ALGERIA ECONOMIC UPDATE Investing in Data for Diversified Growth Spring 2024 Algeria Economic Update Investing in Data for Diversified Growth Spring 2024 Middle East and North Africa Region © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or fail- ure to use the information, methods, processes, or conclusions set forth. 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TABLE OF CONTENTS List of Acronyms..................................................................................................... v Acknowledgments................................................................................................... vii Executive summary................................................................................................. ix Résumé analytique................................................................................................. xi ‫ملخص تنفيذي‬......................................................................................................... xiii Chapter 1: Recent economic developments.................................................................... 1 Growth Outside Extractive Sectors Remained Robust in 2023.............................................................................. 1 Extractive Industries Production Increased in 2023, Despite Lower Oil Production......................................... 2 The Current Account Surplus Shrunk but Reserve Accumulation Continued.................................................... 4 The Fiscal Deficit Has Expanded and Public Debt Increased................................................................................. 6 With Fresh Food Prices Decreasing, Inflation Started to Moderate in Late 2023.............................................. 7 Chapter 2: Outlook and Risks..................................................................................... 9 GDP Growth Would Remain Robust, Despite OPEC Quota Cuts and Subdued Agricultural Production... 9 External and Fiscal Balances Will Again Be Under Pressure.................................................................................. 9 Hydrocarbon Prices Amid Geopolitical Uncertainty Pose Significant Risks....................................................... 11 Annex 1: Recent Special Sections of the Algeria Economic Update......................................... 15 Bibliography......................................................................................................... 19 iii List of Figures Figure 1 Dynamic growth was supported by an acceleration in investment, accompanied by a surge in imports..................................................................................................................................... 2 Figure 2 ...and stimulated non-extractive industries and services...................................................................... 2 Figure 3 Growth in nighttime lights in 2023............................................................................................................. 3 Figure 4 Satellite nighttime lights suggest a slowdown in nonhydrocarbon activity in Q1-2024..................... 3 Figure 5 Increasing natural gas production and exports offset lower oil production…................................ 4 Figure 6 …but hydrocarbon export prices remained elevated, despite natural gas prices coming down................................................................................................................................................... 4 Figure 7 The current account narrowed as export prices decreased and imports expanded…................ 5 Figure 8 …even as imports prices eased for most product categories............................................................. 5 Figure 9 Exports volume decreased in H2-2023, but remained above pre-pandemic levels….................. 6 Figure 10 …while imports expanded, notably those of vehicles ................................................................................. 6 Figure 11 Increasing expenditures outpaced revenues, widening the fiscal deficit…..................................... 7 Figure 12 …and the public debt ratio increased as did oil savings...................................................................... 7 Figure 13 Inflation eased, as fresh food prices started to decline in Q2-2023….............................................. 8 Figure 14 …while money supply growth moderated, and private sector credit accelerated......................... 8 Figure 15 During the 2023-24 crop season, rainfall improved in the East but worsened in the West…..... 10 Figure 16 …and crop growth measures tracked changes in rainfall.......................................................................... 10 Figure 17 After a steep increase between 2021 and 2024, the 2024 Budget Law projects a stabilization in spending ................................................................................................................................. 11 Figure 18 The growth slowdown was driven by investment, notably public investment, and accompanied by declining productivity .......................................................................................... 12 Figure 19 Public investment is now smaller, and the margin to raise it is limited, raising the importance of faster private investment ............................................................................................................................. 12 List of Boxes Box 1 Timely tracking of economic developments in Algeria with alternative data sources................. 3 Box 2 Export and import trends in Q1-2024....................................................................................................... 5 Box 3 Early satellite indicators of agricultural production................................................................................ 10 Box 4 The 2024 Budget Law................................................................................................................................... 11 Box 5 The pandemic accelerated the importance to pivot to a private investment-led growth model................................................................................................................................................... 12 iv ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH LIST OF ACRONYMS BoA Bank of Algeria NEER Nominal effective exchange rate BTU British thermal unit OAIC Algerian Interprofessional Office of CPI Consumer Price Index Cereals DZD Algerian Dinar OECD Organization for Economic Cooperation EIA Energy Information Agency and Development EUR Euro ONS National Office of Statistics EPT Algeria’s administrative regions OPEC Organization of the Petroleum Exporting FAO Food and Agriculture Organization Countries IMF International Monetary Fund GDP Gross Domestic Product FRR Revenue Regulation Fund Pp Percentage points LNG Liquefied natural gas PSR Special refinancing program LPG Liquefied petroleum gas REER Real effective exchange rate FDI Foreign direct investment SMMEEI Steel, metal, mechanical, electrical, and JODI Joint Organizations Data Initiative electronic industries Kb/d Thousands of barrels per day SOE State-owned enterprises MARS Monitoring Agricultural Resources TTF Securities Transfer Facility Mb/d Millions of barrels per day US$ United States Dollar MENA Middle East and North Africa WB World Bank v ACKNOWLEDGMENTS T his Algeria Economic Update reports on the Desponts, Amel Henider, and Daniel Prinz under the main recent economic developments and supervision of Eric Le Borgne and Abdoulaye Sy. The policies. It places them in a global and lon- authors would like to thank Jesko Hentschel (Country ger-term context and assesses the implications of Director for the Maghreb and Malta) and Kamel Braham these developments and policy changes for Algeria’s (Resident Representative for Algeria) for their valuable economic prospects. The report is intended for a comments during the review of this report. The World broad audience, including policymakers, business Bank team is particularly grateful to Algeria’s Ministry leaders, financial market participants, and the com- of Finance and Ministry of Energy for their comments munity of analysts and professionals working in/ on the report prior to publication. on Algeria. The report is divided into two chapters. The findings, interpretations, and conclusions Chapter 1 presents macroeconomic developments expressed in this report are those of the World Bank in Algeria over the year 2023 and the first quarter staff and do not necessarily reflect the views of the of 2024, while Chapter 2 describes the short- and World Bank Board of Executive Directors or the medium-term outlook for the Algerian economy. The countries it represents. For information about the World deadline for data entry and forecast preparation Bank and its activities in Algeria, including electronic was May 10, 2024. copies of this publication, please visit https://www.ba​ The Algeria Economic Update is the work of nquemondiale.org/fr/country/algeria. For questions the Middle East and North Africa (MENA) section of or comments on the content of this publication, please the World Bank Group’s Macroeconomics, Trade, and contact Cyril Desponts (cdesponts@worldbank.org) Investment (MTI) practice area. It was prepared by Cyril and Eric Le Borgne (eleborgne@worldbank.org). vii EXECUTIVE SUMMARY A lgeria’s growth was robust in 2023, Growth is expected to slow in 2024 amidst and inflation started to decelerate. GDP subdued oil and agricultural output, before recov- growth accelerated to 4.1 percent, sup- ering in 2025. In the baseline scenario, oil quota ported by hydrocarbon sector growth, as natural gas cuts would remain in place, and hydrocarbon GDP production compensated for successive crude oil would contract slightly in 2024. Non-hydrocarbon production quota cuts. Non-extractive GDP growth activity would remain dynamic, driven by investment reached 3.7 percent as investment growth accelerated, and private consumption, supported by a third con- supported by a marked recovery in public investment, secutive annual wage increase. Based on early and leading to a surge in imports. Private consump- satellite weather and crop growth data, agricultural tion remained dynamic, stimulated by growing public production is expected to remain subdued in 2024. sector wages, and pulling sectors serving households. Overall GDP growth would reach 2.9 percent in 2024 Inflation remained at 9.3 percent over 2023 but mod- and pick up again to 3.7 percent in 2025 as oil pro- erated to 5.0 percent year-on-year in the first quarter of duction and agricultural output recover. 