Algeria: Exceptional Measures to Cover Budget Deficit

Algeria’s government has approved draft amendments to a law aimed at securing new funding sources to cover budget deficits as it struggles to cope with a sharp fall in energy earnings.

Amendments to the Money and Credit Law were endorsed at a cabinet meeting on Wednesday, chaired by President Abdelaziz Bouteflika, and plans for the newly appointed government of Prime Minister Ahmed Ouyahia were discussed.

The OPEC member country has been facing financial pressure since crude oil prices started falling in mid-2014, halving its oil and gas revenue, which accounts for 60 percent of state budget.

The amendment will “authorize the central bank to lend directly to the public treasury so as to finance budget deficits and internal public debt and provide resources to the National Investment Fund,” the presidency said in a statement late on Wednesday.

This type of “exceptional funding” will be implemented for five years and “accompanied with financial and economic structural reforms,” it said, without elaborating.

“Algeria will temporarily turn to this funding after resisting for three years the effects of a severe financial crisis caused by a serious collapse in hydrocarbons prices,” the statement added.

Bouteflika in June called for “internal unconventional funding” to avoid turning to foreign debt, estimated now at less than $4 billion. Algeria expects its budget deficit at 8 percent for 2017 down from 15 percent in 2016.

The cabinet meeting also approved government action plan, which aimed at “improving business environment and boosting investment in all sectors”. The amendments and government plans will still need final approval by parliament, where Bouteflika’s backers have an overwhelming majority.

Algeria has cut public spending by 14 percent for this year after a 9 percent reduction in 2016, and is struggling to reduce its imports bill despite increasing restrictions since early 2016.

That coincides with failures to implement reforms and diversify the economy away from oil and gas, which account for 94 percent of export revenue.

 

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