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| 19 September, 2018

Algeria plans 1.5% spending cut next year -government document

The government expects a budget deficit of 9.2% of gross domestic product in 2019

People enjoy the beach in Bab El-Oued, district of Algiers, Algeria, July 27, 2018. Image for illustrative purposes.

People enjoy the beach in Bab El-Oued, district of Algiers, Algeria, July 27, 2018. Image for illustrative purposes.

REUTERS/Zohra Bensemra

ALGIERS- Algeria plans to cut spending by 1.5 percent in 2019 after a rise this year, despite a recovery in oil prices, as it seeks to rebalance its finances, according to a government document seen by Reuters.

The government expects a budget deficit of 9.2 percent of gross domestic product in 2019, up from the 9 percent forecast for 2018, said the document that is part of the draft budget for next year.

A sharp fall in global crude oil prices after mid-2014 hit state finances and forced the government to cut spending by 14 percent last year after a 9 percent reduction in 2016.

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But the OPEC member increased expenditure by 25 percent this year with the aim of launching delayed projects in sectors such as health, education and water resources.

The government also started implementing amendments to the Money and Credit Law this year that allows the central bank to lend directly to the treasury to fund budget deficits and internal public debt.

Algeria is benefiting from a recovery in oil prices, with overall energy earnings reaching $22.021 billion in the first seven months of 2018, a 15.23 percent rise from a year earlier.

But the government said it remains under financial pressure.

The 2019 budget is to "ensure budget sustainability and ... reduce pressure on the state treasury," said the document.

Energy revenue accounts for 60 percent of the budget and 94 percent of exports.

The government uses a large part of energy earnings to pay for imports of goods due to poor domestic production, despite various attempts to diversify the economy away from oil and gas.

The goods imports bill is expected to reach $44 billion in 2019, according to the document, higher than the $43.5 billion forecast for this year.

The government is due to start implementing increases in customs duties on finished goods this year after a failed attempt to reduce the value of purchases by imposing a ban on imports of around 850 products since early this year.

(Reporting by Hamid Ould Ahmed Editing by) ((hamid.ouldahmed@thomsonreuters.com;))