2024, amidst a sustained decline in fresh food prices, Amidst higher imports and public spend- a strong dinar, and lower import prices. ing, lower hydrocarbon revenues would put Falling hydrocarbon prices narrowed the renewed pressure on external and fiscal bal- current account surplus in 2023, while increas- ances. In the baseline scenario, hydrocarbon exports ing the fiscal deficit and the public debt-to-GDP decline and imports increase, tracking dynamic ratio. The fall of hydrocarbon and fertilizer export domestic demand, and causing the current account prices and large increase in import volumes resulted to turn slightly negative in 2024 before posting larger in a rapidly narrowing current account surplus, deficits in 2025 and 2026. In the budget, lower hydro- although reserves continued to increase, to reach carbon revenues and another wave of wage and 16.1 months of imports at end-2023. Hydrocarbon transfer increases would offset robust tax revenues revenues in the budget have nonetheless remained and consolidation of capital expenditures. The over- stable but given the sharp increase in the wage bill all budget deficit would increase in 2024 and stabilize and capital expenditures, the overall budget defi- in the next two years, resulting in growing public debt, cit widened to 5.2% of GDP. The deficit was mainly which would pass 55 percent of GDP by 2026. financed outside the banking sector, with bond issu- The variability of hydrocarbon prices ance declining, oil savings increasing to 8.2% of GDP, remains the main risk to macroeconomic bal- and public debt as a percentage of GDP increasing ances, with projected financing needs highlighting slightly to 49.2% of GDP. the importance of a gradual fiscal rebalancing. ix Rising imports and public spending have deepened improvement of the business environment, is even the non-hydrocarbon current account and budget def- more important now that public investment, previ- icits, leaving macroeconomic balances more exposed ously the engine of Algeria’s growth, is increasingly to global oil price dynamics, in an environment of constrained by rigid and rapidly expanding current heightened geopolitical uncertainty. While foreign expenditures. exchange reserve remains adequate, projected fis- Continuing to strengthen data systems cal financing needs call for prudent public spending would support investment and public policymak- policies and a gradual fiscal rebalancing. Meanwhile, ing. In 2023 and 2024, digitalization efforts accelerated, subdued rainfall and higher temperatures in recent as did efforts from the Bank of Algeria and ONS to years, with their effect on agricultural production, infla- strengthen their publications, with notably the first tion, and imports, underscore the vulnerability of the GDP rebasing. The alternative data sources used in Algerian economy to climate change. this report, such as satellite data on crop development Efforts to foster private sector investment or nighttime lights, represent a useful complement and diversification should be strengthened. The to conventional economic and social statistics. Yet, risks associated with global hydrocarbon prices point improving the availability, granularity, and timeliness of to the importance of supporting diversification by official economic data, most notably relating to activity, accelerating private sector investment in non-hydro- investment, and the labor market, remains of utmost carbon sectors. The 2022 Investment Law, the 2023 importance. Enhanced data systems would support Banking and Monetary Law, formal adhesion to the the authorities’ pivot towards performance-based Africa Continental Free Trade Agreement, the 2023 budgeting and support evidence-based policymak- Land Law and initiation of state-owned bank reforms ing. They would also provide accurate and exhaustive are aimed at boosting private investment to foster economic data to researchers and analysts, potential diversification. Strengthening those efforts, in partic- domestic and international investors, alleviating eco- ular by ensuring that they contribute effectively to the nomic uncertainty and fostering investment. x ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH RÉSUMÉ ANALYTIQUE L a croissance de l’Algérie a été robuste en et des dépenses d’investissement, le déficit budgé- 2023, et l’inflation a commencé à décélé- taire global s’est creusé, pour atteindre 5,2% du PIB. rer. La croissance du PIB s’est accélérée pour Le déficit a été principalement financé hors du sec- atteindre 4,1%, soutenue par celle du secteur des teur bancaire, les émissions souveraines diminuant, hydrocarbures, la production de gaz naturel ayant l’épargne pétrolière augmentant à 8,2% du PIB et compensé les réductions successives des quotas de la dette publique augmentant légèrement, à 49,2% production de pétrole brut. La croissance du PIB hors du PIB. industries extractives a atteint 3,7%, la croissance de La croissance devrait ralentir en 2024 dans l’investissement s’étant accélérée, soutenue par une un contexte de production pétrolière et agricole reprise marquée de l’investissement public, et entraî- limitée, avant de se redresser en 2025. Dans le nant une hausse des importations. La consommation scénario de référence, les réductions des quotas privée est restée dynamique, stimulée par la hausse pétroliers resteraient en place et le PIB des hydrocar- des salaires dans le secteur public et stimulant les bures se contracterait légèrement en 2024. L’activité secteurs fournissant les ménages. L’inflation s’est hors hydrocarbures resterait dynamique, tirée par maintenue à 9,3% en 2023 et a ralenti à 5,0% en glis- l’investissement et la consommation privée, soute- sement annuel au premier trimestre 2024, dans un nue par une troisième hausse annuelle consécutive contexte de baisse soutenue des prix des produits ali- des salaires dans l’administration publique. D’après mentaires frais, de dinar fort et de baisse des prix à les premières données satellitaires sur la météo et le l’importation. développement des cultures, la production agricole La chute des prix des hydrocarbures à la devrait rester modérée en 2024. La croissance glo- fin 2022 a réduit l’excédent du compte courant bale du PIB atteindrait 2,9% en 2024 et repartirait à en 2023, creusé le déficit budgétaire, et le ratio 3,7% en 2025 à mesure que la production pétrolière dette publique/PIB a augmenté. La chute des prix et la production agricole se redresseraient. à l’exportation des hydrocarbures et des engrais et Dans un contexte d’augmentation des la forte augmentation des volumes d’importation ont importations et des dépenses publiques, la entraîné une contraction rapide de l’excédent de la baisse des recettes d’hydrocarbures exercerait balance courante, mais les réserves ont continué une pression accrue sur les équilibres extérieurs d’augmenter, pour atteindre 16,1 mois d’importations et budgétaires. Dans le scénario de référence, les à fin 2023. Les recettes des hydrocarbures dans le exportations d’hydrocarbures diminueraient et les budget se sont néanmoins maintenues mais, compte importations augmenteraient, suivant le dynamisme tenu de la forte augmentation de la masse salariale de la demande intérieure, et ramenant la balance xi du compte courant sous l’équilibre en 2024 avant tive à l’investissement de 2022, la loi monétaire et de générer des déficits plus importants en 2025 et bancaire de 2023, l’adhésion formelle à l’Accord de 2026. Dans le budget, la baisse des recettes d’hy- libre-échange continental africain, la loi sur le foncier drocarbures et une nouvelle vague d’augmentations économique de 2023 et le lancement de réformes des des salaires et des transferts surcompenseraient le banques publiques visent à stimuler l’investissement dynamisme des recettes fiscales et la modération des privé pour favoriser la diversification. Le renforcement dépenses d’investissement. Le déficit budgétaire glo- de ces efforts, notamment en s’assurant que ces bal augmenterait en 2024 avant de se stabiliser les mesures contribuent effectivement à stimuler l’envi- deux années suivantes, résultant en une augmenta- ronnement des affaires, est d’autant plus important tion de la dette publique, qui dépasserait 55% du PIB que l’investissement public, auparavant moteur de d’ici 2026. la croissance de l’Algérie, est de plus en plus limité La variabilité des prix des hydrocarbures par des dépenses courantes rigides et en expansion reste le principal risque pour les équilibres rapide. macroéconomiques, les besoins de finance- La poursuite de l’amélioration des sys- ment prévisionnels soulignant l’importance d’un tèmes de données soutiendrait l’investissement rééquilibrage budgétaire progressif. L’augmenta- et l’élaboration des politiques publiques. En 2023 tion des importations et des dépenses publiques a et 2024, les efforts de numérisation dans l’adminis- creusé les déficits courants et budgétaires hors hydro- tration algérienne ont été renforcés, tout comme carbures, laissant les équilibres macroéconomiques certaines publications de la Banque d’Algérie et de plus exposés à la dynamique des prix mondiaux du l’ONS, avec notamment le premier rebasage du PIB. pétrole, dans un environnement d’incertitude géo- Les sources alternatives de données utilisées dans politique accrue. Si les réserves de change restent le présent rapport, telles les données satellites sur le confortables, les besoins attendus de financement développement des cultures ou l’éclairage nocturne, budgétaire appellent des politiques de dépenses représentent un complément utile aux statistiques publiques prudentes et un rééquilibrage budgétaire économiques et sociales usuelles. Néanmoins, progressif. Dans le même temps, la faiblesse