The Algerian economy remains dominated by the oil and gas sector, which accounted for 19 percent of GDP, 93 percent of product exports, and 38 percent of budget revenues between 2016 and 2021. While the COVID-19-induced recession exacerbated growth challenges, the subsequent surge in hydrocarbon prices resulting from the global recovery and the war in Ukraine has generated a substantial rise in Algeria’s export and budget revenues. Over the past 15 years, however, declining investments contributed to stagnating oil and natural gas production, while rising domestic consumption has led to a steeper fall in export volumes.
After contracting by 5.1 % in 2020, Algeria’s GDP rebounded by 3.5 % in 2021, supported by a robust oil and gas output rebound. The overall budget deficit improved in 2021, from 12 to 7.2 percent of GDP, driven by surging hydrocarbon revenues, recovering tax revenues, an increase in Bank of Algeria dividends, and a moderate increase in spending. The surge in exports, driven by higher hydrocarbon prices, and the muted import recovery allowed the current account deficit to shrink from 14.1 to 2.9 % of GDP in 2021. By the end of 2021, international reserves increased by US$ 5 billion to reach US$ 46.5 billion in July 2022. Since mid-2021, inflation has reached high levels, fueled mainly by its food component, which earned a level above 10 percent in July 2021 and 17% in June 2022. High food inflation likely hurts vulnerable Algerians since food accounts for over half of household spending among the bottom 40 percent 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 supporting economic growth, and introduced redistributive social policies that alleviated poverty and resulted in significant improvements in Human Development Indicators. However, the quality of education can still be improved, with Algeria World Bank Group’s 2020 Human Capital Index (HCI) value remaining relatively unchanged at 0.53 since 2010. While higher than the average for lower middle-income countries, this is below the given average for the World Bank’s Middle East and North Africa region.
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. Since 2020, the Government has taken steps to boost foreign and domestic investment by issuing a new Hydrocarbon Law, partly lifting restrictions on foreign ownership of domestic firms, and adopting a new Investment Law. Meanwhile, the September 2021 Government Action Plan has made the transition to private sector-led growth and job creation model a developmental priority. Notably by arguing for rationalizing public spending, reducing imports, boosting non-hydrocarbon exports, and for significant improvements to the business environment, including through the reform of public banks and state-owned enterprises.
Last Updated: Oct 20, 2022