Ranked as the third most important economy in the MENA region and a leader in the Maghreb, Algeria is one of a hand full of countries that have achieved 20% poverty reduction in the past two decades. Indeed, the Algerian government took significant steps to improve the wellbeing of its people by implementing social policies in line with the United Nations Sustainable Development Goals. Among other major achievements, the country’s oil boom has enabled the authorities to clear Algeria’s debt, invest in infrastructure projects, and improve the country’s Human Development Indicators.
Algeria has made significant gains in each of the key Human Development Indicators (HDI). The country’s position is now 83rd out of 188 countries, which ranks it among the highly developed cohort in the latest Human Development Report. Life expectancy at birth increased by 16.6 years and mean years of schooling increased by 5.8 years. Algeria is considered to have achieved universal primary education with a 97% Primary Net Enrollment Rate in 2015 (with gender parity) and equally elevated higher education enrollment rates. Going forward, the Government will need to improve the quality of education as Algeria ranked 71 out of 72 economies for the performance of its 15-year olds in science and mathematics in the 2015 PISA assessments.
These still largely positive results of shared prosperity have contributed to Algeria’s overall socioeconomic stability. However, the costs of the underlying social programs and subsidies are no longer affordable with low oil prices. The continued depressed worldwide oil prices have necessitated changes in country economic models and have triggered a domino effect of reforms in the MENA oil exporting countries to adapt to the new scenario. Similarly, to its neighbors, Algeria’s hydrocarbon revenues have been halved in the recent years, contributing to a rapid decrease in its currency reserves. Additionally, structural challenges are constraining growth for the non-hydrocarbon sector and inflation continues to rise.
On the economic front, Algeria’s economic growth decelerated in 2017 due to a slight decline in hydrocarbon production and continued modest non-hydrocarbon growth. Real GDP growth is estimated at 2.1 percent in 2017, a slowdown from 3.3 percent in 2016. The decline is attributable to a slowdown in hydrocarbon production, which is estimated to have decreased by 1.4 percent in 2017; a sharp contrast from the dynamic start in the first quarter of the year. Meanwhile, growth in the non-hydrocarbon sector remains modest, showing a slight upturn from 2.3 percent in 2016 to 2.5 percent in 2017.
The reversal of the fiscal consolidation policy in the second half of 2017 led to a higher than expected fiscal deficit, depleting fiscal reserves and savings. Public spending decreased by less than expected due to difficulties in pursuing the 2017 budget target. The government, appointed in May 2017, put an end to fiscal consolidation and reverted to the previous, high levels of public spending, specifically in housing. The resulting fiscal deficit is estimated at 8.2 percent in 2017.
Despite the decline in the current account deficit, its overall level remained high, given the modest growth of the economy. Imports increased slightly, by 2.7 percent in 2017 while exports increased significantly, by 16.5 percent. Overall, the current account balance (-14.7 percent of GDP) is indicative of the lack of adjustment of imports to the large reduction in export revenues since 2014. With the current level of oil prices and the high external account deficit, further efforts are required to increase the domestic supply of goods to maintain the medium-term sustainability of the current account and reduce the depletion of gross official reserves.
The unemployment rate increased by almost 1.5 percentage points, reflecting the sluggish non-hydrocarbon growth. It stood at 11.7 percent in September 2017, an increase from 10.5 percent in September 2016. Unemployment is particularly high among the educated, the youth, and women. This is considered to partially reflect a preference to wait for formal sector employment. The rise in unemployment undermines poverty reduction. 10 percent of the population is considered vulnerable to fall back into poverty and important regional disparities persist.
The shift towards a more diversified economy will help Algeria move toward sustainable growth and create jobs. This does need to be done in a way that protects the most vulnerable by ensuring well defined and targeted compensation mechanisms. The Bank’s global perspective, analytical expertise, knowledge and resources are shared with the Algerian government to support the country in the implementation of the reforms.
Last Updated: Apr 21, 2018