Algeria

Algeria, the largest African country and third-largest Arab economy, moved back to upper-middle income category under World Bank classification in July 2024. Over two decades, Algeria made economic and human development advances by investing in infrastructure and introducing redistributive social policies that alleviated poverty and improved human development indicators.

The main challenge remains high dependency on hydrocarbon revenues. The hydrocarbon sector accounted for 14 percent of GDP, 83 percent of exports, and 47 percent of budget revenues between 2019-2023. Algeria aspires to diversify its economy to vary revenue sources and improve employment prospects, particularly for young people. Unemployment was 12.7 percent overall, with 25.4 percent for women and 29.3 percent among youth (15-24) in 2024.

Despite moderating hydrocarbon production, growth has been robust since the pandemic. GDP grew 3.8 percent in 2021, 3.6 percent in 2022, and 4.1 percent in 2023, fueled by public spending rising over 60 percent between 2021-2023. However, falling prices and OPEC cuts, coupled with investment-driven imports and spending growth, pressured fiscal and external balances.

Since 2020, the government has taken steps to boost investment by issuing new Hydrocarbon, Investment, and Money and Credit Laws, partly lifting foreign ownership restrictions. The September 2021 Government Action Plan prioritized transitioning to private sector-led growth, rationalizing public spending, reducing imports, boosting non-hydrocarbon exports, and improving the business environment through banking and state enterprise reforms.

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Despite diversification efforts, Algeria’s economy remains dependent on the oil and gas sector, which accounted for 13 percent of GDP, 83 percent of exports, and 46 percent of budget revenues between 2020 and 2024. Algeria’s public sector has been at the core of its development model, supporting significant improvements in living standards, education, and health prior to the pandemic.

Productivity growth and diversification have been limited, prompting the introduction of reforms to boost investment and private-sector development. The 2022 Investment Law, the 2023 Banking and Monetary Law, the 2023 Economic Land Law, the 2024 African Continental Free Trade Area accession, and the 2025 Mining Law evidence the government’s commitment to a diversified, private-sector-led model of growth and job creation while maintaining the social role of the state.

Growth has been robust since the pandemic, despite moderating hydrocarbon production, driven by dynamic investment and household consumption, and growing public spending on wages and transfers. Inflation surged between 2021 and 2023 but moderated by late 2024 and decelerated further in 2025. Falling hydrocarbon prices and a series of OPEC quota cuts, coupled with expanding investment-driven imports and public spending growth, have put the fiscal and external balances under pressure.

Algeria’s successful economic transformation will hinge on its ability to foster rapid, private-sector-led growth and job creation to ensure sustainable and inclusive development. Diversification away from carbon-intensive growth, exports, and fiscal revenues, together with a gradual fiscal rebalancing, will be crucial.

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The World Bank supports Algeria with technical assistance and analytical services aligned with the Government Action Plan. Current support focuses on four main areas:

• Public finance reforms that respond to public expenditures and the government's aim to optimize budgetary resources. Support is provided within the framework of the new organic budget law and the diversification of state revenue sources, while considering the effectiveness of public service delivery and statistical data production and analysis.
• Economic diversification and enhancement of nonhydrocarbon exports to boost sources of resilient revenue. This effort includes entrepreneurship, improving the business climate, and facilitating exports.

• The energy transition. This aims for a cleaner energy mix and improved energy efficiency that will optimize the management of non-renewable hydrocarbon resources, on which the country's energy mix is currently based. The effort is also intended to meet the country's climate and environmental objectives.
• Climate change adaptation, with a focus on disaster risk management and sustainable forest management.

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