des l’amélioration de la disponibilité, de la granularité et précipitations et la hausse des températures de ces de l’actualité des données économiques officielles, dernières années, avec leurs effets sur la production notamment en ce qui concerne l’activité, l’investisse- agricole, l’inflation et les importations, soulignent la ment et le marché du travail, reste de la plus haute sensibilité de l’économie algérienne au changement importance. Des systèmes de données améliorés climatique. soutiendraient le passage vers une budgétisation Les efforts visant à encourager l’investis- axée sur les résultats et l’élaboration de politiques sement du secteur privé et la diversification de fondées sur des données probantes. Ils fourniraient l’économie devront être renforcés. Les risques également des données économiques précises et associés aux prix mondiaux des hydrocarbures sou- exhaustives aux chercheurs et analystes, aux inves- lignent l’importance de soutenir la diversification en tisseurs nationaux et internationaux potentiels, ce qui accélérant les investissements du secteur privé et atténuerait l’incertitude économique et favoriserait dans les secteurs hors-hydrocarbures. La loi rela- l’investissement. xii ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH ‫ملخص تنفيذي‬ ‫الصناعي ــة ع ــن حال ــة الطق ــس و تط ــور املحاصي ــل الزراعي ــة‪ ،‬م ــن‬ ‫املتوق ــع أن يك ــون منواإلنت ــاج الزراع ــي مح ــدودا يف ع ــام ‪ .2024‬وم ــن‬ ‫املتوق ــع أن يبل ــغ النم ــو االج ــايل للنات ــج املح ــي اإلج ــايل ‪ 2.9٪‬يف‬ ‫ققت الجزائر منواً قويً ا يف عام ‪ ،2023‬و بدأ التضخم يف‬ ‫التباطؤ‪ .‬ارتفع منو الناتج املحيل اإلجاميل بنسبة ‪ ،4.1٪‬مدعوم اً‬ ‫بنمو قطاع املحروقات‪ ،‬حيث عوض إنتاج الغاز الطبيعي‬ ‫ح‬ ‫ع ــام ‪ ،2024‬و يرتف ــع إىل ‪ 3.7٪‬يف ع ــام ‪ 2025‬م ــع تع ــايف إنت ــاج النف ــط‬ ‫التخفيضات املتكررة يف حصص إنتاج النفط الخام‪ .‬كام بلغ منو الناتج‬ ‫و اإلنت ــاج الزراع ــي‪.‬‬ ‫املحيل اإلجاميل خارج قطاع الصناعات االستخ راجية ‪ ،3.7٪‬بسبب‬ ‫يف ظ ــل زي ــادة ال ــواردات و النفق ــات العمومي ــة‪ ،‬س ــيؤدي انخف ــاض‬ ‫تسارع منو االستثامر و االنتعاش امللحوظ يف االستثامر العمومي‪،‬‬ ‫عائ ــدات املحروق ــات إىل زي ــادة الضغ ــط ع ــى التوازن ــات الخارجي ــة و‬ ‫مام أدى إىل زيادة يف الواردات‪ .‬و ظل االستهالك الخاص ديناميك يً ا‪،‬‬ ‫توازن ــات امليزاني ــة العمومي ــة‪ .‬يف الس ــيناريو املرجع ــي‪ ،‬م ــن املتوق ــع‬ ‫ع ا بزيادة األجور يف القطاع العمومي‪ ،‬األمر الذي أدى اىل تحفيز‬ ‫مدفو ً‬ ‫أن تنخف ــض ص ــادرات املحروق ــات و ترتف ــع ال ــواردات‪ ،‬مب ــا يت ــاىش م ــع‬ ‫القطاعات التي تزود األرس بالسلع و الخدمات‪ .‬من ناحية أخرى‪ ،‬ظل‬ ‫ديناميكي ــة الطل ــب املح ــي‪ ،‬م ــا يعي ــد املي ــزان التج ــاري إىل الت ــوازن‬ ‫التضخم عند ‪ 9.3٪‬يف عام ‪ 2023‬و تباطأ إىل ‪ 5.0٪‬سنوي اً يف الربع األول‬ ‫زا يف امليزاني ــة العمومي ــة يف عام ــي‬ ‫يف ع ــام ‪ 2024‬قب ــل أن يول ــد عج ـ ً‬ ‫من عام ‪ 2024‬بسبب ت راجع أسعار املنتجات الزراعية الطازجة و قوة‬ ‫‪ 2025‬و‪ .2026‬انخف ــاض إي ـرادات املحروق ــات و موج ــة جدي ــدة م ــن‬ ‫الدينار و إنخفاض أسعار الواردات‪.‬‬ ‫زي ــادات يف األج ــور و التحوي ــات ق ــد يعوض ــا بش ــكل كب ــر ديناميكية‬ ‫أدى إنخفــاض ســعر املحروقــات يف عــام ‪ 2023‬إىل تقليــص فائــض‬ ‫اإلي ـرادات الجبائي ــة و تباط ــؤ النفق ــات االس ــتثامرية‪ ،‬و م ــن املتوق ــع‬ ‫الحس ــاب الج ــاري و زي ــادة عج ــز امليزاني ــة العمومي ــة و نس ــبة الدين‬ ‫أن يــزداد عجــز امليزانيــة يف عــام ‪ 2024‬قبــل أن يســتقر خــال‬ ‫العموم ــي إىل النات ــج املح ــي‪ .‬أدى انخف ــاض أس ــعار تصدي راملحروق ــات‬ ‫الس ــنتني التاليت ــن‪ ،‬األم ــر ال ــذي س ــيؤدي إىل زي ــادة الدي ــن العموم ــي‬ ‫و األس ــمدة و الزي ــادة الح ــادة يف حج ــم ال ــواردات إىل انك ــاش رسي ــع‬ ‫بحي ــث يتوق ــع ان يتج ــاوز ‪ 55٪‬م ــن النات ــج املح ــي اإلج ــايل بحل ــول‬ ‫لفائــض امليــزان التجــاري‪ ،‬و لكــن اســتمرت احتياطــات الــرف يف‬ ‫ع ــام ‪.2026‬‬ ‫را م ــن ال ــواردات يف نهاي ــة ع ــام ‪.2023‬‬ ‫اإلرتف ــاع‪ ،‬لتص ــل إىل ‪ 16.1‬ش ــه ً‬ ‫و ال ي ــزال تقل ــب أس ــعار املحروق ــات ميث ــل الخط ــر الرئي ــي ع ــى‬ ‫وم ــع ذل ــك‪ ،‬ظل ــت إي ـرادات املحروق ــات يف امليزاني ــة العمومي ــة ثابت ــة‪،‬‬ ‫توازنــات االقتصــاد الــكيل‪ ،‬حيــث تشــر متطلبــات التمويــل‬ ‫لك ــن م ــع الزي ــادة الكب ــرة يف كتل ــة األج ــور واالس ــتثامر العموم ــي‪،‬‬ ‫املتوقعــة إىل أهميــة إعــادة التــوازن التدريجــي للميزانيــة‪ .‬أدت‬ ‫اتس ــع عج ــز امليزاني ــة العمومي ــة ليص ــل إىل ‪ 5.2٪‬م ــن النات ــج املح ــي‬ ‫الزي ــادة يف ال ــواردات و اإلنف ــاق العموم ــي إىل اتس ــاع عجزالحس ــاب‬ ‫اإلجــايل‪ .‬تــم متويــل العجــز بشــكل أســايس مــن خــارج القطــاع‬ ‫الج ــاري و عج ــز امليزاني ــة العمومي ــة خ ــارج قط ــاع املحروق ــات‪ ،‬م ــا‬ ‫البن ــي ‪ ،‬حي ــث انخفض ــت اإلص ــدارات الس ــيادية‪ ،‬م ــع زي ــادة االدخ ــار‬ ‫جعــل أرصــدة االقتصــاد الــكيل أكــر عرضــة لديناميكيــات أســعار‬ ‫النفط ــي إىل ‪ 8.2٪‬م ــن النات ــج املح ــي اإلج ــايل و ارتف ــاع طفي ــف يف‬ ‫النفــط العامليــة‪ ،‬يف بيئــة تتســم بقلــة الرؤيــة الجيوســيايس‪ .‬و‬ ‫الدي ــن العموم ــي إىل ‪ 49.2٪‬م ــن النات ــج املح ــي اإلج ــايل‪.‬‬ ‫يف حــن أن احتياطيــات الــرف ال تــزال مريحــة‪ ،‬فــإن احتياجــات‬ ‫مــن املتوقــع أن يتباطــأ النمــو يف عــام ‪ 2024‬يف ظــل انخفــاض‬ ‫متوي ــل امليزاني ــة تتطل ــب سياس ــات إنف ــاق عموم ــي حكيم ــة و إع ــادة‬ ‫اإلنتــاج النفطــي و الزراعــي‪ ،‬قبــل أن يتحســن يف عــام ‪ .2025‬يف‬ ‫التــوازن التدريجــي للميزانيــة‪ .‬و يف الوقــت نفســه‪ ،‬تؤكــد شــحت‬ ‫الســيناريو املرجعــي‪ ،‬مــن املتوقــع أن تظــل تقليصــات حصــص‬ ‫األمطــار و ارتفــاع درجــات الحــرارة يف الســنوات األخــرة‪ ،‬مــع مــا‬ ‫النفــط ســارية املفعــول‪ ،‬و مــن املتوقــع ت راجــع طفيــف للناتــج‬ ‫له ــا م ــن آث ــار ع ــى اإلنت ــاج الزراع ــي و التضخ ــم و ال ــواردات‪ ،‬ع ــى‬ ‫املح ــي اإلج ــايل للمحروق ــات يف ع ــام ‪ ،2024‬يف ح ــن يتوق ــع أن يظ ــل‬ ‫حساســية االقتصــاد الجزائــري لتغــر املنــاخ‪.‬‬ ‫النش ــاط خ ــارج قط ــاع املحروق ــات ديناميك يً ــا‪ ،‬مدعوم ـاً باالس ــتثامر‬ ‫ينبغ ــي تكثي ــف الجه ــود ال رامي ــة إىل تش ــجيع اس ــتثامرات القط ــاع‬ ‫و االســتهالك الخــايص بســبب زيــادات أجــور املوظّفــن للســنة‬ ‫الخــاص و التنويــع االقتصــادي‪ .‬تؤكــد املخاطــر املرتبطــة بتقلــب‬ ‫الثالث ــة ع ــى الت ــوايل‪ .‬و وف ً‬ ‫ق ــا للبيان ــات األولي ــة الص ــادرة ع ــن األق ــار‬ ‫‪xiii‬‬ ‫تكثيــف الجهــود املبذولــة لرقمنــة اإلدارة الجزائريــة‪ ،‬و كذلــك‬ ‫أســعار النفــط و الغــاز العامليــة عــى أهميــة دعــم التنويــع‬ ‫بع ــض املنش ــورات الص ــادرة ع ــن بن ــك الجزائ ــر و الدي ــوان الوطن ــي‬ ‫االقتصــادي مــن خــال ترسيــع اســتثامرات القطــاع الخــاص و‬ ‫لإلحصــاءات‪ ،‬مبــا يف ذلــك إعــادة تحديــد أســاس الناتــج املحــي‬ ‫االس ــتثامر يف القطاع ــات خ ــارج قط ــاع املحروق ــات و يه ــدف كل م ــن‬ ‫اإلج ــايل ألول م ــرة‪ .‬متث ــل مص ــادر البيان ــات البديل ــة املس ــتخدمة يف‬ ‫قانــوين االســتثامر لعــام ‪ ،2022‬و البنــوك و النقــود لعــام ‪ ،2023‬و‬ ‫ه ــذا التقري ـر‪ ،‬مث ــل بيان ــات األق ــار الصناعي ــة‪ ،‬ع ــن تط ــور الزراع ــات‬ ‫االنض ــام الرس ــمي إىل اتفاقي ــة التج ــارة الح ــرة يف الق ــارة األفريقي ــة‪،‬‬ ‫أو اإلض ــاءة الليلي ــة‪ ،‬اداة مكمل ــة و مفي ــدة لإلحص ــاءات االقتصادي ــة‬ ‫و قانــون األرايض االقتصاديــة لعــام ‪ ،2023‬و إطــاق إصالحــات‬ ‫و االجتامعي ــة املعت ــادة و التقليدي ــة‪ .‬م ــع ذل ــك‪ ،‬ف ــإن تحس ــن توف ــر‬ ‫البن ــوك العمومي ــة‪ ،‬إىل تحفي ــز االس ــتثامر الخ ــاص لتعزي ــز التنوي ــع‬ ‫البيان ــات االقتصادي ــة الرس ــمية و دق ــة تفاصيله ــا و م ــدى توقيته ــا‪ ،‬ال‬ ‫االقتصــادي‪ .‬و ينبغــي تعزيــز هــذه الجهــود‪ ،‬ال ســيام مــن خــال‬ ‫س ــيام في ــا يتعل ــق بنش ــاط االقتص ــادي و االس ــتثامر و س ــوق العم ــل‪،‬‬ ‫ضــان مســاهمة هــذه التدابــر بشــكل فعــال يف تحفيــز بيئــة‬ ‫املحس ــنة‬ ‫ّ‬ ‫يظ ــل أم ـرا ً يف غاي ــة األهمي ــة‪ .‬س ــتدعم أنظم ــة البيان ــات‬ ‫األعــال‪ ،‬نظــرا ألن االســتثامر العــام‪ ،‬الــذي كان يف الســابق محــرك‬ ‫التوجــه نحــو امليزانيــة القامئــة عــى النتائــج و صنــع سياســات‬ ‫دا بش ــكل أك ــر بالنفق ــات الجاري ــة‬ ‫النم ــو يف الجزائ ـر‪ ،‬أصب ــح مقي ـ ً‬ ‫القامئ ــة ع ــى البيان ــات‪ .‬ك ــا أنه ــا س ــتوفر بيان ــات اقتصادي ــة دقيق ــة‬ ‫الغــر مرنــة و املتزايــدة برسعــة‪.‬‬ ‫و ش ــاملة للباحث ــن و املحلل ــن و املس ــتثمرين املحلي ــن و الدولي ــن‪،‬‬ ‫مواصل ــة تحس ــن أنظم ــة البيان ــات م ــن ش ــأنها أن تدع ــم االس ــتثامر‬ ‫م ــا يح ــد م ــن قل ــة الرؤي ــة االقتصادي ــة و يش ــجع االس ــتثامر‪.‬‬ ‫و رســم السياســات العموميــة‪ .‬يف عامــي ‪ 2023‬و‪ ،2024‬تــم‬ ‫‪xiv‬‬ ‫‪ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH‬‬ 1 RECENT ECONOMIC DEVELOPMENTS Growth Outside Extractive Sectors Land Law and introducing a “one-stop shop” portal Remained Robust in 2023 at the Algerian Investment Promotion Agency (AAPI).2 Industrial and services growth remained Non-extractive GDP growth was robust in 2023, dynamic, while agricultural output decelerated. supported by a strong acceleration in investment. 1 The rebased national accounts now present “extractive Non-extractive GDP1 growth reached 3.7 percent in industries” but do not present the former “hydrocarbon” 2023, with a moderate acceleration during the year. sector. Extractive industries now mirror the international The latter was driven by strong investment growth, standard industry classification (ISIC) and do not only up from 5.3 percent y-o-y in Q1 to 12.3 percent y-o-y account for crude oil and natural gas extraction activ- in Q4, reaching 8.4 percent in 2023, supported by a ities, but also include mining activities. Hydrocarbon marked recovery in public investment, including in processing (oil refining, gas liquefaction) is now clas- sified under the “manufacturing sector”, while some several large industrial projects. Rapid investment hydrocarbon-related activities have been reclassified growth stimulated imports, which grew by 19.4 per- from the hydrocarbon sector to the dedicated ISIC sec- cent in 2023, led by equipment and vehicle imports. tions (e.g., construction, transport). Private consumption remained dynamic (+3.8 per- 2 The new land law, which establishes guidelines for allo- cent), stimulated by sizeable growth in public wage cating state-owned land for investment projects with the spending. Satellite nighttime lights data suggest that objective of promoting private investment and creating jobs, was adopted in November 2023. The implementa- dynamic activity growth was cross-regional, but that tion of the land grant program started in Q1-2024. 