Note the IMF on Algeria: The economy weakened by falling prices … – El Watan

 The IMF notes that the exports are not sufficiently diversified and FDI is hampered by restrictions on ownership.

 The IMF takes stock of rather negative places of the Algerian economy whose vulnerabilities, he believes, are likely to increase with the oil price decline. Note devoted to Algeria at the end of the consultations conducted under Article IV, notes that despite the increased economic activity, the new lower inflation and scope for maneuver the country, “increasing vulnerability” are found “in a context of falling oil prices.”

 The IMF mentions “a deterioration in the fiscal position and the current account balance and a reduction in budgetary savings and foreign exchange reserves.” He advocates “rapidly take steps to preserve macroeconomic stability, complementing them with far-reaching reforms to diversify the economy, improve competitiveness and promote inclusive growth and job creation.”

 It also highlights the need to improve the access of small and medium enterprises in the financial sector and to address existing gaps in the framework of the fight against money laundering and terrorist financing. The Bretton Woods institution notes that “for the first time in nearly 15 years, the current account is expected to result in a deficit. In the medium term, the deficits are likely to widen, as strong domestic consumption of oil and oil prices decline are unfavorable to exports, while imports, driven by government spending continues to rise. “

 The IMF also notes that “exports are not sufficiently diversified and FDI is hampered by restrictions on ownership.” That said, the IMF estimates that “Algeria continues to have significant leeway on external and fiscal plans” while focusing on “threats to macroeconomic stability.”

  Budget deficit to over 7%

 According to the note of the IMF, “the budget deficit is expected to widen to more than 7% due to lower hydrocarbon revenues, the net increase in capital spending and continued strong current expenditure. The non-hydrocarbon revenues are below their potential, payroll is high, and subsidies and transfers are expensive, accounting for about 26% of GDP. The budget savings should fall for the second consecutive year. “

 The IMF stressed that “Algeria has certainly macroeconomic stability, but it needs a faster and more inclusive growth to create enough jobs.” The members of the IMF Executive Board recommend to “intensify efforts to openness to trade, to ease restrictions on foreign direct investment and to create a business climate more favorable for exports.”

 They also emphasize “the importance of undertaking broader structural reforms to accelerate growth under the leadership of the private sector and further reduce unemployment, especially reforms to improve infrastructure, productivity and effectiveness public investment. “

 According to the IMF, economic activity has strengthened in 2014. Thus, the real GDP growth is projected to rise to 4.0% against 2.8% in 2013. The hydrocarbon sector is expected to grow for the first time in eight years and in other sectors, growth remained strong, the IMF insists that stresses inflation marked a sharp decline to $ 2.1% partly due to the tightening of monetary policy.

  The fiscal consolidation recommended

 The IMF also places emphasis on “the need for continuing fiscal consolidation, anchored on credible fiscal rules to address the growing budget deficit and ensure the sustainability of public finances.” He considers that it is possible to increase revenues excluding hydrocarbons, “broadening the tax base, strengthening tax administration and reducing tax exemptions.”

 On the expenditure side, should be intensified, according to the IMF, “efforts to contain current spending, including payroll, and gradually replace subsidies with targeted cash transfer device to protect the most vulnerable.” The institution “welcomes the authorities’ intention to move to a medium-term fiscal framework and to continue to strengthen the management of public finances” while putting in front “the benefits of the creation of a sovereign fund set of oil savings in order to support economic stabilization efforts and ensure intergenerational equity. “

 Given the risk of recurrence of inflationary pressures, the IMF “encourages monetary authorities to remain cautious and to be ready to absorb more liquidity and raise interest rates.” He supported an increase in treasury bills emissions to help reduce liquidity, reducing the need to resort to oil savings fund to finance the budget, while at the same time deepening the capital market. IMF directors also welcome “the planned development of new instruments of monetary policy, with the support of the IMF, to manage liquidity.”