By NBE

Copyright newbusinessethiopia

Energy exports drop, increased imports turn Algeria’s current account to deficit
The drop in energy exports and increased imports reversed the current account surplus into a modest deficit, the International Monetary Fund (IMF) said.

“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,” the IMF stated today in its press statement.

“…Declining hydrocarbon revenues combined with increased public spending significantly widened the fiscal deficit and depleted available fiscal buffers…The Dinar appreciated against the euro but weakened against the dollar. Reserves remained strong.”

“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,” it said.

It also stated that 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,” it said.

“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,” IMF said.

The IMF suggested that 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,” the IMF said.