97 of it slowed down in Q1-2024. In 2023, the government 1,500 applicants were awarded plots by the Algerian adopted several measures to foster diversification and Investment Promotion Agency through the new digital non-hydrocarbon growth, such as making public land platform. State-owned land is awarded for 33 years with available for private investment projects through the the possibility of renewal. 1 Dynamic growth was supported FIGURE 1 •  ...and stimulated non-extractive FIGURE 2 •  by an acceleration in investment, industries and services accompanied by a surge in imports Real GDP and components, indices (2019=100) 130 120 120 110 Real GDP and components, indices (2019=100) 110 100 100 90 90 80 80 70 70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2 Q3Q4 Q1 Q2 Q3Q4 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Agriculture Extractive industries Imports Consumption Investment GDP Services Nonextractive industries Source: Office National des Statistiques (ONS). As the indices are in base 100 in 2019, Source: Office National des Statistiques (ONS). As the indices are in base 100 in 2019, these data compare the current level of the components of real GDP with their level in these data compare the current level of the components of real GDP with their level in the same quarter in 2019. the same quarter in 2019. Increasing investment mainly led to higher imports and was 3.8 percent lower than in 2022 and 7.4 percent indicators of public sector industrial activity also suggest year-on-year in H2-2023. With a further cut to 908 kb/d strong growth in steel, metal mechanical, electrical, and implemented in January 2024 (–4.9 percent), produc- electronic industries (SMMEEI), particularly mechani- tion became 13.2 percent lower than the October 2022 cal intermediate metal, mechanic, and electrical goods, peak. Declining production amidst increasing domestic although public manufacturing production remains consumption translated into a notable reduction in oil below pre-pandemic levels. Dynamic consumption also exports, driven by crude oil, refined products,4 and only stimulated sectors serving households, including trade partially offset by a significant increase in condensate and hospitality. Agricultural output growth decelerated, and Liquified Petroleum Gas (LPG) exports.5 Despite amid droughts, with vegetation index measures below crude and refined oil production having declined normal in some of the main crop producing regions since their 2008 peak, it still represents close to half of of Western Algeria (see Box 3). Standard labor mar- Algeria’s hydrocarbon production.6 ket indicators have not been published since 2019, but international estimates suggest that unemployment 3 Modeled estimates from the International Labor rates decreased to their pre-pandemic levels.3 Organization (ILO) suggest that the overall unemploy- ment rate declined to 12.3 percent in 2023 (–0.2 pp), that the female unemployment rate declined to 21.5 per- Extractive Industries Production cent (–0.3pp) and that the youth unemployment rate Increased in 2023, Despite Lower declined to 31.3 percent (–0.7 pp). Oil Production 4 Crude oil export volumes during the first nine months of 2023 were 2.0 percent higher year-on-year, however Amid successive OPEC quota cuts, oil produc- Q4-2023 exports are estimated to have been well below tion declined throughout 2023, reducing exports. their Q4-2022 peak value, suggesting a decrease for the year. Meanwhile, refined petroleum products export Algeria implemented a voluntary reduction of its crude declined by 7.4 percent. oil production quota from 1055 kb/d in October 2022 5 Condensate exports increased by 34.6 percent year-on- to 1007 kb/d in November 2022 and to 959 kb/d in year, and LPG exports increased by 6.0 percent. May 2023. As a result, in 2023 crude oil production 6 In million tons of oil equivalent (MTOE). 2 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH TIMELY TRACKING OF ECONOMIC DEVELOPMENTS IN ALGERIA WITH ALTERNATIVE BOX 1:  DATA SOURCES New developments in big data research enable immediate monitoring of economic trends at disaggregated geographical levels. Satellite data are available with a short lag (less than a month) and are highly disaggregated across time and space. By estimating the relationship between these alternative data and national accounts over the past years, they can help produce geographically disaggregated output estimates until Q1-2024. Nightlights data reliably estimate Algeria’s hydrocarbon and nonhydrocarbon GDP. Nightlights observed via satellites for oil and gas extraction and processing areas are a good proxy for hydrocarbon output.a Monthly “flaring lights” explain 94 percent of monthly crude oil production levels and “non-flaring lights” in gas-producing wilayas explain 69 percent of monthly natural gas production levels. The relationship between nightlights in other areas and non-hydrocarbon GDP is even stronger, with 93 percent of the variation in real non- hydrocarbon GDP explained. For instance, Desponts and Le Borgne (2023) estimated GDP growth of 3.6 percent y-o-y over the first nine months of 2023; ONS data, just published, put it at 4.2 percent. Nightlights suggest robust cross-regional nonhydrocarbon growth in 2023, but lower growth in hydrocarbon-producing regions. Satellite-based weather and vegetation data can be used to estimate Algerian agricultural production. Satellite-observed normalized difference vegetation indices (NDVI) for the largest crop producing regions can, by themselves, capture 51 percent of the historical variation in agricultural GDP, with robust correlations for the NDVIs of Algeria’s largest cereal-producing regions. In 2023, measures of rainfall and crop growth were below average in the largest crop producing regions, the Western and Eastern Highlands in particular, tracking the deceleration of agricultural output growth suggested by national accounts (see Box 3). Data on vessels and their cargo arriving and departing from Algerian ports capture imports and exports in a timely manner. Shipping data include vessel size, weight, and broad product content, in addition to the port of arrival or departure. Measures of the weight of arriving ships can be used to estimate the volume of imports and exports. (See Box 2). Growth in nighttime lights in 2023 FIGURE 3 •  Satellite nighttime lights suggest FIGURE 4 •  a slowdown in nonhydrocarbon activity in Q1-2024 15% Y-o-y change in nightime light intensity 10% 5% 0% –5% –10% Q1e Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Decrease 2019 2020 2021 2022 2023 2024 Increase between 0 and 7.5 percent Increase between 7.5 and 15.6 percent North-Central North-East North-West Increase over 15.6 percent Eastern Highlands Four regions Source: World Bank staff estimates based on NASA data. Source: World Bank staff estimates based on NASA data. Note: The map uses the old administrative division into 48 wilayas. Note: The regions correspond to the Espaces de Programmation Territoriale (EPT). a Cyril Desponts and Eric Le Borgne, “What does satellite imagery tell us about Algeria’s economy?” World Bank Arab Voices Blog. https://blogs.worldbank.org/arabvoices/ what-does-satellite-imagery-tell-us-about-algerias-economy. Recent economic developments 3 Increasing natural gas production FIGURE 5 •  …but hydrocarbon export prices FIGURE 6 •  and exports offset lower oil remained elevated, despite natural production… gas prices coming down 120 350 Price in US$, indices (Q1-2019=100) 110 300 Indices (Q1-2019=100) 100 250 90 200 80 150 70 60 100 50 50 40 0 Q1e Q1e Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Crude oil production Export of crude oil and condensate Natural gas Weighted price of exported hydrocarbons Natural gas production Pipeline & LNG exports Crude oil Fertilizer price Source: JODI, BoA, for exports to Q3-2023, OPEC for crude oil production. Source: BoA, oilprice.com & WB Commodity Price Data for fertilizer price. Note: Data are presented as a rolling four-quarter average. Note: The weighted hydrocarbon price index uses dollar export values to weight each hydrocarbon type. Natural gas production reached a histori- prices decoupled from oil prices in mid-2022 amid a cal high and the increase in liquefied natural gas surge in European demand as Russia invaded Ukraine, (LNG) exports offset the decrease in pipeline the renegotiation of long-term contracts and additional exports. Following a surge in production in 2021 and a sales on spot markets. They peaked in Q4-2022 and slight decrease in 2022 amid the second mildest winter have decreased in 2023 but remain well above their in Europe on record, natural gas production increased 2021 levels, while the ratio of gas export prices to by 6.1 percent year-on-year in 2023, supported by fast lagged oil exports prices is now higher than in 2019, output growth from new fields during the second half of suggesting that gas supply contracts with Europe now the year.7 Despite higher domestic consumption amidst generate higher export prices. The prices of fertilizers, industrial dynamism, natural gas exports remained sta- Algeria’s main non-hydrocarbon export also tracked ble, and a larger share was exported as LNG, offsetting hydrocarbon prices.8 The value of hydrocarbon exports decreasing pipeline exports. Italy, Spain, and France decreased by 16.2 percent as the large price decrease remained the largest buyers of Algerian gas as Euro- more than offset a 4 percent increase in volumes.9 pean countries continued to replace Russian gas in their energy mix. As a result, extractive sector produc- tion rebounded after a slight contraction in 2022 as the The Current Account Surplus Shrunk increase in natural gas production is estimated to have but Reserve Accumulation Continued more than offset lower oil production. The current account surplus narrowed signif- While natural gas prices have come down icantly from its 2022 peak, as export prices relative to their 2022 peak, they remain well above their historical levels, supporting hydrocarbon export revenues even amid lower oil prices. Oil 7 APS, 2023. 