ALGERIA ECONOMIC UPDATE Accelerating Productivity Gains for Diversified and Resilient Growth Spring 2025 Algeria Economic Update Accelerating Productivity Gains For Diversified And Resilient Growth Spring 2025 Middle East and North Africa Region © 2025 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. 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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 Non-Hydrocarbon GDP Growth Remained Robust in 2024..................................................................................... 1 Oil and Gas Production Contracted in 2024, Weighing on Hydrocarbon Exports............................................ 2 The Current Account Fell Below Balance in 2024 and Foreign Exchange Reserves Declined..................... 3 The Budget Deficit Widened in 2024 and Was Mainly Financed by Oil Savings............................................... 4 Inflation Fell Sharply in 2024, Notably in Food-Related Categories....................................................................... 5 Chapter 2: Outlook and Risks..................................................................................... 9 GDP Growth Is Expected to Be Driven by the Strength of the Non-Hydrocarbon Sector................................ 9 Pressure on External and Fiscal Balances Is Expected to Increase, Reflecting the Downward Trend in Hydrocarbon Prices............................................................................................................ 9 Global Uncertainty Poses Risks to Macroeconomic Balances............................................................................... 10 Chapter 3: Accelerating Productivity Gains to Diversify the Algerian Economy........................... 13 Public Spending, which Drove Growth in the 2000s, Has Slowed Down over the Last Decade................... 13 Productivity Gains Have Been Heterogeneous, Driven by Agriculture and Construction................................ 13 The Growth Model Driven by Public Spending Has Guided the Structure of Employment, Weighing on Productivity............................................................................................................................................... 15 International Comparison Offers Avenues for Accelerating Productivity and Diversifying the Algerian Economy..................................................................................................................................................... 16 Annex 1: Recent Special Sections of the Algeria Economic Update......................................... 21 Bibliography......................................................................................................... 23 iii List of Figures Figure 1 Strong investment growth stimulated imports…..................................................................................... 2 Figure 2 …while household consumption supported commercial services.................................................... 2 Figure 3 Nighttime lights data suggest heterogeneous growth in 2024…....................................................... 2 Figure 4 …with the North-Central region contributing most to non-hydrocarbon growth............................. 2 Figure 5 Crude oil and natural gas production slowed in 2024…...................................................................... 3 Figure 6 …and export prices for hydrocarbons have declined........................................................................... 3 Figure 7 The current account posted its first deficit in three years…................................................................. 4 Figure 8 …although import prices have eased........................................................................................................ 4 Figure 9 Oil export volumes fell in 2024…................................................................................................................. 5 Figure 10 …while import volumes increased.............................................................................................................. 5 Figure 11 The sharp increase in expenditure and the contraction in revenues have widened the budget deficit…......................................................................................................................................... 5 Figure 12 …which was financed by the depletion of oil savings........................................................................... 6 Figure 13 Inflation has slowed significantly, led by fresh food prices................................................................. 6 Figure 14 The exchange rate against the dollar has remained stable, but effective rates have appreciated............................................................................................................................................ 7 Figure 15 Credit growth to the private sector has accelerated............................................................................. 7 Figure 16 Crop development remains modest, particularly in the West............................................................. 10 Figure 17 ...in line with the declining trend in precipitation.................................................................................... 10 Figure 18 Over the past decade, growth and job creation have slowed…......................................................... 14 Figure 19 ...while the contribution of productivity to potential GDP has been limited..................................... 14 Figure 20 Labor productivity by sector of activity is heterogeneous................................................................... 14 Figure 21 …and limited by that of SOEs, particularly in manufacturing.............................................................. 14 Figure 22 Productivity gains have been stronger in agriculture and construction…....................................... 15 Figure 23 …and reinforced by the decline in employment in the agricultural sector....................................... 15 Figure 24 In Algeria, employment growth was concentrated in non-commercial services and construction….......................................................................................................................................... 16 Figure 25 …even more so than in other resource-rich countries........................................................................... 16 Figure 26 Algerian employment has gradually become concentrated in low-cost sectors…........................ 17 Figure 27 …being disconnected from variations in productivity............................................................................ 17 Figure 28 In an international comparison, productivity performance is mixed….............................................. 17 Figure 29 …which partly explains the relative differences in sectoral productivity........................................... 17 Figure 30 The employment structure of peer countries suggests avenues for structural transformation........................................................................................................................ 18 List of Boxes Box 1 The 2025 Budget Law................................................................................................................................... 11 Box 2 The growth trajectory of three high-performing countries................................................................... 18 iv ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH LIST OF ACRONYMS AADL National Agency for Housing LNG Liquefied natural gas Improvement and Development LPG Liquefied petroleum gas AAPI Algerian Investment Promotion Agency SMMEEI Steel, metallurgical, mechanical, AfCFTA African Continental Free Trade Area electrical and electronic industries BdA Bank of Algeria M2 Aggregate money supply (banknotes, CPI Consumer Price Index demand and term deposits) DZD Algerian Dinar MENA Middle East and North Africa EPT Algeria’s administrative regions MTEP Million tonnes of oil equivalent EU European Union NASA National Aeronautics and Space EUR Euro Administration FAO Food and Agriculture Organization of OECD Organisation for Economic Co-operation the United Nations and Development FDI Foreign direct investment ONS National Office of Statistics FGAR Credit Guarantee Fund for Small and OPEC Organization of the Petroleum Exporting Medium-Sized Enterprises Countries FRR Revenue Regulation Fund OPEC+ OPEC and non-OPEC partner countries GDP Gross domestic product PNDAR National Agricultural and Rural H1 First half of the year Development Program H2 Second half of the year PPI Producer Price Index IMF International Monetary Fund PLF2025 2025 Finance Bill ILO International Labor Organization SOE State-owned enterprise IP Imports of products US$ United States Dollar JODI Joint Organisations Data Initiative VA Value added Kb/d Thousands of barrels per day VAT Value-Added Tax LF 2025 2025 Finance Act WB World Bank LMICs Low- and middle-income countries v ACKNOWLEDGMENTS T his Algeria Economic Update reports on the Amel Henider, Daniel Prinz and Sabiha Tiguercha, main recent economic developments and under the direction of Eric Le Borgne and Abdoulaye policies. It places them in a global and longer- Sy. The team thanks Ahmadou Moustapha Ndiaye term context and assesses the implications of these (Division Director for the Maghreb and Malta) and developments for Algeria’s economic prospects. Kamel Braham (Resident Representative for Algeria) The report is aimed at a wide audience, including pol- for their valuable comments during the review of this icymakers, business leaders, economic actors, and report. The World Bank team is particularly grateful to the community of analysts and professionals work- the Ministry of Finance of Algeria for its comments on ing in/on Algeria. The report is divided into three the content of the report prior to its publication. chapters. Chapter 1 presents macroeconomic devel- The findings, interpretations, and conclusions opments in Algeria during 2024, Chapter 2 describes expressed in this report are those of World Bank the short- and medium-term outlook for the Algerian staff and do not necessarily reflect the views of the economy, and Chapter 3 examines the productivity Executive Board of the World Bank or the countries it levers