Algeria has adopted a 2002 budget with projected total expenditure of AD1,559.84bn ($20.21bn), estimated revenues of AD1,457.75bn ($18.88bn) and a deficit of AD102.09bn ($1.322bn), according to figures published in the Official Gazette (see Table below). While this nominally represents a huge increase on last year’s AD17.41bn ($226mn) deficit, closed accounts for 2001 are not available and neither a figure nor details for the 2002 deficit were provided in the gazette. The budget, which was signed into law by President Abdelaziz Bouteflika on 22 December 2001, forecasts a climb in hydrocarbons revenue of 25.2% to AD916.4bn, ($11.87bn) from AD732.0bn ($9.48bn) in 2001, with this year’s oil revenues estimated to make up 62.9% of total revenues, up from 59.3% last year. The 2002 budget is based on an oil and gas price assumption of $22/B, which is unchanged from 2001 (following an upward revision earlier in the year), in contrast to the downward revision of assumptions by many other Middle Eastern oil producers (MEES, 21 January).

Thus, the key variable in the Algerian budget is hydrocarbon revenue, which fluctuates in step with world oil prices – according to Ali Aissaoui, senior research fellow at the Oxford Institute for Energy Studies, every $1 shift in the oil price changes Algeria’s account balance by about AD35bn ($453mn). While the government prepared the budget on a base price of $19/B in 2000 and $22/B in 2001, the actual average price was $28.75/B in 2000 and $24.80/B in 2001. The difference between budgeted resources and realized resources in 2000 was AD350bn ($4.5bn) and AD150bn ($1.94bn) in 2001, which was put into a “fund for regulating receipts,” used in part to amortize public debt and in part for the 2001-04 economic recovery plan launched in spring 2001, notes Mr Aissaoui. Algeria’s trade surplus sank to AD795bn $10.3bn in 2001, compared to AD1,026bn ($13.3bn) in 2000, primarily as a result of the decline in crude oil prices. Generally the government revises its budget in mid-year in a ‘Loi de Finance Complementaire’ (supplementary budget). It did so in June 2001 when the government announced that it had revised its underlying oil price assumption from $19/B to $22/B for Saharan Blend. This revision coincided with the announcement by Mr Abdelatif Benachenou (the former minister of finance) of a 3-year recovery plan involving credits totaling AD525bn ($6.8bn).

In the 2002 budget, total revenues are forecast to climb 18.1% on the 2001 level of AD1,234.38n ($15.9bn). Fiscal revenue (including direct taxes, stamp duties, fees for business transactions, indirect taxes and customs duties) will continue to be the second largest earner for the government at AD438.85bn ($5.68bn). Total expenditure for 2002 is forecast to jump by 24.6% from 2001, indicating a more expansionary budget than in 2001, when spending dropped by 0.3% from 2000 levels. Capital expenditure, at AD509.68bn ($6.6bn), is seen climbing 22.7% from AD415.5bn ($5.38bn) in 2001, but is forecast to make up 32.7% of total expenditure in 2002, down slightly from its 33.2% share in 2001. This year’s increase in capital expenditure, while significant, is not as great as the 43.2% increase seen in 2001. Ministerial expenses will climb 25.6% to AD1,050.2bn ($13.6bn) in 2002 from the AD836.29bn ($10.8bn) seen in 2001, with the largest share going to defense (AD167.4bn – $2.2bn) and education (AD158.0bn – $2.0bn). The biggest increases in spending are for higher education and research, up 34.8% to AD58.74bn ($761mn), and for health services, up 28.2% to AD49.12bn ($636mn). The Algerian Central Bank’s hard currency reserves had climbed to $17.8bn at the end of 2001, compared to around $11.7bn the previous year. Over the same period foreign debt shrank to $22bn from $25.5bn, the Bank of Algeria said on 10 February.

In contrast to the booming hydrocarbon sector, which generates 97% of foreign earnings, the domestic economy has been stagnating amid a lack of both private and public sector investment. Unemployment is officially put at 30%, although according to the Economic Intelligence Unit, the figure could be as high as 50% for the under-30 age group. “Unemployment is a huge problem in Algeria and the government is aware that it is at the heart of the social troubles,” said Mr Aissaoui. While the hydrocarbon sector has been growing over the last few years, other industries need to expand in order to provide employment, he notes, pointing out that while the hydrocarbon sector accounts for about 30% of the country’s GDP, it provides only 2% of its employment. “The key engine for growth in employment is the non-oil economy,” he says. Algeria’s GDP was $48.3bn (AD3,728bn) in 2000, the latest year for which figures are available.

Algerian Budget   

AD (000s)

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Source: Algeria’s Official Gazette , No. 79, 23 December 2001.

Economists are hoping that Algeria’s trade agreement with the EU, signed on 19 December, and its bid to join the World Trade Organization (WTO) will reduce the country’s dependence on oil export earnings and act as a catalyst for overall political and economic reform, which is still proceeding at a slow pace. The government expects the accord to boost Algeria’s industrial sector, attract more foreign investment and open up the local market to increased competition. Following criticism that its privatization process was lagging last year, the Algerian Government said on 19 February that it planned to privatize 100 state-owned companies either partially or totally. However, Algeria remains vulnerable to political strife, and continuing clashes between insurgents and government forces may discourage investors.

As well as attempting to develop non-oil industries, Algeria has been striving to liberalize its energy sector. The new Algerian electricity and gas law (ratified by parliament on 21 January) makes broad changes in the country’s economic structure and aims at ending the state monopoly in the energy sector and attracting private investment (MEES, 24/31 December, 2001). The draft hydrocarbon bill, which will be debated by parliament before the May 30 parliamentary elections, could help push through reform that may eventually lead to the privatization of state-owned Sonatrach. However, the government is unlikely to cede its majority shareholding in Sonatrach until the proposed licensing and regulatory bodies are strong enough to take over the roles previously played by the company, noted Mr Aissaoui (MEES, 3 December 2001).

© Copyright MEES 2004.