8 World Bank (Spring 2022), showed that gas prices prices peaked in Q2-2022, and the reference price for were partly linked to oil prices, with a time lag of around Algerian oil decreased from US$ 103.8 in 2022 to US$ 4 months. 83.6 in 2023, despite higher prices in H2-2023, motivat- 9 Balance of payments data show that hydrocarbon ing successive quota cuts to support prices. Natural gas exports fell from $59.6 billion to $49.9 billion. 4 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH The current account narrowed as FIGURE 7 •  …even as imports prices eased for FIGURE 8 •  export prices decreased and imports most product categories expanded… 20 1.4 170 15 1.2 150 10 1.0 Indices (Q1-2019=100) Billions of US$ 5 0.8 130 0 0.6 –5 0.4 90 –10 0.2 70 –15 0.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023 50 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Exports G&S Imports G&S Change in forex reserves 2019 2020 2021 2022 2023 Current account NH current Terms of trade (rhs) account Cereal prices Import prices PPI, EU Imports, volume Source: BoA, International Monetary Fund (IMF), ONS and World Bank estimates. NH = non-hydrocarbon. Source: IMF, and World Bank estimates for Q1-2023. PPI = Producer Price Index. fell. After the current account deficit peaked in to a 14.9 percent decrease in goods and services 2020 driven by a fall in oil prices amid the pan- exports. Combined with surging import volumes, demic-induced global recession, surging oil prices this resulted in a rapidly narrowing current account in 2021 led to a narrowing deficit and the current surplus, down to US$ 5.4 billion or 2.3 percent of account registered a surplus of US$19.5 billion or GDP. Also contributing to the narrowing current 8.6 percent of GDP in 2022, the first in a decade. In account, non-hydrocarbon exports decreased sig- 2023, lower hydrocarbon export prices contributed nificantly as a small increase in volumes was offset BOX 2: EXPORT AND IMPORT TRENDS IN Q1-2024 Data on vessels and their cargo arriving to and departing from Algerian ports is available through the UN Comtrade Automatic Identification System (AIS) database. The data contain the arrival and departure dates of vessels, information on their cargo in broad categories (food, vehicles, oil, gas, etc.) and the size of their cargo and deadweight tonnage. While the value of imports and exports cannot be determined from this data, their volume can be approximated and used for generating estimates of real imports in national accounts. Variables capturing the deadweight tonnage of a few categories of vessels entering and leaving Algerian ports can explain most of the variation in trade flows. Data on gas exports through pipelines and the tonnage of vessels leaving Algerian ports in the bulk, container, liquefied gas, and foodstuff categories explain 74 percent of export volumes. On the other hand, the tonnage of vessels arriving into Algerian ports in the bulk, container, vehicle, and foodstuff categories explain 82 percent of import volumes. Data on the numbers of vessels suggests that exports remained subdued in Q1-2024, while imports remained high. The overall number of outgoing vessels declined in 2023, with port calls for the bulk and oil/chemicals category decreasing (–2.7 percent and –4.7 percent year- on-year, respectively), though container and LPG/LNG shipments accelerated (+16.3 and +2.6 percent), consistent with official data. In Q1-2024, bulk, container, and oil/chemical shipments remained lower than a year earlier (–13.2 percent, –17.7 percent, and –12.0 percent y-o-y, respectively), while LPG/LNG exports were 1.0 percent above their Q1-2023 level. On the import side, the number of port calls increased through 2023 for the largest cargo types (+3.1 percent for bulk, +0.3 percent for containers), and the number of vessels carrying vehicles doubled amid a targeted relaxation of import controls. In Q1-2024, imports remained elevated for the bulk (+17.5 percent y-o-y) and vehicles (+14.0 percent) categories, though there was a decrease in container arrivals (–0.8 percent). (continued on next page) Recent economic developments 5 BOX 2: EXPORT AND IMPORT TRENDS IN Q1-2024 (continued) Exports volume decreased in FIGURE 9 •  …while imports expanded, notably FIGURE 10 •  H2-2023, but remained above those of vehicles pre-pandemic levels… 350 300 300 250 Number of port calls, indices Number of port calls, indices 250 200 (Q1-2019=100) (Q1-2019=100) 200 150 150 100 100 50 50 0 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023 2024 Bulk Container LPG/LNG 2019 2020 2021 2022 2023 2024 Oil/chemicals Other Bulk Container Vehicles Other Source: UN Comtrade AIS. Source: UN Comtrade AIS. by a drop in prices, particularly for fertilizers. Official The Fiscal Deficit Has Expanded and reserves increased by US$ 7.9 billion during 2023 Public Debt Increased and reached US$ 68.9 billion, or an estimated 16.1 months of imports. The budget deficit widened, driven by sharply Imports of goods and services increased increasing wage and investment expenditures. by 10.3 percent as surging volumes, driven by In 2022, hydrocarbon revenues surged, and the bud- machinery and transport equipment, offset get deficit shrank to 3.0 percent of GDP, down from moderating prices. The increase in machinery 6.3 percent in 2021, its lowest level since 2013. In import volumes was driven by expanding invest- 2023, despite hydrocarbon prices moderating mark- ment, while increasing car and manufactured article edly and the appreciation of the dinar, hydrocarbon import volumes suggest dynamic consumption amid receipts remained stable,13 but expenditures grew a relaxation of import controls for passenger and significantly (+18.4 percent). The government imple- commercial vehicles.10 Food imports also expanded mented the second tranche of a three-year wage in a context of low rainfall and subdued agricultural increase program, which would increase wages production, with Russia becoming Algeria’s largest and compensation spending by nearly 50 percent, wheat supplier, supplanting the European Union.11 Import prices eased across categories, including for 10 New vehicle dealerships, restricted to selling partially food, which in turn contributed to an offsetting strong locally manufactured cars since 2016, may now apply to expansion of import volumes.12 Shipping data sug- import completely built units. gest that import growth continued during Q1-2024 11 Algérie Eco (February 2024). 12 The overall volume of imports increased by 16.1 percent (Box 2). Meanwhile, a High Council for Import Reg- year-on-year during the first nine months of 2023, while ulation was created to regulate imports, protect the price index for imports decreased by 12.1 percent. national production, improve information systems, 13 Notably, 78% of hydrocarbon export revenues were used and fight illegal trade practices. to finance the budget, compared with 65% in 2022. 6 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH Increasing expenditures outpaced FIGURE 11 •  …and the public debt ratio FIGURE 12 •  revenues, widening the fiscal increased as did oil savings. deficit… 16 60 40 14 50 30 12 40 Trillions of DZD 20 10 In % of GDP In % of GDP 10 8 30 6 0 20 4 –10 10 2 –20 0 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 –30 2017 2018 2019 2020 2021 2022 2023 2016 2017 2018 2019 2020 2021 2022 2023 Revenue Expenditure Hydrocarbon revenues Liabilities to the BoA Liabilities to banks Overall budget Nonhydrocarbon Total (rhs) Public savings (rhs) balance budget balance Source: IMF and World Bank estimates. Source: Ministry of Finance, ONS and World Bank estimates. Note: On the right-hand axis, public debt is related to GDP over four rolling quarters. expanded public employment, and increased capital at end-2022. In 2023, the government slowed regular expenditures significantly (+39.1 percent), although Treasury issuances which decreased from 5.0 per- it remains lower than before the pandemic. Partially cent of GDP to 2.3 percent, and the deficit was in offsetting these effects, tax revenues increased mark- large part financed by non-bank financing.15 As a edly (+17.0 percent) from the growing public wage result, oil savings in the FRR continued to increase, bill and the effect of non-hydrocarbon economic rising to 8.2 percent of GDP. Consequently, public dynamism on corporate income, consumption, and debt, which only increased by 3.9 percent in nominal imports.14 The increase in expenditures was also terms, increased from 48.1 percent to an estimated compensated by that of dividends from state-owned 49.2 percent as share of GDP in 2023 and remains enterprises, notably from Sonatrach which surged nearly all domestically held at long-term maturities to reach 2.6 percent of GDP. The overall budget and low interest rates.16 deficit increased by 2.2 percentage points to 5.2 per- cent of GDP, and the non-hydrocarbon deficit, by 4.3 percentage points to 24.9 percent of GDP, as With Fresh Food Prices Decreasing, non-hydrocarbon revenues did not keep up with the Inflation Started to Moderate in increase in expenditures. Late 2023 The public debt/GDP ratio increased, as Inflation remained high at 9.3% in 2023, but prices did oil savings as the government resorted to started to fall driven by fruit and vegetable prices. non-bank financing to fund the deficit. Public Consumer prices started to rise rapidly in 2021 (+7.2%), debt peaked at 55.1 percent of GDP in 2021 as the government implemented the SOE debt buyback program but decreased to 48.1 percent in 2022 as 14 Direct taxes rose by 25.0%, driven by PIT and CIT receipts, while indirect taxes were boosted by VAT receipts. the deficit shrank and nominal GDP expanded rap- 15 This financing is classified as ‘miscellaneous’. idly, while significant savings were accumulated 16 In addition, a new fiscal rule in the Budget Law of 2024 in the oil savings fund (Fonds de Régulation des stipulates that withdrawals from the Revenue Regulation Recettes, or FRR), which reached 6.1 percent of GDP Fund (FRR) must not exceed 11 percent of GDP per year. Recent economic developments 7 Inflation eased, as fresh food