needed for sustainable diversification of the represents. For more information on the World Bank economy. The deadline for data entry and final- and its activities in Algeria, including electronic copies ization of the projections used in this report was of this publication, please visit https://www.banque- May 29, 2025. mondiale.org/fr/country/algeria. If you have any The Algeria Economic Update Report is a questions or comments about the content of this pub- product of the Middle East and North Africa (MENA) lication, please contact Cyril Desponts (cdesponts@ section of the World Bank Group’s Economic Policy worldbank.org) and Eric Le Borgne (eleborgne@ Global Practice. It was prepared by Cyril Desponts, worldbank.org). vii EXECUTIVE SUMMARY A lgeria’s economic growth remained robust widened, to 13.9 percent of GDP in 2024—its highest in 2024 but is expected to slow moder- level since 2015—with the continued increase in public ately in 2025. Strong investment momentum spending (+9.0 percent, after a 63.3 percent increase and robust growth in household consumption, both between 2021 and 2023) now reinforced by the fall in fueled by government spending, supported man- hydrocarbon revenues (–31.1 percent). The budget def- ufacturing and services activity, while agricultural icit is expected to reach 14.5 percent of GDP in 2025, production accelerated. However, growth in domestic before decreasing, as the decline in hydrocarbon rev- demand boosted imports, which, combined with lower enues is cushioned by the rationalization of spending. hydrocarbon production and exports, weighed on Public debt increased only moderately in 2024, reach- growth. Overall, non-hydrocarbon GDP grew at a pace ing 48.5 percent of GDP, with the use of the remaining of 4.8 percent, offsetting the 1.4 percent contraction in US$ 19.9 billion (or 7.4 percent of GDP) in the Reve- GDP from hydrocarbons. Real GDP growth is projected nue Regulation Fund (FRR) providing the majority of at 3.3 percent in 2025, driven by the rebound in growth the financing of the deficit. However, the significant in the hydrocarbon sectors (+1.6 percent), boosted financing needs, coupled with the depletion of the FRR, by the recovery of OPEC production quotas and gas would lead to a significant increase in public debt from production. Non-hydrocarbon growth is expected to 2025 onwards. slow (+3.6 percent), driven by the expected consolida- Inflation slowed significantly in 2024. Con- tion of public spending, which would be more marked sumer price index growth fell from 9.3 percent in for investment. Agricultural production is expected to 2023 to 4.0 percent in 2024, driven by the disinfla- remain robust despite limited rainfall, offsetting the tion of fresh agricultural products, helped by the slowdown in industry and services. authorization of meat imports, agricultural dynamism, After two years of surpluses, the current exchange rate stability, and slowing monetary growth, account balance returned to deficit in 2024. The despite a monetary policy that remained accommo- contraction in exports (-10.2 percent) combined with dative and dynamic credit growth to the private sector. the increase in imports (+9.7 percent), particularly In a global economy under pressure, it is food, equipment and vehicles, generated a current essential to accelerate the effort to diversify the account deficit of 1.7 percent of GDP. The fall in oil Algerian economy and reduce dependence on prices in 2025 would lead to a widening of this deficit hydrocarbon exports. The exceptional uncertainty (6.6 percent of GDP) and, with a moderate slowdown associated with developments in trade and the global in imports, a drop in foreign exchange reserves. economy, reinforced by geopolitical ones, threatens The budget deficit widened in 2024 and oil and gas prices, which are still expected to account is expected to persist in 2025. The budget deficit for 79 percent of export earnings and 43 percent of ix fiscal revenues in 2025. In this context, the diversifica- model resulted in important economic and social tion of the economy, in particular through the increase achievements in the 2000s, before slowing down of private investment, national and international, and in the last decade as the pace of spending growth productivity gains, is urgent, in order to diversify exter- became unsustainable. In doing so, this growth model nal and tax revenues, and to commit the Algerian has steered employment to low-value-added sectors, economy to a resilient growth trajectory, less depen- including non-commercial services and construc- dent on public spending. In light of the weight of the tion. In addition, a comparative analysis of Algerian financing of fiscal deficits in national savings, and the productivity suggests a heterogeneous performance, risks they pose to monetary stability, a consolidation with strong momentum in the agricultural sector con- of public finances would support growth. Given the trasting with limited gains in the manufacturing sector. high level of spending from an international perspec- Thus, a growth acceleration could be achieved by tive, this rebalancing would depend in particular on increasing productivity gains in the manufacturing and an improvement in the quality of spending, informed services sectors, on the one hand, and a gradual real- by spending reviews and increased prioritization of location of employment to high-value-added sectors investments. on the other, combined with a gradual rebalancing of The analysis of productivity trends in dif- public spending. Such an economic transformation ferent sectors offers avenues for reflection to calls for targeted cross-cutting and sectoral policies accelerate the structural transformation of the to support growth and jobs in the private sector, while Algerian economy. The public-spending-led growth equipping workers with the necessary skills. x ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH RÉSUMÉ ANALYTIQUE L a croissance économique de l’Algérie est (6,6 % du PIB) et, avec un ralentissement modéré de demeurée robuste en 2024, mais devrait l’importation, une baisse dans les réserves de change. ralentir modérément en 2025. La forte dyna- Le déficit budgétaire s’est creusé en 2024 mique de l’investissement et une croissance robuste et devrait persister en 2025. Le déficit budgétaire de la consommation des ménages, toutes deux ali- s’est creusé, atteignant 13,9 % du PIB en 2024 — soit mentées par la dépense publique, ont soutenu l’activité son niveau le plus élevé depuis 2015 — la hausse manufacturière et des services, tandis que la produc- continue des dépenses publiques (+9,0 %, après tion agricole s’accélérait. La croissance de la demande une hausse de 63,3 % entre 2021 et 2023) étant intérieure a cependant stimulé les importations qui, désormais renforcée par la chute des recettes des combinées à la baisse de la production et des expor- hydrocarbures (–31,1 %). Le déficit budgétaire attein- tations des hydrocarbures, ont lesté la croissance. drait 14,5 % du PIB en 2025, avant de se résorber, Somme toute, le PIB hors-hydrocarbures a cru à un la baisse des recettes d’hydrocarbures étant amortie rythme de 4,8 %, compensant la contraction de 1,4 % par la rationalisation des dépenses. La dette publique du PIB des hydrocarbures. La croissance du PIB réel n’a augmenté que modérément en 2024, atteignant est projetée à 3,3 % en 2025, portée par le rebond de la 48,5 % du PIB, l’utilisation du reliquat du Fonds de croissance de la production des hydrocarbures (+1,6 %), Régulation des Recettes (FRR), à hauteur de 19,9 mil- stimulé par celui des quotas de production de l’OPEP liards USD (soit 7,4 % du PIB) assurant la majorité du et de la production gazière. La croissance hors-hydro- financement du déficit. Toutefois, les besoins impor- carbures ralentirait (+3,6 %), du fait de la consolidation tants de financement, couplés à l’épuisement du attendue des dépenses publiques, plus marquée pour FRR, amèneraient la dette publique à augmenter sen- l’investissement. La production agricole demeurerait siblement à partir de 2025. robuste malgré une pluviométrie limitée, compensant L’inflation a nettement ralenti en 2024. La le ralentissement dans l’industrie et les services. croissance de l’indice des prix à la consommation Après deux années d’excédents, la balance a chuté de 9,3 % en 2023 à 4,0 % en 2024, princi- du compte courant est redevenue déficitaire en palement en raison de la désinflation des produits 2024. La contraction des exportations (–10,2 %) agricoles frais, elle-même soutenue par l’autorisation s’est combinée à la hausse des importations (+9,7 de l’importation de viande, le dynamisme agricole, la %), notamment alimentaires, d’équipement et de véhi- stabilité du taux de change et le ralentissement de cules, pour générer un déficit du compte courant à la croissance monétaire, malgré une politique moné- hauteur de 1,7 % du PIB. La baisse des prix du pétrole taire demeurée accommodante et une croissance en 2025 entrainerait un creusement de ce déficit dynamique du crédit au secteur privé. xi Dans une économie mondiale sous pres- L’analyse des tendances de productivité dans sion, il est essentiel d’accélérer l’effort de les différents secteurs offre des pistes de réflexion diversification de l’économie algérienne et de pour accélérer la transformation structurelle de réduction de la dépendance aux exportations l’économie algérienne. Le modèle de croissance tiré d’hydrocarbures. Les incertitudes exceptionnelles par la dépense publique a été le fer de lance d’impor- associées aux évolutions du commerce et de l’éco- tantes réalisations économiques et sociales dans les nomie mondiale, renforcées par celles géopolitiques, années 2000, avant un ralentissement durant la der- menacent les prix du pétrole et du gaz, qui repré- nière décennie alors que le rythme de croissance des senteraient toujours 79 % des recettes d’exportation dépenses devenait insoutenable. Ce faisant, ce modèle et 43 % des recettes budgétaires en 2025. Dans ce de croissance a orienté l’emploi dans des secteurs à contexte, la diversification de l’économie notamment faible valeur ajoutée, notamment les services non com- à travers l’augmentation de l’investissement privé, merciaux et la construction. Par ailleurs, une analyse national et international, et les gains