Country Forecast Algeria May 2018 Updater

Country Forecast Algeria May 2018 Updater

  • May 2018 •
  • Report ID: 2555511 •
  • Format: PDF


  • The political outlook is uncertain, given the fragile health of the president, Abdelaziz Bouteflika, who looks increasingly likely to seek a fifth term in office in the 2019 election. The lack of clarity over the country's political future and tensions over who will eventually succeed him will undermine political stability. If Mr Bouteflika steps down or dies, The Economist Intelligence Unit expects someone within the current power structure to replace him, thus ensuring a degree of continuity.
  • Security risks will remain an issue, as a long-running Islamist insurgency is still active inside Algeria despite the military's efforts to eradicate it. Insecurity in the subregion also means that the risk of crossborder terrorist infiltration and attack remains high.
  • The policy stance will be inconsistent, mixing economic nationalism and protectionism with more pro-market reforms aimed at spurring non-oil private-sector growth. Overall, progress on private-sector development will be slow.
  • Foreign companies will continue to find the operating environment difficult as government policy towards the private sector remains inconsistent and the government maintains restrictive rules on imports, foreign investment and foreign ownership, and puts strict conditions on local employment for investment projects. Security and regulatory risks will deter many investors.
  • Reliance on hydrocarbons poses structural risks to the economy. The government will attempt to diversify the economy by supporting the domestic private sector and financial services, but the state's influence will remain strong. Government borrowing will also crowd out private-sector investment.
  • We expect average oil prices to remain subdued in 2018-22, albeit higher than in 2015-17. Spending pressures remain high, and the government will continue to record large (albeit narrowing) fiscal deficits. The shortfalls will be manageable, but Algeria's public debt burden (currently low) will rise as a result.
  • We expect real GDP growth to average 3% a year in 2018-22. Little new oil is expected to come on stream during the forecast period, but natural gas production will rise, providing some support to overall GDP growth.
  • The current-account deficit will narrow steadily over the forecast period, but will remain large even in 2022. Given relatively low capital inflows, international reserves will continue to drop sharply.


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