IMF - International Monetary Fund
IMF - International Monetary Fund
09/18/2025 | Press release | Distributed by Public on 09/18/2025 10:52
IMF Executive Board Concludes 2025 Article IV Consultation with Algeria
September 18, 2025
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation for Algeria.[1] The Executive Board's decision was taken on a lapse-of-time basis. [2]
- Algeria's economy has shown strong recovery since the pandemic, driven by elevated hydrocarbon prices and increased public spending.
- The near-term outlook remains broadly positive, but urgent policy adjustment is needed.
- Medium-term economic prospects will depend on global trends and the pace of domestic reforms aimed at promoting diversification and strengthening private investment.
Real GDP eased to 3.6 percent in 2024 from 4.1 percent in 2023, as OPEC+ cuts led to a contraction in the hydrocarbons sector, while nonhydrocarbon activity remained strong, supported by public investment and consumed demand. Inflationary pressures-fueled by global shocks like the war in Ukraine and recurring droughts-eased significantly in 2024, with inflation falling largely due to lower food prices. Declining hydrocarbon revenues combined with increased public spending significantly widened the fiscal deficit and depleted available fiscal buffers. The drop in energy exports and increased imports reversed the current account surplus into a modest deficit. The Dinar appreciated against the euro but weakened against the dollar. Reserves remained strong.
Easing of OPEC+ production cuts is expected to stabilize hydrocarbon activity, supporting 3.4 percent growth in 2025. Declining hydrocarbon prices and global uncertainty weigh on prospects and could constrain public investment and exports and put pressure on fiscal revenues. Inflation is expected to remain moderate. The fiscal deficit is expected to decline compared to 2024 but to remain elevated without strong policy action. The current account deficit is projected to widen further.
Key external risks include volatile commodity prices, shifts in global trade policy, and escalating conflicts in the Middle East or Ukraine. Other downside risks include extreme climate events, large contingent liabilities, and high financing needs that could pose risks to fiscal and debt sustainability and intensify the sovereign-bank nexus. On the upside, successful policy adjustment and structural reforms could reduce the fiscal deficit, support export diversification, improve the business climate, and deepen financial markets.
Executive Board Assessment[3]
Algeria's economic prospects for the near term are broadly positive but clouded by growing fiscal vulnerabilities. The 2024 fiscal impulse supported growth into 2025 but, alongside falling hydrocarbon prices, led to a wider fiscal deficit and depleted fiscal buffers. Headline inflation eased in 2024 and is expected to remain moderate. The current account reversed to a deficit in 2024, projected to widen in 2025-26 before narrowing. Over the medium-term, growth is expected to slow due to moderating hydrocarbon output, financing constraints capping spending, and structural bottlenecks inhibiting private sector growth.
With the fiscal buffers depleted, large fiscal deficits pose significant financing and debt challenges, warranting urgent policy adjustment. Double-digit fiscal deficits projected for 2025-26 risk straining the banking sector and crowding out private sector credit, increasing the risk of recourse to unconventional monetary financing schemes. Absent concerted policy adjustment, large financing needs and deficits would significantly increase public debt over the medium term. The sharp deterioration of the fiscal situation in 2024 has heightened near-term risks and increased Algeria's overall risk of sovereign stress to "high" based on the SR-DSA.
Stabilizing the debt trajectory by 2028 will require immediate and more ambitious fiscal consolidation. Staff analysis suggests that stabilizing public debt by 2028 would require additional fiscal consolidation measures of 5 percent of GDP over 2025-28 relative to the baseline. Looking ahead, consistent with past advice, adoption of a rules-based framework with a fiscal anchor to guide medium-term fiscal projections would make the budget more resilient to future shocks.
Ensuring medium-term fiscal sustainability will require reforms to rationalize inefficient spending, boost nonhydrocarbon revenue, and strengthen public financial and investment management. Energy subsidy reform could yield substantial additional annual revenues over the medium-term, creating space for better targeted spending. Closing the nonhydrocarbon tax gap, estimated at of 2-4 percent of GDP, offers further revenue potential. The authorities have made progress in tax collection through digitalization, improved PFM through program budgeting, and advanced procurement transparency with the new Procurement Law expected in 2025. Staff recommends advancing tax policy reform guided by a Medium-Term Revenue Strategy, incorporating a credible financing plan in the budget to strengthen cash management, and strengthening SOE oversight and governance to mitigate fiscal risks.
With inflation receding, the current accommodative monetary policy stance to counter tight banking sector liquidity is adequate. Going forward, the BA should continue vigilant monitoring of banks' liquidity, actual and expected inflation developments, and use all available tools to attain price stability. It should also refrain from any monetary financing, whether direct or indirect. Clearly establishing price stability as the primary objective of monetary policy in the MBL and identifying a nominal anchor would help anchor expectations, credibility and transparency.
Enhanced exchange rate flexibility would facilitate its role as an automatic stabilizer. In the context of heightened uncertainty and commodity price volatility, increased exchange rate flexibility would enhance the economy's ability to absorb shocks. It would also support efforts to diversify the economy, promoting nonhydrocarbon exports, and strengthening the monetary policy effectiveness. Widening the BA's official daily buy/sell nominal exchange rate band would be a first step. Measures to reduce the parallel market premium, such as increasing the foreign exchange allowance for travel, should be prioritized.
Vigilant enforcement of financial sector regulatory requirements would help secure macro-financial stability. The BA has made considerable progress in risk-based supervision, crisis management, and ensuring independent operation of supervisory entities. Continued vigilance is critical, particularly given risks from entrenched interlinkages between the government, SOBs, and SOEs. The authorities have demonstrated noteworthy commitment to addressing AML-CFT deficiencies identified by FATF and should complete remaining recommendations to facilitate exit from the list of jurisdictions under enhanced monitoring.
Initiatives to improve the business climate, boost private sector development, and diversify the economy are critical to realizing Algeria's full potential. The 2022-23 Investment and Land Laws, along with the launch of a one-stop digital platform are important steps toward easing red tape and promoting private investment. Nonetheless, deeper product and labor market reforms to enhance flexibility and limit price distortions, are needed to level the playing field, enhance competition, and spur innovation. Expanding and strengthening regional trade is also vital, amid growing geoeconomic fragmentation risks.
Recent reforms to strengthen governance and reduce vulnerabilities to corruption are commendable and should continue. The July 2023 national strategy to prevent and counter corruption, June 2023 new MBL, new Procurement Law, creation of a centralized beneficial ownership registry, and digitalization initiatives to enhance fiscal monitoring and revenue collection are important steps. Going forward, the authorities should redouble efforts to increase transparency, especially in the hydrocarbon and SOE sectors.
Improving the coverage, timeliness and quality of statistics would better inform policy making. While data provision remains broadly adequate, some gaps remain. The IMF stands ready to offer technical assistance to support ongoing improvements.
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Algeria: Selected Macroeconomic Indicators, 2020-30 |
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Sources: Algerian authorities; and IMF staff estimates and projections. 1/ Including public enterprises. 2/ In U.S. dollars unless otherwise indicated. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent.
[3] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
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