de productivité comparative de la productivité algérienne suggère une est pressante, afin de diversifier les recettes externes performance hétérogène, la forte dynamique dans et fiscales, et d’engager l’économie algérienne sur le secteur agricole contrastant avec des gains limités une trajectoire de croissance résiliente, moins tri- dans le secteur manufacturier. Ainsi, l’accélération de butaire de la dépense publique. Compte tenu du la croissance pourrait être réalisée grâce, d’une part, poids du financement des déficits budgétaires dans à des gains accrus de productivité dans les secteurs l’épargne nationale, et les risques qu’ils font peser sur manufacturiers et des services, et, d’autre part, à une la stabilité monétaire, un rééquilibrage des finances réallocation graduelle de l’emploi vers les secteurs à publiques soutiendrait la croissance. Au vu du niveau haute valeur ajoutée, qui irait de pair avec un rééqui- élevé de dépenses dans une perspective internatio- librage progressif des dépenses publiques. Une telle nale, ce rééquilibrage serait notamment tributaire transformation de l’économie appelle des politiques d’une amélioration de la qualité de la dépense, infor- transversales et sectorielles ciblées pour soutenir la mée par des revues des dépenses et une priorisation croissance et l’emploi dans le secteur privé, tout en outil- accrue des investissements. lant les travailleurs avec les compétences nécessaires. xii ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH ‫ملخص تنفيذي‬ ‫ف ا خالل عام ‪ 2024‬ليبلغ‬ ‫ع ا طفي ً‬ ‫أما الدين العمومي‪ ،‬فقد شهد ارتفا ً‬ ‫‪ ٪48.5‬من الناتج املحيل اإلجاميل‪ ،‬بفضل اللجوء إىل استعامل ما تبقى‬ ‫من موارد صندوق ضبط اإلي رادات‪ ،‬الذي ساهم مبا يعادل ‪ 19.9‬مليار‬ ‫ل النمو االقتصادي يف الجزائر قوي اً يف عام ‪ ،2024‬لكنه من‬ ‫املتوقع أن يتباطأ قلي الً يف عام ‪ .2025‬وقد ساهم كل من‬ ‫االستثامر النشط وزيادة استهالك األرس‪ ،‬املدعومني باإلنفاق‬ ‫ظ‬ ‫دوالر أمرييك (أي ما يقارب ‪ ٪7.4‬من الناتج املحيل اإلجاميل) يف متويل‬ ‫الحكومي‪ ،‬يف تعزيز النشاط يف قطاعي الصناعة والخدمات‪ ،‬بينام‬ ‫الجزء األكرب من العج ز‪ .‬غري أن احتياجات التمويل املرتفعة‪ ،‬مقرونة‬ ‫تسارع منو اإلنتاج الزراعي‪ .‬ومع ذلك‪ ،‬فإن منو الطلب املحيل قد‬ ‫بنفاد موارد صندوق ضبط اإلي رادات‪ ،‬من شأنها أن تؤدي إىل زيادة‬ ‫حفز الواردات‪ ،‬والتي‪ ،‬إىل جانب انخفاض انتاج وتصدير املحروقات‬ ‫محسوسة يف مستوى الدين العمومي ابتداء من سنة ‪.2025‬‬ ‫ج ل الناتج املحيل اإلجاميل خارج‬ ‫ً‬ ‫إجاماًل‪ ،‬س ّ‬ ‫‪ ،‬قد ق يّ دت وترية النمو‪.‬‬ ‫ح ا خالل عام ‪ .2024‬فقد‬ ‫عرفت معدالت التضخم تباط ؤًا واض ً‬ ‫وا بنسبة ‪ ،٪4.8‬مام أسهم يف تعويض التق لّص امل ُق َّ‬ ‫در بـ‬ ‫املحروقات من ً‬ ‫ت راجعت وترية منو مؤرش أسعار املستهلك من ‪ ٪9.3‬يف عام ‪2023‬‬ ‫‪ ٪1.4‬يف الناتج املحيل اإلجاميل للمحروقات‪ .‬من املتوقع أن يكون منو‬ ‫إىل ‪ ٪4.0‬يف عام ‪ ،2024‬مدفوع اً بانخفاض التضخم عىل املنتجات‬ ‫الناتج املحيل اإلجاميل الحقيقي بنسبة ‪ ٪3.3‬يف عام ‪ ،2025‬مدفوع اً‬ ‫الزراعية الطازجة‪ ،‬وذلك بفضل السامح باست رياد اللحوم‪ ،‬والنشاط‬ ‫بانتعاش منو قطاع املحروقات (‪ ،)٪+1.6‬محفزا ً بزيادة حصص اإلنتاج‬ ‫القوي للقطاع الزراعي‪ ،‬استق رار سعر الرصف‪ ،‬إضافة إىل تباطؤ وترية‬ ‫من أوبك وزيادة اإلنتاج الغازي‪ .‬من املتوقع أن تشهد نسبة النمو‬ ‫منو عرض النقد‪ ،‬رغم استم رار سياسة نقدية متساهلة ومنو قوي يف‬ ‫خارج قطاع املحروقات تباطؤا ً لتبلغ ‪ ، ٪+3,6‬نتيجة لسياسة ضبط‬ ‫االئتامن للقطاع الخاص‪.‬‬ ‫النفقات العمومية‪ ،‬ال سيام ما يتعلق منها بنفقات االستثامر‪ .‬من‬ ‫يف ظل الضغوطات التي يتعرض لها االقتصاد العاملي‪ ،‬أصبح من‬ ‫املتوقع أن يظل اإلنتاج الزراعي قوي اً رغم قلة هطول األمطار‪ ،‬مام‬ ‫الرضوري ترسيع وترية تنويع االقتصاد الجزائري وتقليص االعتامد‬ ‫وض التباطؤ يف قطاعي الصناعة والخدمات‪.‬‬ ‫يع ّ‬ ‫عىل صادرات املحروقات‪ .‬إذ تشكل حالة عدم اليقني الغري املسبوقة‬ ‫بعد عامني من تحقيق فوائض يف الحساب الجاري‪ ،‬عاد هذا األخري‬ ‫املحيطة بتطورات التجارة واالقتصاد العاملي‪ ،‬والتي زادتها التوت رات‬ ‫إىل تسجيل عجز خالل سنة ‪ .2024‬وقد اقرتن ت راجع الصادرات بنسبة‬ ‫را عىل أسعار النفط والغاز التي ال تزال‬ ‫الجيوسياسية تعقي ً‬ ‫دا‪ ،‬خط ً‬ ‫‪ ٪10.2‬بارتفاع الواردات بنسبة ‪ ،٪9.7‬السيام من املواد الغذائية‪،‬‬ ‫متثل حوايل ‪ ٪79‬من عائدات التصدير و‪ ٪43‬من إي رادات امليزانية يف عام‬ ‫ومعدات التجهي ز‪ ،‬واملركبات‪ ،‬مام أدى إىل تسجيل عجز يف الحساب‬ ‫‪ .2025‬يف هذا السياق‪ ،‬فان تنويع االقتصادي يعترب ام را عاجال‪ ،‬ال سيام‬ ‫الجاري بلغ ‪ ٪1.7‬من الناتج املحيل اإلجاميل‪ .‬ومن املتوقع أن يؤدي‬ ‫من خالل تعزيز االستثامرات الخاصة‪ ،‬املحلية واألجنبية‪ ،‬وتحقيق‬ ‫انخفاض أسعار النفط يف عام ‪ 2025‬إىل تفاقم هذا العجز ليبلغ ‪٪6.6‬‬ ‫مكاسب يف اإلنتاجية‪ ،‬بهدف تنويع مصادر اإلي رادات الخارجية‬ ‫من الناتج املحيل اإلجاميل‪ ،‬كام سيؤدي‪ ،‬إىل جانب تباطؤ نسبي يف‬ ‫واملحلية‪ ،‬و وضع االقتصاد الوطني عىل مسار منو مستدام أقل اعتامدًا‬ ‫وترية الواردات‪ ،‬إىل ت راجع يف احتياطيات الرصف االجنبي‪.‬‬ ‫عىل اإلنفاق العمومي‪ .‬وبالنظر إىل االثر الناجم عن متويل العجوزات‬ ‫تفاقاًم يف عام ‪ ،2024‬ومن املرتقب أن‬ ‫ً‬ ‫ج ل عجز امليزانية‬ ‫س ّ‬ ‫املالية عىل االدخارات الوطنية‪ ،‬واملخاطر التي تتبعها عىل االستق رار‬ ‫يستمر خالل سنة ‪ .2025‬حيث بلغ هذا العجز نسبة ‪ ٪13.9‬من‬ ‫النقدي‪ ،‬فإن ترشيد االنفاق العام سيدعم النمو‪ .‬نظ را ً الرتفاع مستوى‬ ‫ج ل منذ‬ ‫الناتج املحيل اإلجاميل يف عام ‪ ،2024‬وهو أعىل مستوى يُ س َّ‬ ‫اإلنفاق من منظور دويل‪ ،‬فإن إعادة التوازن هذه سوف تعتمد بشكل‬ ‫‪ ،2015-‬نتيجة الزيادة املستمرة يف النفقات العمومية (‪،٪+9.0‬‬ ‫خاص عىل تحسني جودة اإلنفاق‪ ،‬استنادا ً إىل م راجعات اإلنفاق وزيادة‬ ‫بعد ارتفاع بـ ‪ ٪63.3‬ما بني ‪ 2021‬و‪ ،)2023‬والتي تزامنت هذه‬ ‫تحديد أولويات االستثامرات‪.‬‬ ‫املرة مع ت راجع كبري يف إي رادات املحروقات بنسبة ‪ .٪37.5‬ومن‬ ‫إن تحليل مسارات اإلنتاجية يف مختلف القطاعات يُ تيح ً‬ ‫سباًل‬ ‫املتوقع أن يصل عجز امليزانية إىل ‪ ٪14.5‬من الناتج املحيل اإلجاميل‬ ‫للتفكري يف كيفية ترسيع وترية التحول الهيكيل لالقتصاد الجزائري‪.‬‬ ‫يف عام ‪ ،2025‬قبل أن يبدأ يف ال رتاجع‪ ،‬حيث سيتم التخفيف من‬ ‫العمومي اداة لتحقيق‬ ‫ً‬ ‫فقد ش كّل منوذج النمو القائم عىل اإلنفاق‬ ‫أثر انخفاض إي رادات املحروقات عرب ترشيد النفقات العمومية‪.‬‬ ‫‪xiii‬‬ ‫وبذلك‪ ،‬ميكن تحقيق تسارع يف النمو االقتصادي من خالل تحسني‬ ‫منجزات اقتصادية واجتامعية كربى منذ بداية هذا القرن‪ ،‬قبل أن‬ ‫مستويات اإلنتاجية يف قطاعي الصناعة والخدمات‪ ،‬إىل جانب إعادة‬ ‫ؤا خالل العقد املايض‪ ،‬مع بلوغ وترية منو اإلنفاق مستويات‬‫يشهد تباط ً‬ ‫توزيع تدريجية للعاملة نحو القطاعات ذات القيمة املضافة العالية‪،‬‬ ‫غري مستدامة‪ .‬وقد أدى هذا النموذج إىل توجيه سوق العمل نحو‬ ‫يف تزامن مع إعادة توازن تدريجية لإلنفاق العمومي‪ .‬ويتطلب هذا‬ ‫قطاعات منخفضة القيمة املضافة‪ ،‬السيام يف الخدمات الغري التجارية‬ ‫التحول الهيكيل لالقتصاد تبني سياسات شاملة وقطاعية دقيقة‪،‬‬ ‫وقطاع البناء‪ .‬من جهة أخرى‪ ،‬تشري املقارنة بني مستويات اإلنتاجية‬ ‫تهدف إىل دعم النمو وفرص العمل يف القطاع الخاص‪ ،‬مع متكني اليد‬ ‫يف الجزائر إىل أداء متباين‪ ،‬حيث ت ُظهر الديناميكية القوية يف القطاع‬ ‫العاملة من املهارات الالزمة لذلك‪.‬‬ ‫ن ا مع املكاسب املحدودة يف القطاع الصناعي التحوييل‪.‬‬ ‫الزراعي تباي ً‬ ‫‪xiv‬‬ ‫‪ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH‬‬ 1 RECENT ECONOMIC DEVELOPMENTS Non-Hydrocarbon GDP Growth the mining and construction materials sectors (nota- Remained Robust in 2024 bly cement and bricks), while export-oriented sectors, particularly chemical industries, metallurgy, and the Non-hydrocarbon GDP growth remained robust manufacturing of machinery and equipment, experi- in 2024, supported by dynamic investment. enced a slowdown. Consumption growth supported Non-hydrocarbon GDP grew by 4.8 percent in 2024, low-value-added services (trade, hospitality, and res- driven by strong investment growth (9.5 percent in taurants), which are more responsive to household 2024, compared to 9.9 percent in 2023), despite a demand than high-valu-added services (transport slowdown in the second half of the year. Private con- and communications, business services, real estate, sumption remained dynamic (+4.0 percent), supported and finance).1 Agricultural production accelerated in by continued growth in current public spending, partic- 2024 (+5.1 percent), driven notably by a better-than- ularly on wages. Net exports contributed negatively to expected cereal season, which supported domestic growth, as robust investment drove a significant growth supply and helped ease inflationary pressures. The in import volumes (+12.0 percent), especially capital unemployment rate fell to 9.7 percent by end-2024, goods, while exports declined (–2.9 percent). Satellite- down from 11.4 percent in 2019, mainly due to strong based nightlights data suggest stronger growth in parts public sector recruitment.2 of the Center and South in 2024, as well as continued momentum in Q1-2025. Stronger domestic demand supported man- ufacturing, trade, and hospitality services, while 1 See Chapter 3 for estimates of productivity by sector. agricultural output accelerated. The increase in 2 Press release by the ONS (February 2025). Note that investment led to a strong recovery in manufacturing no survey on employment and unemployment has been activity (+4.8 percent), including dynamic growth in published since 2019. 