Country Report Algeria May 2009

Outlook for 2009-10

• The president, Abdelaziz Bouteflika, will remain in power in 2009-10 after securing a third term in the presidential election in April, following several amendments to the constitution approved by parliament in November.
• Armed Islamist groups will continue to pose a threat to general security, following a number of bomb attacks over the past three years, but they do not constitute a fundamental risk to political stability.
• Fiscal policy will remain strongly expansionary. Reduced oil and gas revenue, owing to lower hydrocarbons prices, will lead to the central government budget posting a deficit in both 2009 and 2010.
• Domestic demand will remain robust, but an expected slowdown in investment and export growth will push GDP growth down to 2.5% in 2009. However, it is forecast to recover to 4.1% in 2010 as oil output rises.
• The Algerian dinar is likely to depreciate on average against the US dollar in 2009, before recovering slightly in 2010. Against the euro, the dinar is forecast to depreciate gently in 2009 and 2010.
• In 2009-10 lower oil and gas prices will lead to a sharp contraction in the trade surplus, to around US$14bn from US$39.1bn in 2008. This will result in a concomitant narrowing of the current-account surplus.

Monthly review

• Despite campaign pledges to rejuvenate and "feminise" the cabinet, only one change was made after the elections, although the government suggested that a proper reshuffle had been postponed rather than cancelled.
• A new party, the Mouvement pour la predication et le changement, has broken off from the moderate Islamist Mouvement de la societe pour la paix, prompting its leader, Bouguerra Soltani, to request to be excused from cabinet.
• Protests over the economic situation broke out in the east of Algeria as unemployed youths expressed dissatisfaction with the lack of jobs.
• The finance minister has announced that requirements for foreign companies to cede 30% of their capital to local companies will only apply to new ventures. Fifteen companies have shown interest in the Tiaret refinery project.
• High domestic food prices continue to underpin persistent high inflation, which rose to 6.3% year on year in February, despite steep falls in international commodity prices since mid-2008.
• Algeria's trade surplus has contracted dramatically as a result of lower oil and gas prices and a higher import bill. Italy has also overtaken the US as the lead importer of Algerian goods.