Al­ge­ria needs re­forms to sup­port eco­nomic ac­tiv­ity: IMF

The Pak Banker - - COMPANIES/BOSS -

An In­ter­na­tional Mon­e­tary Fund (IMF) staff team led by Jean-François Dauphin vis­ited Al­giers from March 1 to 14 to hold dis­cus­sions for the 2016 Ar­ti­cle IV con­sul­ta­tion. Dis­cus­sions fo­cused on the im­pact of the de­cline in oil prices on Al­ge­ria's econ­omy and the poli­cies needed to ad­just to the shock.

At the con­clu­sion of the mis­sion, Mr. Dauphin said Al­ge­ria faces im­por­tant chal­lenges, with the large de­cline in oil prices ex­pected to be sus­tained over the medium term. In re­sponse, the au­thor­i­ties have be­gun to un­der­take fis­cal con­sol­i­da­tion and im­ple­ment se­lected re­forms. Th­ese ef­forts need to be in­ten­si­fied: sus­tained fis­cal ad­just­ment and wide rang­ing struc­tural re­forms are needed to re­spond to the oil price shock and ad­dress long stand­ing vul­ner­a­bil­i­ties. The fis­cal and ex­ter­nal buf­fers ac­cu­mu­lated in the past pro­vide a win­dow of op­por­tu­nity to im­ple­ment those re­forms grad­u­ally and smooth the ad­just­ment. This op­por­tu­nity to re­shape Al­ge­ria's growth model should be seized now, be­fore a more rapid ad­just­ment be­comes un­avoid­able.

The im­pact of the oil price shock on growth has been lim­ited thus far, but the fis­cal and ex­ter­nal bal­ances have de­te­ri­o­rated sig­nif­i­cantly. Real GDP grew by an es­ti­mated 3.7 per­cent in 2015, with the non hy­dro­car­bon sec­tor grow­ing by a ro­bust 5 per­cent, and in­fla­tion in­creased to 4.8 per­cent. The fis­cal deficit nearly dou­bled to 16 per­cent of GDP in 2015 as a re­sult of much lower hy­dro­car­bon rev­enues, and the fall in hy­dro­car­bon ex­ports by nearly half in 2015 caused the cur­rent ac­count deficit to widen sharply. Re­serves, while still sub­stan­tial, de­clined by $35 bil­lion in 2015 to $143 bil­lion, down from a peak of $194 bil­lion in 2013. Ex­ter­nal debt re­mains very low. How­ever, growth and in­fla­tion are ex­pected to slow in 2016 un­der the ef­fects of fis­cal con­sol­i­da­tion on non-hy­dro­car­bon ac­tiv­ity.

The mis­sion wel­comed the 2016 bud­get as a de­ci­sive step in the path of fis­cal con­sol­i­da­tion, bet­ter ra­tio­nal­iza­tion of spend­ing, and sub­sidy re­form. Al­ge­ria will need to sus­tain con­sol­i­da­tion over the medium term to re­store fis­cal sus­tain­abil­ity and en­sure in­ter­gen­er­a­tional equity. This will re­quire con­trol­ling cur­rent spend­ing, mo­bi­liz­ing more non­hy­dro­car­bon rev­enues, pur­su­ing fur­ther sub­sidy re­form while pro­tect- ing the poor, in­creas­ing the ef­fi­ciency of in­vest­ment, and strength­en­ing the bud­get frame­work. Rapidly de­clin­ing fis­cal sav­ings mean that Al­ge­ria will need to rely more on bor­row­ing to fi­nance fu­ture deficits. Open­ing the cap­i­tal of some state-owned en­ter­prises, in a trans­par­ent way, would also help meet fi­nanc­ing needs while im­prov­ing their gov­er­nance.

Wide-rang­ing struc­tural re­forms are needed to help sup­port eco­nomic ac­tiv­ity dur­ing fis­cal con­sol­i­da­tion and to di­ver­sify the econ­omy to achieve high and in­clu­sive growth over the medium term. Key re­forms in­clude im­prov­ing the busi­ness cli­mate, open­ing up the econ­omy to more trade and in­vest­ment, im­prov­ing ac­cess to fi­nance and de­vel­op­ing cap­i­tal mar­kets, and strength­en­ing gov­er­nance, com­pe­ti­tion and trans­parency. In­creas­ing the flex­i­bil­ity of la­bor mar­kets while bet­ter match­ing the skills pro­duced by the ed­u­ca­tional sys­tem to those needed by the pri­vate sec­tor is also needed. The mis­sion noted that im­port re­stric­tions, while per­haps pro­vid­ing a tem­po­rary re­lief, in­tro­duce dis­tor­tions and can­not sub­sti­tute for re­forms aimed at boost­ing ex­port.

"Ex­change rate, mon­e­tary, and fi­nan­cial poli­cies should sup­port th­ese ef­forts. Fur­ther ef­forts to bring the di­nar in line with fun­da­men­tals, in­clud­ing through fis­cal con­sol­i­da­tion and struc­tural re­forms, would help re­store ex­ter­nal bal­ances. As the de­cline in oil prices con­trib­utes to dry­ing up ex­cess liq­uid­ity in the bank­ing sys­tem, the Bank of Al­ge­ria is ap­pro­pri­ately rein­tro­duc­ing its re­fi­nanc­ing in­stru­ments. Go­ing for­ward, it should care­fully cal­i­brate mon­e­tary pol­icy to guard against po­ten­tial in­fla­tion­ary pres­sures. The bank­ing sec­tor as a whole is well cap­i­tal­ized and prof­itable, but pro­tracted low oil prices in­crease risks. The Bank of Al­ge­ria should con­tinue to tran­si­tion to a risk-based su­per­vi­sory frame­work, en­hance the role of macro­pru­den­tial pol­icy, and strengthen the gov­er­nance of pub­lic banks.

"The team met with Fi­nance Min­is­ter Ab­der­rah­mane Benkhalfa; In­dus­try and Mines Min­is­ter Ab­dessalem Bou­chouareb; Trade Min­is­ter Bakhti Be­laib; Agri­cul­ture and Ru­ral De­vel­op­ment Min­is­ter Sid Ahmed Fer­roukhi; La­bor, Em­ploy­ment, and So­cial Se­cu­rity Min­is­ter Mo­hamed El Ghazi; Min­is­ter Del­e­gate of the Bud­get Hadji Baba Ammi; and the Gov­er­nor of the Bank of Al­ge­ria, Mo­hammed Lak­saci.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.