prices FIGURE 13 •  …while money supply growth FIGURE 14 •  started to decline in Q2-2023… moderated, and private sector credit accelerated 12 160 20 Growth and contributions, y-o-y (%, pp) 150 10 Indices (Q1-2019=100) 140 15 8 130 10 CPI (%) 6 120 5 110 4 0 100 2 –5 90 0 80 –10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2 Q3Q4 Q1 Q2 Q3Q4 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 CPI Non-food CPI (rhs) Currency in circulation Deposits in M2 Fresh food price CPI NEER index (rhs) M2 Credit to private sector Source: ONS and World Bank estimates. NEER = Nominal Effective Exchange Rate. Source: Investing.com, ONS, and World Bank estimates. with inflation accelerating in 2022 (+9.3%) and maintain- effective exchange rate (weighted by import partners) ing the same level in 2023 (+9.3%). The increase in the and the real effective exchange rate (also adjusted for prices of food products (+13.3%) and in particular fresh inflation differentials) to appreciate. food products (+22.1%) exceeded general inflation in Monetary policy remains accommodative 2023, which affected the most vulnerable the most, as and private sector credit picked up in Q4-2023, but food represents more than half of the expenditure of broad money growth continued decelerating. Nom- the bottom 40% of the population. Until mid-2022, food inal interest rates remain unchanged at 3 percent since inflation was mainly driven by the “fruits and vegetables” May 2020, which means that real policy rates (adjusted (mostly locally produced) and “bread and cereal” cate- for inflation) are significantly negative. In April 2023, gories, which were dependent on rising import prices. In the Bank of Algeria restored the reserve requirement 2023, and despite tighter subsidies on cereal products, rate from 2 to 3 percent, returning to the end-2020 the appreciation of the dinar, and lower import prices, level, to reduce inflationary pressures. However, broad inflation was supported by strong growth in meat prices. money growth decelerated every quarter, reaching 6.0 However, in the first quarter of 2024, it slowed to 5.0% percent year-on-year in Q4-2023, down from 14.5 per- year-on-year, the lowest level in three years, due to the cent a year earlier. After averaging 3.6 percent in 2021 sharp drop in fresh fruit and vegetable prices17 and the and 2022, private sector credit growth reached 7.3 per- slowdown in meat and fish prices, especially following cent year-on-year in H2-2023, the fastest in five years. the authorization of meat imports at the end of 2023. Coupled with the simultaneous increase in equipment The authorities continued to support a and vehicle imports, strong private sector credit growth stable exchange rate in 2023 and early 2024. suggests pent up private consumption. To ease imported inflation, after fourteen consec- utive years of depreciation, the Bank of Algeria (BoA) supported a 6.6 percent appreciation against 17 After increasing by 61% between January 2021 and the U.S. dollar between July and December 2022. August 2023, they had fallen by 17% by March 2024. 18 In 2020–2021, the European Union (EU) accounted for Since December 2022, the BoA has kept the official 38% of Algerian imports, compared with 18% for China. exchange rate approximately stable against the euro The EU accounted for 59% of Algerian exports. As 90% and the dollar, while the dinar appreciated by 5.2 per- of exports are made up of hydrocarbons, they are never- cent against the Chinese yuan,18 causing the nominal theless denominated in dollars. 8 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH 2 OUTLOOK AND RISKS GDP Growth Would Remain Robust, Growth would pick up again in 2025 and Despite OPEC Quota Cuts and 2026 as oil production quotas and agricultural Subdued Agricultural Production output recovers. Investment and industrial output would continue to decelerate somewhat in 2025 and Growth is expected to remain robust in 2024, 2026 as public investment consolidation continues, driven by continued non-hydrocarbon dynamism. despite private investment remaining dynamic. The In the baseline scenario, overall growth is expected service sector would remain dynamic in 2025 and at 2.9 percent, supported by non-extractive growth, slow slightly with private consumption in 2026. Agri- projected at 3.4 percent whereas the extractive sec- cultural output is expected to recover from successive tor is expected to contract by 0.5 percent.19 Private drought episodes, contributing to faster growth in consumption would remain dynamic as public sector 2025. Natural gas production would grow moderately wages and transfers continue to increase, in turn stim- as new field projects offset declining legacy fields, ulating services output, particularly in sectors serving and the easing of OPEC crude oil production quota households. Investment growth would slow as public would allow for a recovery in the production of petro- capital expenditures are consolidated based on the leum products Sonatrach’s substantial investment government’s medium-term budget framework, par- plans to modernize upstream oil and gas opera- tially offset by dynamic private investment, leading to tions, adopt technological innovations, and boost a slowdown in industrial production growth but also petrochemical industries, including the production easing the growth of imports. The overall contribu- of plastics and fertilizers also improve medium-term tion of net exports would remain negative, with import growth prospects. growth slowing down, but hydrocarbon exports also contracting. Based on early weather and crop growth data, agricultural production is expected to remain 19 Data for Q1-2024 show a rise of almost 2% in primary weak in 2024 (Box 3). hydrocarbon production, driven by natural gas and LPG. 9 BOX 3: EARLY SATELLITE INDICATORS OF AGRICULTURAL PRODUCTION High-frequency satellite data on rainfall, temperature, and vegetation can be used to estimate agricultural production. The Anomaly Hotspots of Agricultural Production (ASAP) database contains data on rainfall, water adequacy, temperature, solar radiation, vegetation measures, and weather warnings for each 10-day period between 2000 and 2024 for each wilaya, available with a two-week delay. Official data on cereal production is available to assign production weights to wilayas. Algeria’s main crop-producing regions are in semi-arid regions in the western and eastern part of Algeria, which receive less rainfall. The semi-arid west represents 47 percent of crop production, notably the Tiaret and Sidi Bel Abbes wilayas. The semi-arid east account for 15.2 percent of national crop production, in particular the Oum El Bouaghi and Batna wilayas. Yet, these regions receive less rainfall than the humid and semi-humid coastal region from Algiers to the Tunisian border, which accounts for 34.8 percent of crop production. Satellite-based weather and vegetation data can be used to estimate Algerian agricultural production. Satellite-observed normalized difference vegetation indices (NDVI) for the largest crop producing regions can, by itself, capture 51 percent of the historical variation in agricultural GDP, with robust correlations for the NDVIs of Algeria’s largest cereal-producing wilayas. Satellite data on crop development suggest that, despite a late recovery in the Northeast, Algeria’s crop development will be subdued in 2024. Rainfall in Q4-2023 and Q1-2024 was lower year-on-year in western wilayas, which was already a year characterized by lower-than-usual rainfall and crop development. In line with rainfall, measures of crop development were well below normal in 2021, 2023, and 2024, with some recovery in 2022, a year of rapid agricultural output growth. During the 2024 harvest season, crop development recovered modestly in the humid, semi-humid and semi-arid eastern regions with respect to 2023 but remain much subdued in the semi-arid eastern regions. During the 2023-24 crop season, FIGURE 15 •  …and crop growth measures FIGURE 16 •  rainfall improved in the East but tracked changes in rainfall worsened in the West… 1.00 0.50 NDVI Z-score 0.00 –0.50 –1.00 –1.50 2017 2018 2019 2020 2021 2022 2023 2024 Decrease Increase between 0 and 14 percent Humid and semi-humid Semi-arid east Increase between 14 and 43.6 percent Increase over 43.6 percent Semi-arid west National average Source: ASAP. Note: Harvest season runs from Q4 to Q2 of the following year. Data for 2024 is for Source: ASAP. Q4-2023 and Q1-2024. External and Fiscal Balances Will cereals elevated. Hydrocarbon exports would recover Again Be Under Pressure in 2025 and level in 2026, but imports would grow faster, widening the current account deficit. Foreign The current account is expected to fall below bal- exchange reserves would stabilize and remain ade- ance in 2024 and reserves would stabilize. In the quate but decrease from a peak of 16.1 months of baseline scenario, hydrocarbon prices and export imports in 2023 to 8.4 months of imports by 2026 in volumes decrease in 2024, while imports continue the baseline. to grow at a decreasing pace as private investment The budget deficit would increase in 2024, and consumption remain dynamic, and subdued before fiscal consolidation takes hold in 2025 agricultural output keeps the demand for imported and 2026. Hydrocarbon revenues in the budget 10 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH BOX 4: THE 2024 BUDGET LAW The Budget Law for 2024 (BL2024)a revises the budget deficit upwards After a steep increase between FIGURE 17 •  relative to the Rectifying Budget Law for 2023 (LBR2023), primarily 2021 and 2024, the 2024 Budget due to an increase in expenditures. Revenues would increase by 2 Law projects a stabilization in percent as higher nonhydrocarbon revenues (+10.3 percent) would spending be mostly offset by lower hydrocarbon receipts (–8.9 percent). Expenditures would increase by 3.9 percent as a rise in current 20 expenditures (+12 percent) would be only partially balanced by a fall 15 in investment (–7.5 percent).b In 2025 and 2026, the medium-term budget framework foresees that a stabilization of expenditures and 10 Trillions of DZD an increase in tax revenues would decrease the deficit. 