The executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria on February 24, 2003. The report concluded that after restoring—under particularly difficult circumstances—macroeconomic stability with IMF support, Algeria adopted a conservative macroeconomic policy stance in 1999-2000.
This prudent fiscal stance, coupled with high oil revenues, was reflected in a major strengthening of the balance of payments position, an improvement in the external debt indicators, and a marked decline in the inflation rate.
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies.
On return to headquarters, the staff prepares a report, which forms the basis for discussion by the executive board. At the conclusion of the discussion, the managing director, as chairman of the board, summarizes the views of executive directors, and this summary is transmitted to the country's authorities.
Faced with mounting social demands—and in the context of large treasury deposits accumulated at the central bank—the government decided to ease fiscal policy starting in 2001 until private activity generates sufficient employment opportunities. It adopted a fiscal stimulus plan covering the 2001-2004 period.
As a result, the overall budget balance weakened in 2001 and the first half of 2002. This deterioration mainly reflected higher spending and a decline in hydrocarbon revenues due to a reduction in volumes and prices. The overall balance dropped from a surplus of 9.8 percent of Gross Domestic Product (GDP) in 2000 to a surplus of 3.4 percent of GDP in 2001 and to a small deficit in the first half of 2002.
The balance of payments remained in surplus in 2001 and during the first half of 2002, notwithstanding a drop of four percent of GDP in the current account in 2001. In the first half of 2002, the current account surplus decreased further as hydrocarbon exports continued to decline and imports increased.
The capital account deficit narrowed in 2001 and the first half of 2002, mainly as a result of increased net direct investments—which were boosted in part by the sale of a second cellular telephone license in 2001—higher drawings, and lower amortization. Gross official reserves surged from $11.9 billion (12 months of imports) at end-2000 to $21.1 billion at end-June 2002.
Executive Directors commended the authorities for preserving the macroeconomic stability achieved in recent years, and for making progress in a number of structural reform areas, in particular in trade liberalization. Aided by higher oil prices, these policies have contributed to a marked strengthening of the balance of payments, an increase in official reserves, and a sharp decline in inflation.
Directors agreed that its favorable macroeconomic position provides Algeria with a timely opportunity to address its main challenges of raising economic growth, reducing unemployment, and improving living standards on a sustained basis. Building on the progress made to date, this will require a redoubling of structural reform efforts, along with the continued pursuit of sound macroeconomic policies.
At the same time, however, Directors stressed that fiscal stimulus will boost growth only temporarily, and cannot substitute for the more fundamental reforms that are needed to achieve a lasting improvement in growth and employment creation. They also cautioned that an expansionary fiscal policy could ratchet up expenditures that might be difficult to reverse and thus increase the budget's vulnerability to adverse developments in the oil markets. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
