ALGERIA ECONOMIC MONITOR Restoring the Algerian Economy after the Pandemic Fall 2021 Middle East and North Africa Region EXECUTIVE SUMMARY A lgeria is enjoying temporarily breathing banks. As a result, bond issuances and public debt space, as hydrocarbon prices reach new surged after 9 months in 2021. highs and the COVID-19 pandemic eases. Meanwhile, the economic recovery in non- The new Government, appointed after the June hydrocarbon sectors lost steam, remaining largely 2021 legislative elections, presented an updated incomplete, while inflationary risks are material- Government Action Plan to Parliament in September. izing. After a strong recovery during the second half This comes amid favorable global and sanitary of 2020, led by a rebound in investment and in con- developments. After peaking during the summer, the struction activity, GDP contracted during the first and number of daily COVID-19 cases plummeted in the the second quarters of 2021, tracking the weakening Fall, while the vaccination campaign accelerated. in construction and services activity. Therefore, during Meanwhile, global oil and gas prices are reaching the first half of 2021, GDP and nonhydrocarbon GDP levels unseen since before the 2014 oil crisis, allowing remained 3.1 percent and 3.9 percent below their pre- for a gradual recovery in crude oil production quotas, pandemic level, respectively. Despite accommodative and a surge in natural gas production and exports. monetary policy and recovering bank liquidity, private Surging hydrocarbon exports revenues credit growth also remained subdued, suggesting that are contributing to a marked decline in external firms and banks remain prudent, and that their balance financing needs and to the short-term stabiliza- sheets have yet to recover. On the other hand, con- tion in growing domestic financing needs. Aided sumer price inflation accelerated markedly in 2021, by continued exchange rate depreciation, sustained disproportionally affecting vulnerable households. import compression policies and a terms of trade Absent decisive implementation of the improvement, the current account deficit is shrinking, reform agenda, the economic outlook points to and international reserves are stabilizing. Overall a fragile recovery, and to deteriorating fiscal and budget deficits remain elevated, but higher oil reve- external balances in the medium-term. We expect nues in the budget are offsetting the decline in tax real GDP growth to reach 4.1 percent in 2021, and revenues and financing the increase in current expen- to decline gradually in the medium-term, amid pro- ditures, the rebound in public investment, as well gressive implementation of the announced structural the cost of supporting the national pension fund. reform agenda to kickstart investment and growth in The Treasury has also put in place a massive SOE the nonhydrocarbon segment of the economy. Higher debt buyback scheme, worth USD 15.3 billion and hydrocarbon output will support (non-inclusive) financed through domestic bond issuances, to alle- growth, however, amid gradually recovering crude oil viate financial pressures stemming from the COVID-19 production quotas and sustained natural gas produc- crisis on State-Owned Enterprises (SOE) and public tion which, given the sector’s high capital intensity, xiii will do little for job creation. The budget and current with wealthier areas. Meanwhile, health and education account deficits are expected to gradually deteriorate, have become increasingly important dimensions of amid the projected decline in oil revenues. Inflation deprivation, pointing to policy priorities for further Al- will remain elevated over the forecast period, further gerian human development. deteriorating household purchasing power. Algeria’s intact dependance on hydrocarbon revenues, the spread of new COVID-19 variants and the pace of the Special Focus 2: Algeria’s Climate announced reform effort remain the key sources of and Disaster Risk Resilience risks to the outlook. Algeria is exposed to a wide range of natural haz- ards, particularly in urban areas which are expe- Special Focus 1: Recent Non- riencing rapid population growth and concentrate a monetary Poverty Trends in Algeria significant share of economic activity: floods, earth- quakes, droughts, forest fires, coastal and soil ero- The Multidimensional Poverty Index declined in Al- sion, etc. Flooding is the most frequent hazard affect- geria between 2013 and 2019 (latest available da- ing the country, but the greater economic losses have ta), showing improvements across all key dimensions been caused by earthquakes. Algeria has a modern of this unique indicator of Algerians’ well-being: educa- Disaster Risk Management (DRM) legal framework, tion, health, and living conditions outcomes. The sur- with a clear emergency response decision-making vey used in this study was collected, however, before framework, and recognises the importance of pro- the COVID pandemic. While Algeria fares compara- tecting strategic infrastructures and essential sectors. tively well within the MENA region, and despite notice- Serious risk reduction efforts have been carried out able improvements, large gaps remain, and multidi- by the Algerian Government, nevertheless these are mensional poverty varies substantially by region and mainly focusing on emergency management and re- between rural and urban areas. Northern regions face construction (especially in terms of expenditure), at lower levels of deprivation compared to the rest of the the expense of prevention. Furthermore, information country, while the Central Highlands region faces high- sharing is not systematic, causing discrepancies par- er levels. Nonetheless, poorer regions improved fast- ticularly in the prevention of disasters, and the en- er between 2013 and 2019, showing convergence forcement of DRM legislation can be improved. xiv RAPPORT DE SUIVI DE LA SITUATION ÉCONOMIQUE DE L’ALGÉRIE: REDRESSER L’ÉCONOMIE ALGÉRIENNE APRÈS LA PANDÉMIE 1818 H Street, NW Washington, DC 20433