GDP growth is expected to slow down to about 1.5% in 2017 and 2018, as lower revenues from oil and gas exports negatively impact government investments.
Political situation
Head of state: President Abdelaziz Bouteflika (since 28 April 1999)
Form of government: Democratically elected government, but military has strong political influence.
Population: 41.1 million (est.)
Currently stable situation, but risks remain
In Algeria, political power rests mainly with President Bouteflika, who is widely credited with restoring peace to the country after a year-long civil war between the government and militant Islamists in the 1990s. However, President Bouteflika is now 80 years old and not in particularly good health. There is no obvious successor at hand and it cannot be ruled out that tensions within the political elite could increase if Bouteflika unexpectedly steps down.
The National Assembly still has limited powers despite recent constitutional amendments to improve transparency and to strengthen democratic elements. In the general elections held in May 2017, the ruling coalition retained its majority, but turnout was just over 38%, reflecting widespread disinterest and even disillusion among voters due to endemic cronyism, high unemployment, lack of affordable housing and rising living costs. The internal security situation remains stable for the time being, but the shortcomings and limited success of the government to diversify the economy have increased the risk of social unrest, especially among younger people. At the same time, the risk of terrorist attacks has increased due to on-going political turmoil in neighbouring Libya and Mali.
Economic situation
Public and external finances continue to deteriorate
Algeria’s economy is underpinned by the oil and gas sector, which accounts for more than 95% of export revenues. GDP growth is expected to slow down to 1.5% in 2017 and 1.7% in 2018, as revenues from oil and gas exports have fallen by nearly 50% since 2014, negatively impacting government investments (revenues from energy exports account for 60% of government budget), private consumption, foreign direct investment and external finances.
Algeria’s annual budget deficits have increased sharply, from 0.4% of GDP in 2013 to 15.6% of GDP in 2016. In order to trim the high deficits the government has suspended some infrastructure projects, started to cut subsidies on fuel and electricity and increased taxes. This, together with import restrictions, has led to rising consumer prices and decreasing household purchasing power.
The current account deficit increased to 17% of GDP in 2016, and is expected to remain high in 2017 and 2018 (about 10% of GDP). So far, the annual deficits have been financed by drawing from foreign reserves, but also by a modest increase in borrowing. Running a deficit seems to be manageable in the short-term as both government debt and foreign debt are still low. While foreign reserves remains at a comfortable level, they have rapidly decreased from USD 196 billion in 2014 to USD 114 billion in 2016. If the oil price remains subdued for a longer time, the Algerian government would be forced to reduce its spending much more. However, further tackling the vast welfare system remains sensitive, given the potential for social unrest.
In order to ensure prosperity and stability in the long-term, the authorities would have to accelerate their current rate of economic diversification. But government intervention (it is estimated that 90% of Algeria’s GDP is still controlled by the state), red tape and corruption still hamper private enterprise initiatives and foreign investment.
