The Algerian economy is expected to recover partially in 2021 from the health and economic crises caused by the COVID-19 pandemic. Algeria’s slow pace of vaccination suggests, however, that some containment measures could remain in place in the country until 2022. As a result, although the hydrocarbon industry is expected to rebound in 2021, activity in the rest of the economy will be slow to recover amid employment and earnings losses and low consumer and business confidence. Starting with an Socio-Economic Recovery Plan, the Algerian authorities have announced a longstanding reform effort to shift the economy toward a sustainable, private sector-led model, engage in a transition toward renewable energy, reduce severe imbalances in the country’s macroeconomy, and protect the population’s livelihoods.
The COVID-19 pandemic depressed the Algerian economy in 2020. Real GDP growth is estimated to have contracted by 5.5% amid strict lockdown measures to contain COVID-19 and a concurrent fall in hydrocarbon production, with oil output falling below Algeria’s OPEC quota. Labor-intensive sectors, such as services and construction—largely concentrated in the informal economy—have been deeply affected, resulting in many jobs being lost temporarily or permanently. Meanwhile, the temporary fall in oil prices, coupled with the decline in export volumes, caused a steep fall in hydrocarbon export revenues.
The overall budget deficit is estimated to have widened to 16.4% of GDP in 2020, while fiscal risks arising from public banks exposed to lending to struggling state-owned enterprises have surged. Despite a sharp contraction in imports and a moderate depreciation of the exchange rate, the current account deficit is expected to have increased to 14.4% of GDP, with international reserves falling to US$46.9 billion at the end of 2020 (a fall of -24% year-on-year), or around 12.8 months of imports. Poverty, is expected to have risen in 2020, due to falling growth and employment, though data on it is lacking.
The economic crisis caused by the pandemic follows five consecutive years of slowdown in GDP growth (2015-2019) in Algeria, driven by a shrinking hydrocarbon sector, a labyrinthine and public-led model of growth, and a private sector struggling to become the new engine of economic growth. The hydrocarbon industry, which accounted for 20% of GDP, 41% of fiscal revenues, and 94% of export earnings in 2019, is experiencing structural decline.
Algeria, like other oil-exporting countries across the MENA region, will need to shift toward a more diversified economy to lift job prospects in the country, which are crucial given its young demographic profile. The structural decline in hydrocarbon revenues also suggests that current levels of public spending are unsustainable, and that policies designed to generate additional fiscal revenue need to be complemented by measures to improve the efficiency and the fairness of public spending. The success of structural economic reform will hinge on its ability to restore macroeconomic stability and enact decisive policies to support private sector development while continuing to protect the most vulnerable segments of the population.
In the past two decades, the hydrocarbon boom has allowed Algeria to make advances in economic and human development. The country nearly cleared its multilateral debt in 2008, invested in infrastructure projects in support of economic growth, and introduced redistributive social policies that alleviated poverty and resulted in large improvements in Human Development Indicators.
Algeria is considered to have achieved universal primary education, with a 97% primary net enrollment rate in 2015 (with gender parity) and has lifted higher education enrollment rates. The quality of education can still be improved upon, however, with Algeria ranking 71 out of 72 for the performance of its student cohort of 15-year-olds in sciences, mathematics, and reading in the 2015 Program for International Student Assessment (PISA). And, according to the World Bank Group’s 2020 Human Capital Index (HCI), which provides a pre-pandemic baseline on the health and education of children, despite working toward improvement, Algeria’s HCI value remained relatively unchanged at 0.53 between 2010 and 2020. While higher than average for lower middle-income countries, this is below the given average for the World Bank’s Middle East and North Africa region.
Last Updated: Jun 14, 2021