Event

This month, parliamentary elections were held in Algeria. The National Liberation Front, headed by the current president Abeldaziz Bouteflika, won 164 seats and its coalition partner, the National Rally for Democracy (RND) won 97 seats out of a total of 410 seats. The two parties combined therefore have a strong majority to continue governing. This election comes at a time when the economy is facing severe challenges. Algeria has been hit hard by the oil price collapse, given that oil and gas represent 95% of its exports. The government will therefore have to adopt a number of measures in order to implement fiscal consolidation. This, therefore, became the main topic of the election.

Impact on country risk

Currently, the Algerian government is faced with a large fiscal and current-account deficit. In 2016 the general government deficit was 11.6% of GDP, the current-account deficit 16.4% of GDP. In order to fund this, the authorities have relied heavily on their foreign exchange reserves and on the national oil fund. Foreign exchange reserves fell by USD 80 billion over the period 2013-16 and the government has almost depleted the national oil fund, which contained around USD 70 billion in 2013. Nevertheless, the Algerian foreign exchange reserves are still very large and sufficient to cover 21 months of imports. While already implementing limited fiscal consolidation in 2016, the government has been postponing large spending cuts and tax rises to avoid triggering social unrest. Current policies are, however, no longer sustainable and structural reforms will have to be implemented. For 2017 the government proposed an ambitious budget that would bring the fiscal deficit to only 2.2% of GDP. Furthermore, they have proposed a number of reforms in order to make the country more attractive to foreign companies. By winning the latest elections, the government will be able to further push through these reforms. Nevertheless, it will have to be seen whether the government will be able to reach its fiscal target and truly improve the very difficult business environment at present in Algeria.

Analyst: Jan-Pieter Laleman, jp.laleman@credendo.com