Algeria’s Economic Landscape: Growth, Challenges, and Climate Initiatives

Recent Macroeconomic Trends

In 2022, Algeria experienced a commendable growth in its real GDP, reaching 3.0%, buoyed by the resurgence of oil prices. The monetary authorities implemented a refinancing plan to inject new loans into both the government and the broader economy. However, inflation witnessed an uptick, reaching 9.3% in 2022, largely influenced by global inflationary pressures. The budget deficit significantly narrowed from 6.9% of GDP in 2021 to a mere 0.2% in 2022, as budgetary revenues, especially those linked to the oil sector, registered an increase. A noteworthy turnaround was observed in the current account, shifting from a 2.8% deficit in 2021 to a surplus of 7.8% of GDP in 2022, attributed to higher volumes and values of oil exports and strategic import compression measures.

Foreign exchange reserves saw a remarkable increase, covering 18 months of imports in 2022 compared to 11.1 months in the previous year. Public debt, predominantly domestic, decreased to 52.4% of GDP from 62.1% in 2021, propelled by a smaller budget deficit and nominal GDP growth. The financial system witnessed modernization, with an expanded network of insurance companies and notable progress in financial inclusion, particularly with the introduction of Islamic finance products.

Algeria’s Human Development Index rank improved to 91st among 191 countries, reflecting positive strides. Despite a persistently high unemployment rate (14.9% in 2022), the multidimensional poverty rate dropped to 1.4% in 2019 from 2.1% in 2013. In an effort to address unemployment, the government introduced an unemployment benefit of 15,000 Algerian dinars (approximately $110) a month in 2021.

Outlook and Risks

Looking ahead, real GDP growth is forecasted to reach 3.1% in 2023 but is expected to decline to 2.1% in 2024. While crude oil prices are anticipated to remain high, potential production expansion may be restricted in the short term, posing a challenge to sustained growth. The lack of a clear economic diversification policy and constraints on natural gas production expansion may contribute to this decline. Inflation is projected to decrease to 7.7% in 2023 and 6.7% in 2024, but global grain supply limitations could exert pressure on food prices.

Monetary policy is likely to remain expansionist due to budgetary financing, with the deficit widening to 4.6% of GDP in 2023 and 5.0% in 2024. Social spending pressures and lower tax revenue contribute to this projection. The external current account is expected to maintain a surplus, reaching 3.0% of GDP in 2023 and 2.4% in 2024, albeit below the 2022 surplus. The economy’s heavy reliance on the oil sector remains a risk for the medium-term outlook.

Climate Change and Policy Initiatives

Algeria faces significant challenges in responding to climate change, requiring an estimated $22 billion over 2020–30, with an annual requirement of $2.3 billion. However, private finance participation in the energy transition and green growth is limited due to obstacles such as difficult access to long-term resources and an unfavorable business climate for attracting foreign direct investment. The National Climate Plan is actively addressing these challenges, introducing initiatives like the National Fund for Energy Management and Renewable Energies and Cogeneration. These endeavors aim to encourage private investment through compensation schemes, considering the additional costs associated with generating electricity from renewable sources.

Despite being endowed with abundant natural capital, including renewable energy sources (solar, wind, geothermal), fossil energy (oil and gas), and mineral resources (iron, helium, uranium), Algeria faces potential challenges such as freshwater scarcity, the threat of drought, and the eventual depletion of fossil energy resources. The 2021 Natural Capital Index scored Algeria at 37.1 out of 100.

In conclusion, Algeria stands as one of the fastest-growing economies in North Africa, navigating a landscape of opportunities and challenges, with ongoing efforts to address climate change and diversify its economic base. The nation’s resilience and proactive policy measures will play a crucial role in shaping its economic trajectory in the coming years.


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