1 Strong investment growth stimulated FIGURE 1 •  …while household consumption FIGURE 2 •  imports… supported commercial services 20 6 15 4 Y-o-Y GDP growth and contributions (%, pp) 2 10 Y-o-Y GDP growth and contributions (%, pp) 0 5 –2 0 –4 –5 –6 –10 –8 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2019 2020 2021 2022 2023 2024 –15 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2019 2020 2021 2022 2023 2024 Agriculture Industry Construction Low-VA services Imports Private consumption High-VA services Non-commercial services GDP Public consumption Investment Change in inventories Exports GDP Source: ONS. Note: Low-value-added (VA) services include trade, hotels and restaurants. High-VA Source: National Office of Statistics (ONS). services include transport and communications, finance, real estate, and business services (see Chapter 3). Nighttime lights data suggest FIGURE 3 •  …with the North-Central region FIGURE 4 •  heterogeneous growth in 2024… contributing most to non- hydrocarbon growth 16% Y-o-y change in night-time light intensity 14% 12% 10% 8% 6% 4% 2% 0% –2% –4% H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Q1 2019 2020 2021 2022 2023 2024 2025 North-Central North-East North-West Eastern Highlands Four regions Source: World Bank staff estimates based on National Aeronautics and Space Administration (NASA) data. Source: World Bank staff estimates based on National Aeronautics and Space Note: The map uses the administrative division into 48 wilayas. Administration (NASA) data. Note: The regions correspond to the Territorial Programming Areas (EPT). Oil and Gas Production Contracted After being reduced from 1,055 kb/d to 1,007 kb/d in in 2024, Weighing on Hydrocarbon November 2022, Algeria’s crude oil production quota Exports was lowered to 977 kb/d in 2023 and to 907 kb/d in 2024. As a result, crude oil production declined by The voluntary reduction of quotas in January 2024 6.9 percent in 2024 compared to 2023, and by 10.5 per- under the OPEC+ agreements has led to a con- cent relative to its 2022 peak. Rising domestic demand traction in hydrocarbon production and exports. for both crude oil and refined products constrained 2 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH exportable volumes, as confirmed by vessel tracking The Current Account Fell Below data from tankers departing Algeria.3 On the natural Balance in 2024 and Foreign gas side, production declined by 6.2 percent in 2024, Exchange Reserves Declined after a marked increase in 2023. Pipeline exports edged down, partly due to lower demand from major The current account balance has fallen below European partners such as France and Spain,4 and balance after two years of surplus, due to a combi- LNG exports fell more sharply (–14.3 percent). GDP in nation of weaker exports and a sustained recovery the hydrocarbon sector contracted by 1.4 percent in in imports. After a record surplus in 2022 (8.6 percent 2024 and hydrocarbon export volumes fell by 3 per- of GDP) driven by higher hydrocarbon prices, the cur- cent in 2024,5 weighing on overall growth. rent account balance contracted in 2023 (2.6 percent Hydrocarbon export revenues declined of GDP) under the combined effect of lower exports sharply in 2024, reflecting lower export volumes of goods and services and higher import volumes. In and falling export prices. The reference price for 2024, the continued contraction in the value of exports Algerian crude oil decreased from US$103.8 per of goods and services (–10.2 percent), combined with barrel in 2022 to US$83.6 in 2023 and stabilized at the increase in the value of imports (+9.7 percent), led US$81.7 in 2024. With the share of higher-value LNG to a reversal of the current account balance, posting a declining in Algeria’s total gas exports, average gas deficit of 1.7 percent of GDP. The decline in hydrocar- export prices fell despite the global upward trend in bon exports was exacerbated by the sharp decline in gas prices between 2023 and 2024. These dynam- non-hydrocarbon goods exports (–24.2 percent), due ics led to a 7.4 percent drop in average hydrocarbon both to the cross-cutting fall in prices (–6.7 percent) export prices in 2024, and a sharp decline in hydro- carbon export revenues (–10.4 percent). 4 European Commission, 2025. 5 The moderate decline in hydrocarbon exports contrasts with the sharper decline in exports of oil, natural gas and 3 International Monetary Fund (IMF), PortWatch data. This LNG, suggesting that the latter was partly offset by the data also suggests a continued decline in exports in export of other types of hydrocarbons (e.g., condensate, Q1-2025. liquefied petroleum gas). FIGURE 5 •  Crude oil and natural gas production …and export prices for hydrocarbons FIGURE 6 •  slowed in 2024… have declined 120 350 Price in USD, indices (H1-2019=100) 110 300 100 Indices (H1-2019=100) 250 90 200 80 150 70 100 60 50 50 40 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1e H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1e 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 Crude oil production Natural gas production Natural gas Weighted price Export of crude oil and condensate Pipeline & LNG exports Crude oil Fertilizer price Source: Joint Organizations Data Initiative (JODI) for gas, Bank of Algeria (BoA) for Source: BoA, oilprice.com and WB for fertilizer prices. exports until Q1-2024, OPEC for crude oil production, and WB estimates. Note: The hydrocarbon price index uses dollar export values from the Bank of Algeria Note: Gas data are presented as a four-quarter moving average. Estimates of crude oil to weight each hydrocarbon type. For H2-2024, the index is estimated using unit value and condensate exports are based on IMF PortWatch tanker tracking data. indices (UVIs). Recent Economic Developments 3 FIGURE 7 • The current account posted its first …although import prices have eased FIGURE 8 •  deficit in three years… 180 50 1.2 40 160 1.0 30 Indices (H1-2019 =100) 140 20 0.8 Billions of US$ 10 120 0.6 0 100 –10 0.4 –20 80 0.2 –30 –40 0.0 60 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 Exports G&S Imports G&S Change in forex reserves Cereal prices Import prices Current account NH Current Terms of trade (rhs) Imports, volume PPI, EU account Source: ONS, Food and Agriculture Organization of the United Nations (FAO), Eurostat Source: BoA, International Monetary Fund (IMF), ONS and WB estimates. Estimates for and World Bank estimates. H2 2024 will be updated prior to publication. Note: PPI, EU = European Union Producer Price Index. against a backdrop of low world prices for fertilizers, spending and the decline in hydrocarbon reve- metals, and manufactured products, and to the marked nues. In 2022 and 2023, the sharp increase in public contraction in export volumes (–21.3 percent).6 Foreign spending (63.3 percent between 2021 and 2023) was exchange reserves fell by the equivalent of 1.6 months financed by the increase in hydrocarbon revenues, of imports in 2024, reaching US$ 63.6 billion at the end and the budget deficit narrowed to 3.0 percent and of 2024, or an estimated 13.6 months of imports. 5.5 percent of GDP. In 2024, expenditures, particularly Imports of goods and services rose 9.7 per- wage and investment spending, continued to grow at cent in 2024, driven by a sharp increase in import a steady pace (+9.0 percent). On the one hand, the volumes. The increase in import volumes reached wage bill increased by 9.4 percent, due notably to the 13.1 percent in 2024, which offset the moderate implementation of the last tranche of the three-year decline in import prices (–3.1 percent). The annual civil service salary increase program. On the other value of imports increased the most for machinery hand, the marked increase in investment was linked to and transport equipment (+22.7 percent), followed the continuation of projects in progress, and the start by that of food products (+8.8 percent) and that of of new projects, particularly in the housing sector.7 manufactured goods (+6.2 percent), against a back- As the increase in spending combined with a sharp drop of strong increase in import volumes, reaching decline in hydrocarbon revenues (–31.1 percent), and +19.1 percent, +16.7 percent, and +14.0 percent a moderate recovery in tax revenues, the overall bud- respectively in these three categories in 2024. This get deficit has widened sharply to 13.9 percent of increase was notably cushioned by the fall in prices of GDP in 2024, compared to 5.5 percent in 2023. food products and manufactured products. 6 The contraction of DA 173 billion was driven by that of The Budget Deficit Widened in 2024 exports of manufactured goods (–106.6 billion DA) and chemicals (–51.1 billion DA). and Was Mainly Financed by Oil Savings 7 Half of the commitment authorisation for the new pro- gram in 2024 (excluding “miscellaneous”) is attributable The budget deficit widened sharply in 2024, due to housing (51.1%), as well as public works (12.4%), to the combined effect of the marked increase in hydraulics (7.8%), and education (7.5%). 4 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH FIGURE 9 • Oil export volumes fell in 2024… …while import volumes increased FIGURE 10 •  160 180 150 Total volume in metric tons of vessels Total volume in metric tons of vessels 140 160 130 140 120 110 120 100 100 90 80 80 70 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1e 60 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1e 2019 2020 2021 2022 2023 2024 2025 2019 2020 2021 2022 2023 2024 2025 Tanker Other Dry bulk Container General cargo Source: IMF. Source: IMF. Note: Q2-2025 is estimated using Q1-2025 year-on-year change. Note: Q2-2025 is estimated using Q1-2025 year-on-year change. Public debt has increased only moder- cent of GDP. Public debt remains almost exclusively ately despite the size of the budget deficit, as domestically held and issued under favorable finan- the use of oil savings limited debt issuance. The cial conditions. Indeed, in 2024, the effective rate public debt ratio increased slightly to 48.5 percent of on public debt stood at 2.5 percent, i.e. a negative GDP at the end of 2024, compared to 47.7 percent real effective rate8 due in particular to the large share at the end of 2023, as previous surpluses from the issued by the Bank of Algeria at very low rates under Revenue Regulation Fund (FRR) were used to cover the majority of financing needs, for a total amount 8 Over the past ten years, the GDP deflator was 4.7 per- of 2.6 trillion dinars (US$ 19.9 billion) or 7.4 per- cent on average. FIGURE 11 • The sharp increase in expenditure …which was financed by the FIGURE 12 •  and the contraction in revenues depletion of oil savings have widened the budget deficit… 18 60 40 16 50 30 14 12 40 Trillions of DZD 20 % of GDP 10 30 In % of GDP 10 8 0 6 20 4 –10 10 2 –20 0 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 –30 2017 2018 2019 2020 2021 2022 2023 2024 2016 2017 2018 2019 2020 2021 2022 2023 2024 Liabilities to the BoA Liabilities to banks Revenue Expenditure Hydrocarbon Total (rhs) Public savings (rhs) Overall budget balance NH Overall budget balance revenues Source: IMF and WB. Source: Ministry of Finance, ONS and WB estimates. Note: On the right-hand axis, public debt is related to GDP over two semesters. Recent Economic Developments 5 the 2017–2019 monetary financing program and the Inflation has slowed significantly, FIGURE 13 •  2021–2022 special refinancing program. led by fresh food prices 14 Inflation Fell Sharply in 2024, 12 Notably in Food-Related Categories Contribution to food CPI growth (pp) 10 Inflation slowed significantly in 2024, due to 8 a combination of supply and demand factors. 