5 The substantial increase in current expenditures is driven by the rising wage bill and provisions for in-year budget reallocations. 0 The wage bill would be boosted by the third of three planned waves of salary increases and return of in-situ promotions. The –5 Ministry of Public Works would receive 36 percent of the new –10 spending, to finance infrastructure projects.c The Ministry of the 2018 2019 2020 2021 2022 2023 2024 2025 2026 Interiord and the Ministry of Education would receive 21 percent Revenue Expenditure and 17 percent of the new spending, respectively, since they Overall budget Overall budget balance account for a large part of the wage bill, and to finance recruitment balance excl. unforeseen in the education sector. Note: Data for 2023 comes from the rectifying budget law for 2023, and 2024 to The BL2024 includes several tax measures to support economic 2026 projections from the 2024 Budget Law. activity. It abolishes the turnover tax on firms (TAP) and introduces fiscal incentives to promote non-hydrocarbon exports. It also reduces the synthetic turnover tax (Impôt Forfaitaire Unique, IFU) for self-employed individuals, to support small businesses. Additionally, it provides tax exemptions for income derived from the sale of Treasury instruments. It also introduced a new fiscal rule stipulating that withdrawals from the Revenue Regulation Fund (FRR) must not exceed 11 percent of GDP per year. a Published in the official gazette in December 2023. b Year-on-year comparisons by expenditure chapter are prevented by the new presentation of expenditure in program budgets, which combine operating and capital expenditure. c Development of green hydrogen production and launch of the 1,000 MW solar power project, as well as the inclusion of operations linked to the Integrated Phosphate Project and the Bechar-Tindouf (Gara Djebilet) mining line for DZD185 billion. d In December 2023, over 320,000 beneficiaries of the vocational integration assistance scheme (DAIP) will have been integrated into permanent jobs. (APS, January 25, 2024). would be further reduced, more than offsetting the Hydrocarbon Prices Amid increase in tax revenues. On the expenditure side, ris- Geopolitical Uncertainty Pose ing current spending driven by the last wave of wage Significant Risks increases would contrast with a consolidation of cap- ital expenditures, stabilizing overall spending in 2024. Hydrocarbon prices remain the main risk to fiscal In 2025 and 2026, the continued consolidation of and external balances, with projected financing capital expenditures would slightly decrease spend- needs highlighting the importance of a grad- ing. With oil savings declining, the continued increase ual fiscal rebalancing. Oil prices stabilized at in the deficit would increasingly translate into grow- US$ 83.6 in 2023, and Algeria’s hydrocarbon exports ing debt, which would pass 55 percent by 2026. remained stable throughout the year. On the other The structure of Algeria’s sovereign debt, however, hand, imports recovered, deepening the non-hydro- remains comfortable as it is almost entirely domesti- carbon current account deficit, and leaving external cally held and denominated, at long-term maturities balances more vulnerable to changes in global oil and negative real interest rates. The latter point implies prices. Similarly, the large increase in public spend- a notable transfer of resources from domestic savers ing in 2023 and 2024, concentrated in rigid spending to the state. such as wages, has deepened the non-hydrocarbon Outlook and Risks 11 BOX 5: THE PANDEMIC ACCELERATED THE IMPORTANCE TO PIVOT TO A PRIVATE INVESTMENT-LED GROWTH MODEL Since 2000, Algeria’s growth model has relied on public investment and current spending, largely financed through hydrocarbon budget revenues. In support of the recovery from the 1990s crisis, public investment surged in the 2000s and became the engine of Algerian growth. When it stabilized, and current spending surged after 2008, the Algerian economy pivoted from being investment-driven to being private consumption driven. When the oil price shock hit in 2015, the consolidation of public spending affected consumption, investment, and caused growth to moderate across regions. As the contribution of investment to growth declined, so did aggregate productivity. Since 2000, agricultural productivity increased as the share of workers employed in that sector halved. This first led to increased employment in the construction sector, as the state deployed massive public investments, and then to rising employment in services, once growth came to rely on private consumption. Productivity in receiving sectors was comparable or lower, while industrial sector productivity declined amidst stable employment but lower value-added, causing aggregate productivity to decline as consumption replaced investment as the driver of growth. After the COVID-19 pandemic, Algeria’s growth and productivity growth further relies on private investment, and structural reforms to accelerate it. As hydrocarbon prices fell during the COVID-19 crisis, the authorities partially froze public investment, which halved as a share of GDP between 2019 and 2022, to reach 6.5 percent. Meanwhile, current spending increased by 2.4 pp, to 23.6 percent of GDP, as wage and transfer increases. As a result, the rigidity of public spending increased markedly, shrinking the margin to increase public investment in support of the recovery. The growth slowdown was driven FIGURE 18 •  Public investment is now smaller, FIGURE 19 •  by investment, notably public and the margin to raise it is investment, and accompanied by limited, raising the importance of declining productivity faster private investment 1.8 6% 80% 1.6 5% 70% 1.4 4% Contribution to growth (pp) 1.2 60% 3% 1.0 2% 50% 0.8 1% 0.6 40% 0.4 0% 0.2 –1% 30% 0.0 –2% 2000– 2005– 2010– 2015– 2020– 20% 2004 2009 2014 2019 2023 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Private consumption Public consumption 2023 Private investment Public investment Share of public investment in total investment Aggregate productivity GDP (rhs) Share of rigid spending in total spending Source: ONS, Ministry of Finance, Bank staff estimates. Source: ONS, Ministry of Finance, Bank staff estimates. Note: Public investment refers to central government capital spending. Total factor Note: Rigid spending refers to spending on wages, interest payments, pensions, productivity is defined as the Solow residual. and social assistance. budget deficit, and increased the sensitivity of fiscal weigh on global oil prices. While foreign exchange balances to global oil prices. Therefore, the latter rep- reserve remains adequate, projected fiscal financing resent significant risks, both upside and downside, to needs call for prudent public spending policies and a the outlook, particularly in an environment of height- gradual fiscal rebalancing. ened geopolitical uncertainty. Developments in the With public investment unlikely to drive conflict in the Middle East, changes in OPEC quo- future economic growth, accelerating non-hydro- tas, and the evolution of global demand in particular carbon private sector investment remains a 12 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH priority. The risks associated with global hydrocar- budgeting and support evidence-based policymak- bon prices point to the importance of supporting ing. It would also provide accurate and exhaustive diversification by accelerating private sector invest- economic data to researchers and analysts, potential ment in non-hydrocarbon sectors, and concurrently domestic and international investors, alleviating eco- strengthening the macroeconomic policy framework nomic uncertainty and fostering investment. by increasing non-hydrocarbon sources of export and Recent droughts and forest fires under- budget revenues. The 2019 Hydrocarbon Law, the score the vulnerability of Algeria and the region 2022 Investment Law, the 2023 Monetary and Bank- to climate change. Over the last decade, historically ing Law, formal adhesion to the African Continental high temperatures and low rainfall slowed agricultural Free Trade Area (ACFTA), the 2023 Land Law, and output growth and, especially in recent years, led to initiation of state-owned bank reforms20 are all aimed a contracting production. Beyond these immediate at boosting investment and improving diversification. impacts, temperature, and rainfall projections of the Strengthening those efforts, in particular by ensur- impacts of climate change also suggest that produc- ing that they contribute effectively to the improvement tion levels could permanently decrease and variability of the business environment, is even more important increase, as yields and cultivable areas are reduced. now that public investment, previously the engine of The risks of climate change go beyond agriculture, as Algeria’s growth, is increasingly constrained by rigid demonstrated by recent forest fires. They also encom- and rapidly expanding current expenditures (Box 5).21 pass water access amid lower and more variable Continuing to strengthen data systems rainfall and potential health impacts, underlining the would support investment and policymaking. importance of efforts to increase supply—including Alternative data sources used throughout this report, ongoing large investments in desalination—and such as satellite crop development or nighttime lights, strengthen demand management. Climate change provide a useful complement to standard economic and natural disaster risks can be mitigated via adap- and social statistics. In 2023 and 2024, digitaliza- tation, and financing for disaster risk management to tion efforts accelerated, as did efforts from the Bank increase human and economic resilience and protect of Algeria and ONS to strengthen their publications, recent development gains. with notably the first GDP rebasing. Yet, improving the availability, granularity, and timeliness of offi- 20 Crédit Populaire d’Algérie (CPA), a large state-owned cial economic data, most notably relating to activity, bank, has opened 30 percent of its capital on the Algiers investment, and the