grow slowly. Economic diversification and reduced reliance on the hydrocarbon sector are both key to strong and balanced growth. The government’s ongoing development program has not met expectations. 

Last Updated: Mar 31, 2015

Since 2006, the World Bank’s activities in Algeria have focused on analytical work and Reimbursable Advisory Services (RAS) following the Government of Algeria’s decision to refrain from borrowing externally. The last International Bank for Reconstruction and Development (IBRD)-financed project in Algeria closed in February 2009. The World Bank-Algeria Country Partnership Strategy (2010-14) is focused on:

  • Strengthening Growth through Diversification of the Economy: Support the agricultural and rural development strategy, improve the investment climate particularly for small and medium enterprises, and modernize the financial and banking sectors;
  • Promoting Sustainable Development and Reducing Spatial Disparities: Provide technical assistance and support to implement environment protection initiatives and government programs; and help preserve desert ecosystem; and
  • Strengthening the Institutions of Economic Planning, Monitoring, Evaluation and Policy-Making: Provide technical support to strengthen the planning, monitoring and evaluation capacity of various sectors in the Government. 

Last Updated: Mar 31, 2015

In 2012, the World Bank and Algeria signed eight Reimbursable Advisory Services (RAS) agreements in five sectors, those of finance, agriculture, environment, social assistance/national solidarity, and telecommunications. Three new operations were signed: (i) with the Minister of Industry in November 2014 for the Bank assistance to improve the business environment; (ii) with the Ministry of Finance in February 2015 to strengthen the governance capacity of State Owned Banks; (iii) with the Ministry of Post and ICT in March 2015 to support the implementation of the broadband and very high speed broadband strategy. The second phase of three RAS activities with the Ministry of Agriculture is under preparation and could be signed by the end of FY15.

Reimbursable Advisory Services have been complemented by some analytical and technical assistance work financed by the World Bank and other budget resources. This includes support for the development of a new strategy for agriculture and rural development, as well as a study on managing agricultural risk; improving indicators from the report, Doing Business, in response to the Ministry of Finance’s request in 2011; a case study on Algeria’s water desalination and renewable energy; support to the Office of National Statistics on improving methodologies on poverty analysis; support to private sector associations for improving public-private dialogue; and a series of workshops covering employment, evaluation of public programs and governance.   

Algeria has also benefited from a number of regional initiatives. These included hosting a workshop in 2011 on trade; participating in the preparation of a regional study on trade facilitation and infrastructure in the Maghreb; ministerial level representation at the conference held in the Moroccan capital of Rabat in 2012 to endorse the study’s recommendations and action plan. Algeria was also part of the regional flagship report on climate change adaptation in Arab countries. The Center for Mediterranean Integration (CMI) led the preparation of a case study on climate change and natural risk management for the city of Algiers. The country was also part of a regional task force on improving the governance of universities. The World Bank team delivered a case study on Algeria that was discussed with university rectors in a seminar in Algiers in late 2012. Algeria was also part of the CMI-led report on knowledge economy and innovation. In addition, Algeria participated in a number of World Bank regional events, including a seminar in the Tunisian capital of Tunis on the Bank’s social protection strategy and a governance seminar in Rabat. 

Last Updated: Mar 31, 2015

LENDING

Algeria: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments