The Algerian government has adopted a draft amendment to the law that is expected to secure new sources of financing to cover the budget deficit, including the central bank’s powers to directly finance the state budget.
The proposed amendments to the law on money and credit were adopted at a government meeting on Wednesday chaired by President Abdelaziz Bouteflika, with plans for the newly established government of Prime Minister Ahmed Ouyahia on the agenda.
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Algeria is a member of the Organization of the Petroleum Exporting Countries (OPEC) and has been under financial pressure since mid-2014 when oil prices began to fall, halving Algeria’s revenues from oil and gas sales, which account for 60 percent of Algeria’s budget revenues.
According to the proposed amendments to the law, the central bank will be granted powers to directly finance the state budget to cover the budget deficit and domestic public debt and to secure resources for the state investment fund, as stated in a statement from the presidential office released on Wednesday evening.
This form of “extraordinary financing” will be in effect for five years and will be accompanied by financial and economic structural reforms, the statement notes, which does not contain further details.
– Algeria will turn to this form of financing for a limited period after resisting the consequences of a severe financial crisis caused by a significant collapse in hydrocarbon prices for three years, the statement emphasizes.
President Bouteflika requested in June “unconventional forms of internal financing” to avoid borrowing abroad. Currently, Algeria’s external debt amounts to less than four billion dollars.
The government expects that the budget deficit expressed as a percentage of GDP will be eight percent this year, compared to last year’s 15 percent.
At the government meeting, a plan of measures was also approved to “improve the business environment and encourage investment in all sectors.”
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The amendments and plans must be approved by parliament, where the president’s supporters hold a decisive majority.
Algeria has reduced public spending by 14 percent this year, following a 6 percent reduction in 2016, and is struggling to reduce imports despite progressive restrictions initiated at the beginning of last year.
These moves coincided with an unsuccessful attempt at reforms and encouraging a greater number of economic sectors, alongside oil and gas, which generates 94 percent of export revenues.