labor market, remains of utmost stock exchange. CPA is the fifth company, and first bank, importance. Enhanced data systems would support on the Algiers stock exchange. the authorities’ pivot towards performance-based 21 See Algeria Economic Update Fall 2023, Annex 1.3. Outlook and Risks 13 TABLE OF INDICATORS 2020 2021 2022 2023e 2024f 2025f 2026f Output and prices (In percent, unless otherwise indicated) Real GDP –5.0 3.8 3.6 4.1 2.9 3.7 3.2 Non-extractive –1.9 2.5 5.0 3.7 3.4 3.8 3.3 Extractive –20.9 19.8 –5.1 4.8 –0.5 3.3 2.4 Real GDP per capita –6.6 2.1 1.9 2.5 1.4 2.3 1.9 Consumer price index (period average) 2.4 7.2 9.3 9.3 7.5 6.4 6.1 GDP (in billions of USD) 164.9 186.3 225.6 239.9 256.7 265.8 275.4 GDP per capita (USD) 3794.4 4216.3 5023.3 5260.2 5547.0 5665.0 5793.9 Crude oil production (thousand barrels per day) 899.2 910.7 1020.0 973.1 920.0 994.0 1039.0 Natural gas production (billions of m3) 87.7 102.8 99.2 105.2 111.6 118.4 125.5 External sector Current account –11.3 –2.4 8.6 2.3 –1.5 –3.8 –5.3 Trade balance –10.9 –1.3 9.9 3.0 –0.7 –3.0 –4.5 Exports of goods and services 15.1 22.5 30.6 24.5 21.9 21.0 20.3 Hydrocarbon exports 12.1 18.3 26.4 20.8 18.5 17.7 17.1 Nonhydrocarbon exports 3.0 4.2 4.2 3.7 3.4 3.3 3.2 Imports of goods and services 26.0 23.8 20.7 21.5 22.6 24.0 24.9 Gross official reserves (months of imports) 13.5 12.3 15.7 16.1 14.0 11.3 8.4 Exchange rate (Algerian dinar per USD; period average) 126.8 135.1 142.0 135.8 Sahara Blend export price (USD/barrel) 42.1 72.7 103.8 83.6 Central Government Finance Government revenue 27.0 26.2 29.7 32.9 29.8 28.8 27.7 Hydrocarbon revenuea 9.2 10.4 17.7 19.7 15.2 14.6 13.9 Non-hydrocarbon revenue 17.8 15.9 12.1 13.2 14.6 14.2 13.8 Expenditures 37.5 32.5 32.7 38.1 38.8 37.4 35.3 Current expenditures 24.0 21.8 24.9 27.7 28.3 27.3 25.6 Capital expenditures 9.1 7.7 6.1 8.3 7.2 7.1 6.9 Special Account Balance and Treasury Interventions 4.5 3.0 1.7 2.1 1.5 1.6 1.6 Overall budget balanceb –10.5 –6.3 –3.0 –5.2 –9.0 –8.6 –7.6 Primary overall budget balance –9.7 –5.7 –1.8 –3.9 –7.7 –7.3 –6.2 Non-hydrocarbon overall budget balance –19.7 –16.7 –20.6 –24.9 –23.7 –22.8 –21.1 Total central government debt 45.8 55.2 48.1 49.2 51.2 53.9 55.5 Domestic debt 45.1 54.5 47.6 48.9 50.9 53.7 55.4 External debt 0.7 0.6 0.4 0.4 0.3 0.2 0.1 a Includes dividends from Sonatrach and hydrocarbon revenues transferred to the oil savings fund. b Includes special account balance and Treasury interventions 14 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH ANNEX 1: RECENT SPECIAL SECTIONS OF THE ALGERIA ECONOMIC UPDATE Fall 2023: “Analyses in Algeria’s Algeria, the empirical link between nightlights data Public Finances.” and economic activity is strong, both for oil produc- tion (geolocated by gas flaring sites), gas production, Algeria’s public finances have tracked oil and natural and non-hydrocarbon activity. The strong correlation gas prices over the last two decades: when hydro- between nightlights and non-hydrocarbon activity carbon prices fell, budget revenues followed, and allows us to mobilize these data to estimate the recent the fiscal deficit expanded. At the same time, over- level of economic activity, and to produce spatialized all government expenditures in Algeria have been estimates of the level and dynamics of activity, useful cyclically neutral, on average not tracking swings in for sectoral or local development analyses. output, which compares favorably with peer countries. Patterns differ for current and capital expenditures. Fall 2022: “Estimation of the Fiscal Current expenditures are countercyclical: wages Multipliers in Algeria.” and transfers are typically expanded during down- turns. Capital expenditures are strongly procyclical: The sharp increase in government spending in 2022 they have been increased when hydrocarbon out- raises the question of its effects on economic activ- put expanded. The rigidity of public expenditures has ity. The propensity of public spending to support increased in recent years but remains below the aver- economic activity and generate additional economic age of peer countries. activity is captured by the fiscal multiplier. An analysis conducted on quarterly Algerian data since 2000 finds Fall 2022: “Estimating Economic a weak multiplier effect of Algerian public spending on Activity from Nightlights Data.” GDP, notably caused by the effect of an increase on the deterioration of the trade balance, resulting from Nightlights data is a tool now commonly used to its impact on imports. The spillover effect of spend- assess economic activity. Since 2012, satellite data ing on private consumption is observed but is limited, have been available daily and are publicly available while the analysis finds a more marked effect of pub- on the Group on Earth Observations website. For lic spending on the construction sector. 15 Spring 2022: “Does Algeria Benefit conditions. Although Algeria performs well in the MENA from Rising Gas Prices?” region, and despite notable improvements, multidimen- sional poverty varies considerably across regions and The export price of Algerian natural gas follows a between rural and urban areas. The North-Central and distinct dynamic from the reference price of gas on North-Eastern regions face lower levels of deprivation international markets. Thus, while the Henry Hub than the rest of the country, while the Central Highlands gas reference price has gained nearly 50% between region faces a higher level of deprivation. The most vul- Q2 and Q3-2021, the export price of Algerian natu- nerable regions improved more rapidly between 2013 ral gas has increased by only 0.5% over the same and 2019, showing convergence with the richer regions. period. Indeed, these prices are established contrac- Health and education have become more important tually, sometimes on a long-term basis, and based dimensions of deprivation, underscoring the policy pri- on bilateral negotiations with buyers. An economet- orities for Algeria’s human development. ric modeling exercise allows us to establish that the export price of Algerian natural gas is characterized Fall 2021: “Resilience of Algeria to by a strong inertia, as well as a delayed linkage to the Climate and Natural Disaster Risks.” oil price. The model presented allows to explain 88% of the variation of the exported natural gas prices. The Algerian territory is exposed to a range of climatic and geological hazards, particularly in urban areas, Spring 2022: “The Impact of which are experiencing rapid population growth and Macroeconomic Factors on Inflation concentrate a significant share of economic activity. in Algeria.” Floods are the most frequent disasters in Algeria, but the greatest economic losses have been caused by Inflation is on the rise in 2021 and 2022, both globally earthquakes. Algeria has a modern legal framework and in Algeria, but the underlying causes vary from for disaster risk management (DRM), a clear deci- country to country. In Algeria, the price increase that sion-making framework for emergency response, and began in 2021 was driven by food prices. A model of recognizes the importance of protecting strategic the consumer price index since 2009 shows that it is infrastructure and critical sectors. Serious efforts have characterized by strong short-term inertia, but that the been made to reduce risk, especially in emergency depreciation of the dinar, the increase in the price of response management and reconstruction, at the imported goods, the rise in public spending and the expense of prevention. Moreover, information sharing increase in currency in circulation explain more than is not systematic, leading to inconsistencies, espe- 40% of the variation in the CPI after two years. In addi- cially in disaster prevention, and enforcement of GRC tion, the importance of these factors varies according legislation can be improved. Significant efforts should to the categories of goods and services, reflecting the still be made for comprehensive and cross-sectoral intensity of imports of these products and the char- climate and disaster risk reduction and management. acteristics of the Algerian market both in terms of production and distribution. Spring 2021: “Effects of COVID-19 on Inequality in the MENA Region and Fall 2021: “Evolution of Non- Algeria.” Monetary Poverty and Inequality in Algeria.” Survey results from the Middle East and North Africa (MENA) region confirm that the poorest individuals The multidimensional poverty indicator improved are more likely to report a deterioration in their living in Algeria between 2013 and 2019, reflecting prog- conditions since the beginning of the COVID-19 crisis. ress in all its dimensions: education, health, and living Despite the lack of recent data on household welfare 16 ALGERIA ECONOMIC UPDATE – INVESTING IN DATA FOR DIVERSIFIED GROWTH in Algeria, the characteristics of vulnerable individu- system. Although officially the number of cases and als suggest that inequality has also increased. They deaths remains low, the pandemic has highlighted the are more likely to contract COVID-19 or lose their jobs limitations of the health system. A double burden of during the pandemic, have less adequate social pro- communicable and non-communicable diseases, as tection, and are likely to be disproportionately affected well as limited resources, suggest a need to strengthen by ongoing macroeconomic and fiscal adjustments. it. Although the health system receives substantial A sustainable and inclusive recovery will therefore public financial support and requires relatively little require offering the most vulnerable the opportunity individual expenditure, and although life expectancy to recover what they have lost. and control of noncommunicable diseases are com- parable to peer countries, health outcomes remain below those of middle- and high-income countries, Spring 2021: “Towards an Equitable particularly in terms of equity in maternal and child Reform of the Algerian Health health conditions. The need for physical and human System.” resources and for a better distribution of health cov- erage are major challenges. 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