Algeria to implement 1.5 percent spending cut in 2019

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Reuters report that despite a recovery in oil prices, Algeria plans to cut spending by 1.5 percent in 2019 after a rise in 2018. The government is seeking to rebalance its finances.

A document that is part of the draft budget for next year reveals that the government expects a budget deficit of 9.2 percent of gross domestic product in 2019, up from the 9 percent forecast for 2018. A sharp fall in global crude oil prices after 2014, hit the state finances and forced the government to cut spending by 14 percent in 2017, after a 9 percent reduction in 2016.

Algeria however increased expenditure by 25 percent this year, in the hopes of launching delayed projects in sectors such as health, education and water resources. To allow the central bank lend directly to the treasury to fund deficits and internal public debt, the government started implementing amendments to the Money and Credit Law in 2018.

The country is also benefiting from a recovery of oil prices. Overall energy earnings reached $22.021 billion in the first seven months of 2018, a figure which is a 15.23 percent rise from a year earlier. But Algeria notes that it remains under pressure.

The document points out that the 2019 budget is to “ensure budget sustainability and reduce pressure on the state treasury”.

The government uses a large part of energy earnings, which accounts for 60 percent of the budget and 94 percent of exports, to pay for imports of goods due to poor domestic production. This is despite various attempts to diversity the economy away from oil and gas.

The goods imports bill will reach $44 billion in 2019, higher than the $43.5 billion forecast for 2018. To resolve this issue, Algeria will start increasing custom duties on finished goods in 2018. The government seeks to address a failed attempt to reduce the value of purchases by imposing a ban on imports of around 850 products since early 2018.

 

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