Algeria’s Finances: 2015 Likely to be a Tough Year

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Over the past years Algeria has enjoyed a steady stream of strong revenues. Oil money has been used partly to stimulate national savings, to pay for general economic development and to cover subsidies. Another critical contribution of oil money was Algeria’s ability to spend on military hardware needed to upgrade national defensive and offensive capabilities and wage its war against Islamist insurgents. But as we enter 2015 all of these gains are at risk, and both the countries defenses and social ills could be further exacerbated by a substantial drop in export revenues.

Within Algeria, there has been widespread recognition of the upcoming risks. Among the most vocal voices is that of Governor of the Central Bank, Mohamed Laksaci who recently listed a litany of problems Algeria is likely to confront soon. Laksaci did not hesitate to speak of a pending “choc” for 2015. Among the metrics to watch is the nation’s economic growth rate, which he expects will drop as a result. With the price of oil being at the basis of State budget calculations, the country is expected to see its budget deficit deteriorate. In the meanwhile, Algeria’s appetite for imported goods continues to increase. For the first nine months of 2014, Algeria imported nearly $45 billion of good. This year, major austerity measures will have to be enacted by Algeria to contain its financial woes, including cutting back on foreign purchases.

But 2015 is not the first of Algeria’s financial problems. Last year, its foreign currency stock fell by $10 billion in a matter of four months only. In September, Algeria’s coffers held $185.2 billion, a decent number but on the decrease. From January to September 2014, the Algerian government was forced to increasing its withdrawals from the so-called Revenues Regulation Fund (Fonds de Régulation des Recettes or FRR), a fund created to direct excess oil revenues for future use in case of crisis. January to September 2014 withdrawals to compensate for losses exceeded $8.5 billion, compared to $800 million the year before.