6 After high annual inflation in 2023 (9.3 percent), the Algerian economy experienced strong disinflation in 4 2024 (4.0 percent),9 driven by the slowdown in food 2 prices (3.3 percent). This dynamic has extended to the entire consumption basket, reflecting an overall 0 easing of inflationary pressures. The slowdown in the –2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Q1 inflation of fruit, vegetable and meat prices was made 2019 2020 2021 2022 2023 2024 2025 possible notably by the strong performance of the Bread and cereals Meat and fish Fruits and agricultural sector in 2024, and by the reopening of Milk and dairy products Oils and fats vegetables meat imports at the end of 2023. The relative stability CPI Non-food CPI (rhs) Other of the exchange rate also contributed to the stability of Source: ONS and WB estimates. The histogram shows the growth of the food CPI, broken down by product group. imported prices, while the slowdown in money supply growth moderated the effect of increased government spending on the demand side. The slowdown in infla- rates negative, given inflation of 4.0 percent over the tion, particularly for food, coupled with the increase in year. Money supply growth decelerated in 2024, with public transfer spending and dynamic non-hydrocar- M2 growth limited to 7.4 percent y-o-y in the first half bon growth, had a positive impact on the purchasing of the year and 9.2 percent y-o-y in the second, partly power of households, especially the most vulnerable. explained by the decline in revenues from hydrocar- Monetary policy remained accommoda- bon exports. At the same time, credit to the private tive in 2024, while credit growth to the private sector continued to grow at a steady pace, at 9.2 per- sector accelerated. The policy rate has been main- cent y-o-y in H1 and 8.4 percent y-o-y in H2-2024, tained at 3 percent since April 2020, while the reserve extending the momentum observed in H2-2023. requirement rate has remained at 3 percent since its reduction in April 2023. This stance kept real interest 9 Inflation for the city of Algiers. 6 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH FIGURE 14 • The exchange rate against the Credit growth to the private sector FIGURE 15 •  dollar has remained stable, but has accelerated effective rates have appreciated 20 120 115 15 Growth and contributions, y-o-y (%, pp) 110 10 105 Indices (H1-2019=100) 100 5 95 90 0 85 –5 80 75 –10 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 70 2019 2020 2021 2022 2023 2024 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Q1 2019 2020 2021 2022 2023 2024 2025 Currency in circulation Deposits in M2 NEER REER USD/DZD EUR/DZD DZD/CNY M2 Credit to private sector Source: ONS, IMF and WB estimates. Source: ONS and WB estimates. Recent Economic Developments 7 2 OUTLOOK AND RISKS GDP Growth Is Expected to Be exports to contribute positively to growth. Agricultural Driven by the Strength of the production is expected to remain strong and offset Non-Hydrocarbon Sector the slowdown in industrial production and services, despite the lack of recovery in rainfall10 and crop devel- Growth is expected to slow moderately in 2025, opment that remains below historical trends for the with the expected consolidation of public spend- fifth consecutive year, particularly in western Algeria. ing partially offset by a rebound in hydrocarbon Growth is expected to remain moderate by 2026–2027, exports. In the baseline scenario, real GDP growth is due to the continuation of the slowdown in domestic projected at 3.3 percent in 2025, driven by slowing non- demand, partly offset by the slowdown in imports, and hydrocarbon growth (+3.6 percent) and a rebound in by the rebound in hydrocarbon production and exports. the hydrocarbon sector (+1.6 percent). Hydrocarbon production and exports would increase due to the increase in production quotas decided in April 2025. Pressure on External and Fiscal The anticipated slowdown in the pace of growth in Balances Is Expected to Increase, current expenditure would be accompanied by a con- Reflecting the Downward Trend in traction in public investment in a context of lower oil Hydrocarbon Prices prices in the first half of 2025, with the price of Sahara The current account deficit is expected to widen Blend recording an average decline of 13.8 percent in 2025 and foreign exchange reserves are year-on-year over the first four months of the year. This expected to continue to decline. In the baseline sce- consolidation is expected to be accompanied by a nario, hydrocarbon prices would decline significantly modest slowdown in private consumption growth, but in 2025, before resuming a slightly upward trend, also by a more pronounced investment deceleration, despite the good performance of private investment. 10 According to satellite data, it improved in 2024–2025 in This would lead to slower import growth, which—com- humid and semi-humid coastal areas, stabilized in the bined with the recovery in exports—would allow net semi-arid east, and deteriorated in the semi-arid west. 9 Crop development remains FIGURE 16 •  ...in line with the declining trend FIGURE 17 •  modest, particularly in the in precipitation West... 15% 40% % difference between 2004–2008 and 2020–2024 10% 30% FPAR, % difference relative 5% to 2001-2024 average 20% 0% 10% 0% –5% –10% –10% –20% –15% –30% 2017 2018 2019 2020 2021 2022 2023 2024 2025 –20% Humid and semi-humid Semi-arid east –25% Temperature Rainfall FPAR Semi-arid west National average Humid and semi-humid Semi-arid east Semi-arid west Source: ONS, ILO and WB estimates. Note: The FPAR is a composite indicator of satellite data on crop development. Source: ONS, ILO and WB estimates. weighed down by uncertainties related to trade and in public debt. Although the debt is almost entirely global growth in addition to geopolitical ones. In 2025, domestically held, denominated in domestic currency, this would only be partially offset by a recovery in long-term, and with negative real interest rates, its hydrocarbon export volumes as OPEC production increase implies a significant transfer of resources to quotas would be gradually increased, and by slower the government and limits the availability of credit to growth in imports. In this context, the current account the private sector. At the end of 2024, net credit to the is expected to continue to deteriorate in 2025, increas- Treasury represented 37 percent of bank credit. ing pressure on foreign exchange reserves, before a slight improvement in 2026 and 2027. Thus, in the absence of a more pronounced slowdown in imports Global Uncertainty Poses Risks to or foreign capital inflows, foreign exchange reserves Macroeconomic Balances would continue their downward trend. Hydrocarbon prices remain the main risk to fiscal The budget deficit is expected to widen in and external balances, underscoring the impor- 2025, generating significant financing needs. The tance of gradual fiscal consolidation. Algeria’s fiscal deficit is projected to widen to 14.5 percent in non-hydrocarbon deficits—18.6 percent of GDP for the 2025, despite the planned consolidation of current current account, 25.1 percent of GDP for the budget spending under the medium-term fiscal plan, and the in 202411—reflect the vulnerability of the twin deficits to assumption of a contraction in investment spending to fluctuations in oil prices. These will be subject to sig- absorb the recent decline in oil prices. With the deple- nificant uncertainties in a context of trade tensions tion of the savings accumulated in the FRR, the deficit with effects on global demand, particularly from China, will generate significant financing issues, as the financ- weighing on oil prices. In addition, there are geopolitical ing gap is significantly higher than the usual amounts of Treasury bond issuances, with the exception of 11 These ratios are calculated by excluding hydrocarbon the 2017–2019 monetary financing programs and revenues from the respective totals (export revenues in the 2021–2022 special refinancing program. Financ- the case of the current account, and fiscal revenues in ing the deficit is expected to lead to a sharp increase the case of the budget balance). 10 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH BOX 1: THE 2025 BUDGET LAW The Finance Law for 2025 (LF 2025) revises the budget deficit upwards compared to the Finance Law for 2024, mainly due to an increase in expenditure. The 2025 Finance Act provides for a 9.9 percent increase in expenditure compared to the 2024 Finance Law, while budget revenues are expected to fall by 6.4 percent over the same period. This dynamic leads to an increase in the budget deficit until 2026, before a reduction expected in 2027. The economic framework adopted is based on assumptions of GDP growth of 4.5 percent in 2025 and 2026 and 3.7 percent in 2027, with a more marked increase in non-hydrocarbon GDP, of 5.1 percent on average. The benchmark price of oil is maintained at $60 per barrel for the period 2025–2027. The 2025 Finance Act includes several measures to support economic activity and investment. In particular, it provides for the issuance of sovereign sukuk, exempt from income tax, tax advantages specific to the regions of the South and to research and innovation expenditure. Start-ups and incubators benefit from exemptions from registration fees, while electronic payment terminals are exempt from VAT and customs duties. The capital of the National Investment Fund has been strengthened, and the Credit Guarantee Fund for Small and Medium-Sized Enterprises (Fonds de garantie des crédits aux petites et moyennes entreprises or FGAR) has been extended to all loans. The law also finances the interest on loans for rent-to-own housing, offers allowances for beneficiaries of the National Agency for Housing Improvement and Development (Agence nationale de l’amélioration et du développement du logement or AADL 3) program and facilitates access to consumer credit. Finally, it extends certain tax exemptions for food imports and applies a reduced customs rate for livestock and fresh meat. It suggests a gradual reform of the subsidy system in order to make it more targeted. uncertainties, particularly with regard to the situation in and opening up to international investment to benefit the Middle East. This context calls for a prudent fiscal from productivity spillovers and technology transfers strategy, based on a gradual rebalancing and a reduc- from