The economic recovery continues despite the decline in oil and gas export prices, the World Bank’s latest Algeria Economic Update reports.
ALGIERS, October 26, 2023 — According to the World Bank's latest Algeria Economic Update, Algeria's economy has reached its pre-pandemic level in 2022, the recovery extending to the first half of 2023. Algeria's growth is expected to retrieve its pre-pandemic trajectory by 2024, notably supported by the hydrocarbon and agricultural sectors.
Higher investment, including in large industrial projects, assisted economic activity in the first quarter of 2023, and it is expected to keep supporting growth between 2023 and 2025. Sustained efforts to enhance Algeria’s business environment and attract private-sector investment will be key to maintaining this trend.
Kamel Braham, the World Bank's Resident Representative to Algeria, commented, "Algeria has the potential to diversify its economy, reduce its dependence on imports, and increase non-hydrocarbon exports while sustainably creating private sector jobs. Although it is too early to attribute it to recent reforms, the sustained economic performance is encouraging, and efforts to stimulate private sector investment should be strengthened."
Inflation remained high, reaching 9.7% in the first half of 2023, but domestically produced goods, like fresh food, and services now represent a more significant contribution to inflation than imported goods. Inflation is expected to progressively moderate in 2024 and 2025, assuming prudent monetary and fiscal policies and a recovery in rainfall, allowing for solid agricultural production.
Tracking the decline in oil and gas prices since mid-2022, Algeria’s export revenues declined markedly during the first half of 2023, but the trade balance remained positive, and foreign exchange reserve accumulation continued. Lower hydrocarbon revenues and rising government spending, notably on civil service wages, are expected to be cushioned by the announced large dividends from Sonatrach. The budget deficit is nonetheless expected to expand albeit it will be partly financed by savings from oil revenues accumulated since 2021.
The economic outlook for 2024 and 2025 remains dependent on volatile global oil prices and uncertain weather conditions, underscoring the importance of advancing economic diversification to strengthen Algeria's economic resilience. Between 2018 and 2022, non-hydrocarbon sectors accounted for 78% of GDP, but hydrocarbons represented over 92% of product exports and 43% of budget revenues.
Cyril Desponts, the World Bank's Senior Country Economist for Algeria, remarked, "The good performance of the hydrocarbon sector and positive investment dynamics are expected to be sustained. Algeria has built short-term macroeconomic buffers by accumulating foreign exchange reserves and budget savings. However, global uncertainty is on the rise, and the sensitivity of external and fiscal balances to global oil prices remains, emphasizing the need to strengthen resilience against future commodity shocks."
