Growth resilient, but imbalances soar
With the hydrocarbon sector generating more than 95% of exports and about 60% of government revenue, the Algerian economy has been hard hit. Even so, it continues to report satisfying performances in terms of growth. In 2015, GDP growth stabilised at 3.8%. With the exception of the United Arab Emirates (UAE), this was the best performance among oil producing countries in the region. Most importantly, the economy has not shown any tangible signs of slowing down. In the first 6 months of 2016, growth is likely to reach 3.6%, supported among other factors by the renewed momentum of the hydrocarbon sector (+3.2%) after virtually stagnating in 2015 (+0.6%) following an uninterrupted decline from 2006 to 2014. Excluding the hydrocarbon sector, growth slowed to 3.8% in H1 2016 from 5.7% in Q4 2015, but this was mainly due to poor weather conditions which affect the agricultural sector (12% of GDP). In the construction and services sectors, two pillars of the economy, the slowdown should be much less severe, which partly explains the unexpected decline in the official unemployment rate, from 11.2% in September 2015 to 9.9% in April. In any case, we are a far cry from the troubles predicted in mid-2015, even though H2 risks being less buoyant due to the rise in inflation, which has culminated around 8% recently, vs. 5% earlier in the year.
Yet this resilience comes at a cost. The budget deficit has more than doubled in 2015, to 16.2% of GDP, under the combined impact of a record volume of public spending (46% of GDP, up 6 points compared to 2014) and the contraction of fiscal revenues by a little over 10%. At the end of June 2016, the Treasury reported an overall deficit equivalent to 50% of the 2015 deficit and to 70% of the 2016 financing bill. In other words, the dynamics of public finances has not changed, at least for the moment, despite government commitments to cutback spending by 9%. At the same time, three quarters of the H1 deficit was funded by the oil stabilisation fund: DZD 1,333 bn was withdrawn from a stock of DZD 2,151 bn at yearend 2015. Legally, the oil stabilization fund cannot drop below a floor of DZD 740 bn, which suggests that available fiscal reserves will be totally depleted by the end of the year.
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by Stéphane ALBY