foreign companies,12 would contribute to these tion in dependence on hydrocarbon revenues. objectives. Accelerating private sector investment and The continuation and deepening of ongo- productivity gains in the non-hydrocarbon sectors ing reform efforts should support the economic remain priorities. The risks associated with global transition. Recent legislative reforms—the 2022 hydrocarbon prices reinforce the importance of accel- investment law, the 2023 monetary and banking erating diversification by encouraging private sector and economic land laws, the formal accession to the investment, both domestic and international. Promot- African Continental Free Trade Area (AfCFTA), and ing productivity gains in the economy would also the investment facilitation measures of the Algerian make it possible to embark on a dynamic growth and Investment Promotion Agency (AAPI) such as the job creation trajectory that is less dependent on pub- establishment of a one-stop shop for investors and lic spending, the latter encouraging employment in the online search for economic land—are part of this less productive sectors, such as construction or pub- transformation dynamic. Strengthening these efforts lic administration. These productivity gains would be is key, including by ensuring that these arrange- particularly strong in the manufacturing and domes- ments translate into an effective improvement in the tic services sectors, which have recorded productivity business environment. Improving the quality of eco- gains below the international average (see Chapter 3). nomic data will also be an important lever to support Key reforms—such as restructuring state-owned enter- reforms, while reducing uncertainty. prises (SOEs), which are less productive than private sector firms, improving the business environment, 12 See World Development Report, 2024. Outlook and Risks 11 ACCELERATING 3 PRODUCTIVITY GAINS TO DIVERSIFY THE ALGERIAN ECONOMY Public Spending, Which Drove Over the past two decades, economic Growth in the 2000s, Has Slowed growth has been supported by capital accu- Down over the Last Decade mulation and the entry of new workers into the labor market, with a smaller contribution from Algeria’s model of state-led development resulted productivity improvements. In the 2000s, pub- in important economic and social achievements lic investment was the engine of growth and the during the 2000s. The Algerian public sector contribution of capital accumulation to growth was includes the public administration, a network of SOEs significant, before slowing down after 2008. Similarly, that account for nearly 40 percent of activity, a public labor force participation increased and unemploy- banking sector that accounts for 85 percent of credit ment fell in the 2000s, generating a strong labor to the economy, and an important social protection contribution to growth, before a slowdown under the sector. Notably, public spending maintains high levels backdrop of moderating labor force participation of employment and public investment, made possible and a slight rise in unemployment, accompany- by hydrocarbon export revenues representing nearly ing the slowdown in job creation. At the same time, 60 percent of budget revenues between 2000 and total factor productivity had a limited contribution in 2023. This spending boosted growth in the 2000s, 2004–2013, then a negative contribution during the and Algeria has made significant social gains and decade 2014–2023. managed to maintain low levels of inequality. The decline in revenues after 2014 con- Productivity Gains Have Been strained public spending, contributing to the Heterogeneous, Driven by slowdown in growth and job creation. Non- Agriculture and Construction hydrocarbon GDP growth remained above 6 percent per year between 2000 and 2014, before halving Labor productivity varies significantly by sector of between 2015 and 2019, weighed down by a major activity but remains lower for the public sector. fiscal consolidation effort that followed the fall in Measures of labor productivity like the value added global hydrocarbon prices in 2014–2015. Job cre- ation, which reached 3.2 million jobs in 2004–2013, 13 The analysis uses ILO data from 2020 onwards, due to fell to less than 1 million jobs in 2014–2023.13 the absence of available ONS series beyond 2019. 13 Over the past decade, growth and FIGURE 18 •  …while the contribution of FIGURE 19 •  job creation have slowed… productivity to potential GDP has been limited 6% 7% Growth and Contributions (%, percentage points) 5,9% 6% 5% 5% Average annual growth rate 5% 4% 4% 2,3% 3% 2% 2% 2% 1% 1% 0% 1% –1% 2004–2008 2009–2013 2014–2018 2019–2023 –2% 2004–2013 2014–2023 Non-hydrocarbon GDP growth Employment Growth TFP Labor Capital Potential NH Output Source: ONS, ILO, WB estimates. Note: The analysis uses ILO data from 2020 onwards, due to the unavailability of ONS Source: ONS, ILO, WB estimates. series beyond 2019. Note: TFP = total factor productivity. Labor productivity by sector of FIGURE 20 •  …and limited by that of SOEs, FIGURE 21 •  activity is heterogeneous… particularly in manufacturing Agriculture 59,973 Value Added Dinar per Dinar of Wage Paid 9.6% 9.7% Manufacturing 36,200 Sectoral Value Added (in constant USD, PPP) 7.4% Construction 41,326 5.8% 5.4% Low-VA services Trade and repair services 36,161 4.2% 3.8% 3.3% Accommodation 30,935 2.3% 2.3% and food services Financial and insurance 201,426 activities High-VA services Public Private Public Private Public Private Public Private Public Private Real estate and business 194,326 Agriculture Manufacture Construction Low-Value- High-Value- services Added Services Added Services Source: ONS, WB estimates. Transport and communication 92,058 Note: High-VA services exclude the financial sector, for which the public/private distinction does not exist in the national accounts. Data for the manufacturing sector are not rebased to exclude hydrocarbon processing. Productivity is measured per dinar Source: ONS, ILO, WB estimates. of wages paid, not per worker as shown in Figure 20, in the absence of employment Note: Here, labor productivity is measured as VA per worker, in constant dollars and in data disaggregated between the public and private sectors. Thus, this measure purchasing power parity (PPP). reflects the difference in value added, but also in wages, between sectors. (VA) per worker in each sector can be estimated for 14 The International Standard Industrial Classification, or Algeria.14 The productivity of high-VA services such ISIC, has been adopted by the ONS. This makes it possible as transport and communications, finance and insur- to link value-added (VA) data with sector-specific employ- ance, real estate and business services is two to three ment data, which the International Labor Organization times higher than in the rest of the sectors, and in (ILO) estimates on the basis of data published by the 14 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH particular trade, hotel and restaurant services15 as is faster VA increases than employment gains in most sec- also the case internationally. However, agricultural pro- tors, including construction and services, while in the ductivity is higher than that of the construction sector, agricultural sector, the increase was also accompanied which in turn is higher than that of the manufactur- by a sharp contraction in employment. ing sector, contrasting with international trends (see below). ONS data indicate that Algerian productivity The Growth Model Driven by Public is particularly weighed down by that of SOEs, mainly Spending Has Guided the Structure in the manufacturing sector, where SOEs account for of Employment, Weighing on 34 percent of production, compared to 18 percent in Productivity high-VA services, 16 percent in the construction sec- tor, and 7 percent in low-VA services. Growth driven by public spending has been accom- An analysis of productivity trends shows het- panied by a concentration of employment growth erogeneous productivity gains over the last twenty in non-commercial services and construction. years. For two decades, Algeria has experienced very Between 2004 and 2013, of the 3.7 million jobs created strong growth in its agricultural productivity, particularly outside the agricultural sector, those in the non-commer- marked between 2008 and 2018, which corresponds to cial services and construction sectors accounted for the years of implementation of the National Agricultural nearly two-thirds of the total, 1.6 million and 1.1 million, and Rural Development Program (PNDAR), after 2009.16 Similarly, productivity gains in the construction sector ONS. These indicators are now directly comparable have been high, while productivity gains in the manu- internationally. facturing and services sectors have been more limited, 15 Non-commercial services (public administration, edu- particularly in high-VA services. In addition, overall pro- cation, health, and other community and domestic ductivity has been weighed down by productivity in the services) are not presented here. 16 The PNDAR is a strategic government initiative to revi- hydrocarbon sector, due to a combination of the grow- talize agricultural production (FAO, 2013). This policy ing share of production consumed domestically and involved substantial public investment—about DZD 200 at subsidized prices, and lower prices on international to 300 billion per year—to support mechanization, irriga- markets. Overall, productivity gains were supported by tion, and rural infrastructure development. FIGURE 22  •  Productivity gains have been …and reinforced by the decline FIGURE 23 •  stronger in agriculture and in employment in the agricultural construction… sector 420 0.8 380 0.6 Growth of the Logarithm Labour productivity (2004=100) 340 0.4 of Productivity 300 0.2 260 0.0 220 180 –0.2 140 –0.4 Agriculture Manufacturing Construction Low Value- Added Services High Value- Added Services Total Excl. Extractive 100 60 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 VA Contribution Employment Contribution Agriculture Manufacturing Construction Low-VA Services High-VA Services Source: ONS, ILO and WB estimates. Total Excl. Hydrocarbon Note: Relative contributions of VA and employment to productivity growth between 2004 and 2023, using a logarithmic