Algeria is having to navigate a recession within the constraints of strict lockdown measures, introduced to contain the spread of the COVID-19 virus, and a significant fall in the price and volume of international hydrocarbon exports in the first half of 2020. While the lockdown has helped reduce the spread of the virus, labor-intensive sectors—including services and construction, which remain largely inside the informal economy—have been deeply affected, resulting in many jobs being lost on a temporary or permanent basis, and many more jobs placed at risk.
This follows a year, 2019, marked by social mobilization and a political transition, in which the Algerian economy was modified by contracting hydrocarbon output along with more modest contributions to growth from services, agriculture, and construction. Algeria’s real Gross Domestic Product (GDP) expanded by 0.8% in 2019—down from 1.2% in 2018—with a 2.4% expansion in non-hydrocarbons largely offset by a 4.9% decline in hydrocarbons. The 2019 unemployment rate remained unchanged at 11.4%, with men experiencing an improvement from 9.5% in 2018 to 9.1% in 2019, and women a deterioration from 19.5% to 20.4%. Algeria’s twin deficits, dependent on hydrocarbon revenues, remained significant: The overall budget deficit deteriorated to -9.6% of GDP in 2019 as a result of a decline in hydrocarbon revenue and a rise in capital expenditure, while the current account deficit remained relatively unchanged at -10% of GDP. Algeria’s foreign currency reserves steadily declined, reaching 13.6 months of imports at end-2019.
Algeria’s long-term economic growth is slowing down, driven by a shrinking hydrocarbon sector, an overblown public-led model of growth, and a private sector struggling to take over as the new driver of growth. The hydrocarbon industry, which accounts for 19.5% of GDP, 41% of budget revenues, and 94% of product exports is undergoing structural decline. Algeria, like other oil-exporting countries across the MENA region, will need to shift towards a more diversified economic model if it wants to sustain higher economic growth rates and job creation. The decline in hydrocarbon revenues means that its current level of public spending can no longer be sustained. Policies to diversify the economy and increase budget revenues need to be complemented by measures to improve the efficiency and fairness of public spending to protect the most vulnerable segments of the population. The success of the National Socio-economic Recovery Plan under preparation will hinge on its ability to restore macroeconomic stability and enact decisive policies to support private sector development, while continuing to support the delivery of critical services.
In the past two decades, the hydrocarbon boom has allowed Algeria to make advances in economic and human development. The country cleared its external debt, invested in infrastructure projects, and implemented redistributive social policies that contributed to a significant reduction in poverty, as well as large improvements in Human Development Indicators. Algeria met the United Nations’ Sustainable Development Goals and is considered to have achieved universal primary education with a 97% primary net enrollment rate in 2015 (with gender parity); it also has increased its higher education enrollment rates. The quality of education needs to improve, 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 PISA assessment. According to the World Bank Group’s 2020 Human Capital Index (HCI) providing a pre-pandemic baseline on the health and education of children, between 2010 and 2020 the HCI value for Algeria has remained relatively unchanged, at 0.53. This is higher than average for lower-middle-income countries, but lower than average for the Middle East and North Africa region.
Last Updated: Oct 01, 2020
