IMF Sees 3.8% Growth Ahead for Algeria but Warns of Fiscal and Reserve Strain

July 7, 2026
By Mintesinot Nigussie

Algeria’s economy is projected to maintain steady growth in the near term, even as the International Monetary Fund (IMF) warns that persistent fiscal pressures and external vulnerabilities could weigh on medium-term stability.

An IMF mission led by Charalambos Tsangarides concluded its Article IV consultation in Algiers after discussions held between June 16 and June 30, 2026, assessing recent macroeconomic trends and policy developments.

In its assessment, the Fund said economic activity expanded by an estimated 3.9 percent in 2025, supported largely by investment momentum, while performance in the hydrocarbon sector remained subdued. The outlook, however, points to growth of 3.8 percent in 2026, underpinned by expectations of stronger hydrocarbon prices, which are likely to support export earnings and government revenues.

Inflation pressures emerged during the review period, with headline inflation rising in September 2025, driven by higher jewellery prices and moderate increases in food costs.

On the fiscal side, the deficit narrowed to 10.5 percent of gross domestic product in 2025, helped by one-off dividend transfers from state-owned enterprises and the Bank of Algeria, as well as improved non-hydrocarbon revenue collection. Despite the narrowing, the IMF noted that the gap remains large, while public debt increased to 52.1 percent of gross domestic product, reflecting ongoing financing needs.

External accounts came under additional strain as imports rose sharply, supported by public investment activity, while hydrocarbon exports declined. The resulting pressure contributed to a significant deterioration in the current account balance and a fall in international reserves. The IMF also noted that the parallel exchange rate premium remained elevated despite measures taken by the authorities.

Monetary conditions were eased during the period, alongside increased reliance on central bank financing of the government. The IMF cautioned that continued monetary financing could weaken price stability and undermine policy credibility.

While the near-term outlook is described as broadly positive, the Fund said risks remain tilted toward hydrocarbon price volatility, large fiscal deficits and the interconnected balance sheets of the state, state-owned enterprises and public banks. Medium-term projections point to slower growth, with continued deficits likely to keep debt elevated and reserves under pressure unless reforms are implemented.

The IMF urged a policy shift toward fiscal consolidation anchored in stronger non-hydrocarbon revenues, broader tax collection and reduced exemptions. It also recommended reforms to subsidies and transfers, alongside improved public financial management to enhance spending efficiency.

On monetary policy, the mission called for strengthening central bank independence, avoiding monetary financing, and improving liquidity management to ensure closer alignment between policy and market rates. It further highlighted the need for greater exchange rate flexibility and deeper foreign exchange market reforms.

Structural reforms were identified as essential to sustaining private-sector-led growth, including improvements to the business environment, reduction of regulatory barriers and efforts to diversify beyond hydrocarbons. The IMF also pointed to ongoing progress in non-energy sectors and welcomed steps such as sovereign Sukuk issuance and engagement with development financing.

The mission noted Algeria’s removal from the AML/CFT grey list as a positive development reflecting reform progress, and expressed appreciation to the authorities for their cooperation during the consultation process.

Source: FSX Business News