decomposition. Employment growth contributes Source: ONS, ILO and WB estimates. negatively to productivity growth. Accelerating Productivity Gains to Diversify the Algerian Economy 15 respectively.17 The rest were in low-VA services (19 per- 69 percent, while that of agricultural employment fell cent) and the manufacturing sector (14 percent), com- by more than half, and the share of manufacturing pared to 4 percent for high-VA services. In the following and high-VA services employment stagnated. decade, during the fiscal consolidation effort, employ- ment growth declined to 0.9 million, but it is well known that the sector that contributed the most to employment International Comparison growth was the high-VA services sector (30 percent), Offers Avenues for Accelerating where job creation almost doubled, from 134,000 in Productivity and Diversifying the 2004–2013 to 255,000 in 2014–2023. Among resource- Algerian Economy rich countries whose economies and level of develop- From an international perspective, the potential ment are comparable to Algeria’s, the concentration of for productivity growth is highest in the manu- job creation in domestic services (combining non-com- facturing and services sectors. In the agricultural mercial and low-VA services) and construction is also sector, productivity growth was more than twice as visible. However, these have more marked employment fast in Algeria as in low- and middle-income countries growth in high-VA services and, unlike Algeria since (LMICs) between 2003 and 2023, which explains why 2010, have seen growth in agricultural and manufactur- the sector’s productivity is comparatively higher than ing employment. in these countries. This is also true for the productiv- In doing so, employment has shifted to low- ity of the construction sector, which is also twice as productivity sectors, affecting overall productivity. fast as in LMICs. Conversely, productivity growth in As the non-commercial services, low-VA services and the low-VA manufacturing and services sectors has construction sectors have lower labor productivity been significantly more limited than in LMICs, which than that of the agricultural sector or high-VA ser- explains why these sectors are comparatively less vices, the reorientation of employment towards these sectors has constrained Algerian productivity growth. Between 2003 and 2023, the share of these three 17 The former reacts directly to hiring in the public sector, sectors in employment increased from 58 percent to while the latter is driven by the public capital budget. FIGURE 24 •  In Algeria, employment growth was …even more so than in other FIGURE 25 •  concentrated in non-commercial resource-rich countries services and construction… 100% 40% 80% Composition of net job creation 35% Employment growth by sector (%) 30% 60% 25% 20% 40% 15% 20% 10% 5% 0% 0% –5% –20% Algeria Resource-rich Algeria Resource-rich –10% countries countries 2004–2008 2009–2013 2014–2018 2019–2023 2000–10 2010–22 Agriculture Manufacturing Agriculture Manufacturing Construction Construction Non-Commercial Services Domestiques Services High VA Services Extractives Low-Value-Added Services High-Value-Added Services Public Services Extractives Public Services Source: ILO and WB estimates. Source: ILO, ONS and WB estimates. Note: The resource-rich countries used are Angola, Azerbaijan, Ecuador, Iran, Iraq, Note: The analysis uses ILO data from 2020 onwards, due to the unavailability of ONS Kazakhstan and Uzbekistan. Domestic services include non-commercial services and series beyond 2019. low-VA services. 16 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH Algerian employment has gradually FIGURE 26 •  …being disconnected from FIGURE 27 •  become concentrated in low-cost variations in productivity sectors… 0.08 0.07 Change in productivity, 2004–2023 Share of total employment by sector (%) 0.06 9% 9% 0.05 15% 18% 0.04 31% 0.03 34% 0.02 12% 0.01 10% 17% 0 22% 11% 9% –0.01 Change in employment, 2004–2023 2003 2023 Agriculture Manufacturing Agriculture Manufacturing Construction Non-Market Services Construction Non-Commercial Services Low-Value-Added Services High-Value-Added Services Low-VA Services High-VA Services Extractives Industries Public Services Extractives Public Services Source: ONS, ILO, and WB estimates. Source: ILO. Note: The size of the bubbles corresponds to the number of jobs in the sector. In an international comparison, FIGURE 28 •  …which partly explains the relative FIGURE 29 •  productivity performance is mixed… differences in sectoral productivity to Labor Productivity in the Construction Sector 7.5% Labor Productivity by Sector, Relative 2.9 Annualized Productivity Growth 2.5 by Sector (%), 2004–2023 2.3 4.8% 4.2% 1.7 3.9% 1.5 1.5 3.0% 2.9% 1.0 1.0 1.0 1.0 0.9 0.9 2.1% 0.6 0.6 0.5 1.3% 1.5% 1.4% Agriculture Manufacturing Construction Domestic High VA Services Services Algeria LMIC Algeria LMIC Algeria LMIC Algeria LMIC Algeria LMIC Agriculture Construction Manufacturing Low-VA Services High-VA Services Algeria Upper-Middle-Income Countries High-Income Countries Source: ONS, ILO, and WB estimates. Source: ONS, ILO, and WB estimates. Note: Domestic services here include low-VA services and non-commercial services, Note: Domestic services here include VA-based services and non-commercial services, depending on data availability. depending on the availability of data. productive—and therefore have greater potential for more in domestic services. In a context where the growth catch-up and growth. of public expenditure on the wage bill and investment Finally, the reallocation of employment can no longer be the engine of growth, this employ- towards high-VA sectors would allow productivity ment structure is bound to evolve. Conversely, Algeria gains and a more sustainable growth trajectory. has half as much employment in high-VA services, a Compared to similar countries, but with a higher GDP per third less in the manufacturing sector, and 2 percent- capita, Algerian employment is concentrated in low-pro- age points less in the agricultural sector, even though ductivity sectors, with double the share of employment in the latter is comparatively more productive in Algeria. the construction sector, and nearly 7 percentage points A gradual reallocation of employment to these sectors Accelerating Productivity Gains to Diversify the Algerian Economy 17 would support a growth trajectory that is less dependent undergone dynamic growth and sustained structural on public spending and therefore more sustainable. transformation could inform Algeria’s efforts. All in all, comparative analysis offers ave- FIGURE 30 • The employment structure of peer nues for reflection to accelerate the growth and countries suggests avenues for diversification of the Algerian economy. In the agri- structural transformation cultural sector, expanded production would make it possible to take advantage of comparatively high 9.3 11.5 12.9 17.9 Sectoral employment distribution (%) productivity, while enhancing food security. In the manu- facturing sector, an increase in output is expected to go hand in hand with a marked acceleration in productivity, 50.6 47.6 41 43.8 especially in SOEs. The low-productivity construction and non-commercial services sectors, are expected to 6.6 account for a smaller share of employment, in line with 12.8 11.8 8.4 17 the announced budgetary consolidation efforts. Pro- 11.7 15.1 ductivity growth in low-VA services also appears to be a 10.4 23.6 9.3 14.5 11.4 priority, while the expansion of the high-VA services sec- DZA MENA Non-MENA Targets tor would lead to major productivity gains and would be Agriculture Manufacturing Construction accompanied by the creation of skilled and well-paid Domestic Services High-VA Services Extractives jobs. Such a structural transformation of the economy Public Services would require targeted cross-cutting and sectoral poli- Source: ILO and WB estimates. cies to support growth and job creation in the private Note: Low VA services here include non-commercial services. The comparator countries in the MENA region used are Egypt, Iraq, Jordan, Morocco and Tunisia. Non-MENA sector, while equipping Algerian workers with the nec- comparator countries include Uzbekistan, Ecuador, Peru, Ghana, Vietnam and Colombia. essary skills. The experience of countries that have The selected target countries are Chile, Kazakhstan, Malaysia, Poland, Romania and Turkey. BOX 2: THE GROWTH TRAJECTORY OF THREE HIGH-PERFORMING COUNTRIES The experience of countries that have experienced growth dynamics and sustained structural transformation can inform Algeria’s efforts. Turkey, Romania and Kazakhstan are the only three countries with more than 10 million inhabitants that 1) had a GDP per capita similar to that of Algeria twenty years ago, and 2) have experienced an average annual growth of more than 3 percent of GDP over the last twenty years. In addition, they have in common with Algeria certain structural economic characteristics: proximity to the European market (Turkey and Romania), a state-centered socialist heritage (Romania and Kazakhstan), and a growth model driven by hydrocarbons and mineral resources (Kazakhstan). The strong growth momentum of these three countries was driven by an acceleration in productivity and private investment, both domestic and foreign. Their total factor productivity growth has been very rapid, between 2 and 4 percent per year. This acceleration was driven by increased investment, primarily from the private sector and especially from foreign firms, whose presence supported the transfer and diffusion of productive technologies across the economy, a key mechanism underpinning the emergence of middle-income countries (World Development Report, 2024). Indeed, these countries have an investment-to-GDP ratio much lower than that of Algeria over the last decade (24 percent of GDP, compared to 38 percent), with a ratio of public investment to GDP two to three times lower but they have an FDI-to-GDP ratio more than five times higher (2.6 percent, compared to 0.5 percent). The acceleration in growth has been accompanied by a marked increase in employment in high-value-added sectors, and the participation of women in the labor market. In these three countries, a 20 percentage point decline in the share of agricultural employment in total employment was primarily accompanied by a near doubling of the share of employment in high value-added services (from 8.9 percent to 16.3 percent of employment), mainly in business services (+4pp), and in transport and communication (+3pp). Labor force participation has increased, with that of women (+9.9pp) faster than that of men (+5.4pp). In Turkey, women’s participation in the labor market has increased from 24.9 percent in 2004 to 40.7 percent in 2023. These countries have in common the implementation of a coherent set of policies to support investment, productivity gains and growth. They have strengthened their macroeconomic framework, particularly fiscal and monetary, have promoted the entry of FDI and its integration into global value chains, contributing to productivity gains, and have invested in human capital in order to support the upgrading of the economy. They have also implemented targeted sectoral policies aimed at strengthening governance, greater competition, business creation and productivity improvements. In Kazakhstan, for example, productivity growth was driven by growth in the mining sector, supported by the massive inflow of FDI, with knock-on effects on transport, storage, and the manufacturing sector. 18 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH TABLE OF INDICATORS 2021 2022 2023 2024 2025f 2026f 2027f Output and prices (In percent, unless otherwise indicated) Real GDP 3.8 3.6 4.1 3.6 3.3 3.2 2.9 Non-hydrocarbon 2.5 4.4 4.2 4.8 3.6 3.3 3.1 Hydrocarbon 17.1 -0.2 3.6 -1.4 1.6 2.4 1.4 Real GDP per capita 2.1 2.0 2.6 2.2 2.0 1.9 1.7 Consumer price index (period average) 7.2 9.3 9.3 4.0 4.2 4.1 4.1 GDP (in billions of USD) 186.2 225.6 247.6 267.0 269.9 283.8 298.6 GDP per capita (Real 2015 USD) 4456.7 4544.5 4660.4 4761.1 4854.8 4948.7 5030.9 Crude oil production (thousand barrels per day) 908.4 1016.2 977.1 909.8 929.0 982.9 1007.0 Natural gas production (billions of m3) 102.8 99.2 104.9 98.4 99.1 99.3 99.5 External sector (In percent of GDP, unless otherwise indicated) Current account -2.4 8.6 2.6 -1.7 -6.6 -5.2 -5.0 Trade balance -1.3 10.0 3.4 -1.0 -5.9 -4.5 -4.4 Exports of goods and services 22.5 30.7 24.0 20.0 15.8 16.6 16.5 Hydrocarbon exports 18.3 26.5 20.4 16.9 12.4 13.2 13.1 Nonhydrocarbon exports 4.2 4.2 3.6 3.0 3.4 3.4 3.4 Imports of goods and services 23.8 20.7 20.6 21.0 21.7 21.1 20.8 Gross official reserves (months of imports) 11.2 14.6 15.2 13.6 Exchange rate (Algerian dinar per USD; period average) 135.1 142.0 135.8 134.1 133.9 137.7 139.5 Sahara Blend export price (USD/barrel) 72.3 103.8 83.5 81.7 Central Government Finance (In percent of GDP, unless otherwise indicated) Government revenue and grants 26.2 29.7 31.9 23.2 22.9 23.4 23.3 Hydrocarbon revenuea 10.4 17.7 19.1 11.2 9.9 10.5 10.5 Non-hydrocarbon revenue 15.9 12.1 12.8 12.0 13.0 12.9 12.8 Expenditures 32.5 32.7 37.4 37.1 37.4 36.3 35.1 Current expenditures 21.9 24.9 27.5 27.7 28.9 28.2 27.2 Capital expenditures 7.7 6.1 8.6 9.3 8.0 7.4 7.0 Special Account Balance and Treasury Interventions 3.0 1.7 1.3 0.1 0.5 0.8 1.0 Overall budget balanceb -6.3 -3.0 -5.5 -13.9 -14.5 -12.9 -11.8 Primary overall budget balance -5.7 -1.8 -4.3 -12.8 -13.3 -11.5 -10.2 Non-hydrocarbon overall budget balance -16.7 -20.7 -24.6 -25.1 -24.4 -23.4 -22.3 Total central Government debt 55.2 48.1 47.7 48.5 59.8 65.7 71.0 Domestic debt 54.6 47.6 47.3 48.2 59.5 65.5 70.9 External debt 0.6 0.4 0.4 0.3 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. Note: Forecast as of April 10, 2025. Accelerating Productivity Gains to Diversify the Algerian Economy 19 ANNEX 1: RECENT SPECIAL SECTIONS OF THE ALGERIA ECONOMIC UPDATE Fall 2024: “Towards a Holistic geographical levels. Satellite data are available with a Framework to Support Exports.” short lag and are highly disaggregated across time and space. By estimating the relationship between Exports of non-hydrocarbon goods accounted for these alternative data and national accounts over 2 percent of GDP in 2023, after tripling since 2017. the past years, they can help produce timely and These exports are concentrated in a limited num- geographically disaggregated output estimates. ber of products, such as fertilisers, steel products Nightlights data reliably estimate hydrocarbon and and cement, as well as in a few partner markets. nonhydrocarbon GDP. Satellite-based weather and A significant part of these exports is based on sub- vegetation data can be used to estimate agricultural sidized inputs. Algeria’s geographical proximity to production. Data on vessels and their cargo arriving the European Union is a logistical advantage for the and departing from ports capture imports and exports development of new outlets. The productivity of public in a timely manner. and private companies, trade policies, the business climate and the exchange rate influence export per- Fall 2023: “Analysis of Algeria’s formance. Access to international markets is also public finances.” linked to the evolution of environmental standards, in particular the Carbon Border Adjustment Mechanism Algeria’s public finances have been highly respon- (CBAM) set up by the European Union. These factors sive to oil and gas prices over the past two decades, make it possible to identify the margins for action to with their fall leading to increases in the budget def- support the growth of non-hydrocarbon exports. icit. After a large budget surplus between 2000 and 2008, it turned into a small budget deficit after the fall Spring 2024: “Tracking Economic in oil prices during the 2009 recession, which wid- Developments with Alternative Data ened after the collapse of oil prices in 2014–2015. Sources.” The funds accumulated in the Revenue Regulation Fund were almost depleted in 2017, which coincided New developments in big data research enable imme- with a sharp increase in public debt under the 2017– diate monitoring of economic trends at disaggregated 2019 monetary financing program, amounting to 21 32 percent of 2019 GDP, and the 2021–2022 special Spring 2022: “Does Algeria benefit refinancing program. In 2022, public debt levels fell from rising gas prices?” for the first time in a decade, as oil and gas prices rose and the budget deficit narrowed significantly. The export prices of the Algerian natural gas price fol- low a distinct dynamic from the reference gas prices on international markets. Thus, while the reference price Fall 2022: “Estimating economic of Henry Hub gas gained nearly 50 percent between activity from nightlights data.” Q2 and Q3-2021, the export price of Algerian natu- ral gas increased by only 0.5 percent over the same Night-time lighting data is now a commonly used tool to period. Indeed, these prices are established contrac- assess economic activity. Since 2012, satellite data have tually, sometimes over the long term, and on the basis been available daily and are publicly available on the of bilateral negotiations with buyers. In addition, an Group on Earth Observations website. For Algeria, the econometric modelling exercise has established that empirical link between night lighting data and economic the export price of Algerian natural gas is character- activity is strong, both for oil production (geolocated by ized by high inertia, as well as a delayed peg to the gas flaring sites), gas production, and non-hydrocar- price of oil. The model presented explains 88 percent bon activity. The strong correlation between night-time of the variation in the price of exported natural gas. lighting and non-hydrocarbon activity makes it possible to use these data to estimate the recent level of eco- nomic activity, and to produce spatialized estimates, Spring 2022: “The impact of in terms of the level and dynamics of activity, useful in macroeconomic factors on inflation the context of sectoral or local development analyses. in Algeria.” Inflation is on the rise in 2021 and 2022, both globally Fall 2022: “Estimation of the fiscal and in Algeria, but the underlying causes vary by coun- multipliers in Algeria.” try. In Algeria, the price increase that began in 2021 was driven by the rise in food products. In addition, a model- The marked increase in public spending in 2022 ling of the consumer price index since 2009 shows that raises the question of its effects on economic activ- it is characterized by strong short-term inertia but that ity. The propensity of public spending to support the depreciation of the dinar, the increase in the price economic activity and generate additional economic of imported products, the increase in public spending activity is captured by the public expenditure multiplier. and the increase in the currency in circulation explain An analysis conducted on Algerian quarterly data more than 40 percent of the variation in the CPI after 2 since 2000 finds a weak multiplier effect of Algerian years. In addition, the importance of these factors var- public spending on GDP, in particular caused by the ies according to the categories of goods and services, effect of an increase on the deterioration of the trade reflecting in particular the intensity of imports of these balance, resulting from its impact on imports. The products and the characteristics of the Algerian market knock-on effect of spending on private consumption both in terms of production and distribution. is observed but it is limited, while the analysis finds a more marked effect of public spending on the con- struction sector and non-market services seem. 22 ALGERIA ECONOMIC UPDATE – ACCELERATING PRODUCTIVITY GAINS FOR DIVERSIFIED AND RESILIENT GROWTH BIBLIOGRAPHY Algeria Press Service • “Economic land: AAPI launches an online service for the submission and management of applica- • “Taxes: a digital platform for the payment of tax tions.” (February 8, 2024). https://www.aps.dz/ec​ stamp duties.” (August 8, 2024). https://www.aps​ onomie/166444 .dz/economie/174439-impots-une-plateforme-nu​ • “President of the Republic: forthcoming creation merique-pour-le-paiement-des-droits-de-timbres-fi​ of the High Commission for Digitization.” (August scaux 6, 2023). https://www.aps.dz/sante-science-tech​ • “Algeria-Italy: Signature of a framework agreement nologie/159073 for the realization of a project for the production of cereals and legumes in Timimoun.” (July 6, 2024). 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